Gray v. Quaker Fabric Corp. of Fall River

• Decision Date: 23 December 1992
• Docket Number: Civ. A. No. 91-12624-Y,92-10067-Y.
• Parties: James GRAY and John Simas, Plaintiffs, v. QUAKER FABRIC CORPORATION OF FALL RIVER, QFC Acquisition Corp., Defendants.
• Court: U.S. District Court — District of Massachusetts

809 F. Supp. 163

James GRAY and John Simas, Plaintiffs, v. QUAKER FABRIC CORPORATION OF FALL RIVER, QFC Acquisition Corp., Defendants.

Civ. A. Nos. 91-12624-Y, 92-10067-Y.

United States District Court, D. Massachusetts.

December 23, 1992.

Orlando F. Abreu, Fall River, MA, for John Simas, plaintiff.

Orlando F. de Abreu, Taunton, MA, for James N. Gray, plaintiff.

Neil Jacobs, Ann K. Bernhardt, Daniel W. McCarthy, Hale & Dorr, Boston, MA, for defendants.

MEMORANDUM¹

YOUNG, District Judge.

In 1974 Congress enacted the Employee Retirement Income Security Act ("ERISA"), 88 Stat. 829, as amended, 29 U.S.C. § 1001 et seq., implementing a national policy to safeguard employees' retirement benefits. In 1989, the Massachusetts legislature enacted Mass.Gen.L. ch. 149, § 183, Mass.Stat.1989, ch. 242 § 10, the so-called "tin parachute" law, expressing a commonwealth policy requiring a measure of protection for employees who lose their jobs following a corporate takeover. While these two policies intuitively appear not to conflict and are, indeed, complimentary, Congress has enacted such a sweeping preemption provision in ERISA as to fully occupy the field of employee benefit plans and exclude most state regulation in the area. The central issue in this case concerns whether the Massachusetts tin parachute law impermissibly encroaches on the federally controlled field of employee benefit plans.²

Here, James Gray ("Gray") and John Simas ("Simas"), former employees of Quaker Fabric Corporation of Fall River ("QFC Fall River"), brought suit in the Massachusetts Superior Court sitting in and for the County of Bristol against QFC Fall River and QFC Acquisition Corporation ("QFC Acquisition Corp") (collectively, "Quaker") for severance benefits allegedly due under Mass.Gen.L. ch. 149 § 183.³ Simas also alleged a claim for "wrongful discharge." Upon removal to this Court, Quaker contends that the severance claims of both Gray and Simas are pre-empted by ERISA, and that Simas failed to exhaust administrative remedies with regard to his wrongful discharge claim. Quaker, Gray, and Simas have submitted cross-motions for summary judgment.

I. FACTUAL BACKGROUND

QFC Fall River is a Massachusetts corporation that manufactures and distributes fabric products. QFC Acquisition Corp is a Delaware corporation which merged with QFC Fall River on September 20, 1989, when QFC Acquisition Corp purchased 95% of QFC Fall River's outstanding shares. As of September 1992, Quaker employed approximately 1350 employees in Massachusetts, California, Illinois, Mississippi, North Carolina, and Texas.

Gray was employed by QFC Fall River from 1978 until February 1, 1990, when he was terminated from his position as shift supervisor for improperly verifying his brother's time card. Simas was employed by QFC Fall River from 1971 until December 5, 1989, when he was terminated for allegedly leaving work early on December 4, 1989. Both Gray and Simas applied to the Department of Employment and Training of the Commonwealth of Massachusetts ("Department") for unemployment benefits and were ultimately determined to be eligible for such benefits. Specifically, the Department determined in separate proceedings that the discharges of Gray and Simas were "not solely attributable" to willful misconduct as defined by Mass. Gen.L. ch. 151A, § 25(e)(2).

Since December 1988, QFC Fall River has maintained a severance pay program for employees exempt from coverage of the Fair Labor Standards Act (the "Exempt Employees Salary Continuation Policy" or "Severance Pay Policy"). This package provides for one week of salary continuation for each year of service for eligible employees upon termination with an exception for employees terminated for cause or as a result of retirement, death or voluntary resignation. Gray was covered under this policy at the time of his termination, but Simas apparently was not.⁴

Neither Gray nor Simas has received any severance pay to date.

II. PROCEDURAL HISTORY

In September 1991, Gray filed a complaint in Massachusetts Superior Court alleging a right to severance pay equal to 24 weeks' wages under Mass.Gen.L. ch. 149, § 183(b), which entitles an employee terminated after or shortly before a "change in company control" to a lump-sum severance payment equal to twice the employee's weekly compensation multiplied by his total years of service. Simas filed a similar claim for 38 weeks' wages in December 1991, also adding a second count for "wrongful discharge." Quaker subsequently removed both cases to this Court on the grounds that the claims arose under ERISA, and this Court subsequently denied the plaintiffs' motions to remand.

Quaker, Gray, and Simas have submitted cross-motions for summary judgment. Quaker does not dispute the fact that a "change in control" occurred, but contends that the section 183 claims are pre-empted by ERISA. Quaker also contends that Simas failed to exhaust his administrative remedies with regard to his wrongful discharge claim.

III. ERISA PRE-EMPTION

Section 514(a) of ERISA provides that "the provisions of ERISA shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. § 1144(a). The words "relate to" have been construed expansively: a law "relates to" an employee benefit plan "`if it has a connection with or reference to such a plan,' ... `even if the law is not specifically designed to affect such plans, or the affect is only indirect,' and even if the law is `consistent with ERISA' substantive requirements.'" District of Columbia v. Greater Washington Bd. of Trade, ___ U.S. ___, ___, 113 S.Ct. 580, 583, 121 L.Ed.2d 513 (1992) (citations omitted). In addition, it is clear that "plans to pay employees severance benefits ... are employee welfare benefit plans within the meaning of ERISA," whether funded from an employer's general assets or from a special trust. Massachusetts v. Morash, 490 U.S. 107, 116, 109 S.Ct. 1668, 1673, 104 L.Ed.2d 98 (1989); Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 17, 107 S.Ct. 2211, 2220, 96 L.Ed.2d 1 (1987). Nevertheless, the Supreme Court has made clear that ERISA pre-empts only those state laws relating to "employee benefit plans," and does not pre-empt state laws relating only to "employee benefits." Fort Halifax, 482 U.S. at 7-8, 11-12, 107 S.Ct. at 2215-16, 2217-18 (emphasis in original). Thus, these severance pay claims are pre-empted only if Mass.Gen.L. ch. 149, § 183 establishes or requires an employer to maintain an employee welfare benefit plan within the meaning of ERISA. See id. at 6, 107 S.Ct. at 2214.

In Fort Halifax, the Supreme Court held that an employee benefit plan encompasses only those "benefits whose provision by nature requires an ongoing administrative program to meet the employer's obligations." 482 U.S. at 11, 107 S.Ct. at 2217. Accordingly, the Court found that a Maine statute, which required employers to provide a one-time, lump-sum payment to all employees in the event of a plant relocation or closure, was not pre-empted by ERISA:

the requirement of a one-time, lump-sum payment triggered by a single event requires no administrative scheme whatsoever to meet the employer's obligation. The employer assumes no responsibility to pay benefits on a regular basis, and thus faces no periodic demands on its assets that create a need for financial coordination and control. Rather, the employer's obligation is predicated on the occurrence of a single contingency that may never materialize. The employer may well never have to pay the severance benefits. To the extent that the obligation to do so arises, satisfaction of that duty involves only making a single set of payments to employees at the time the plant closes. To do little more than write a check hardly constitutes the operation of a benefit plan.

482 U.S. at 12, 107 S.Ct. at 2218. Similarly, following Fort Halifax, the Court of Appeals for the Fifth Circuit held that an arrangement offered by General Motors during a mass lay-off in 1983 whereby General Motors employees were given the option of a one-time, lump-sum payment in lieu of retaining any rehire or seniority privileges was not a "plan" under ERISA. Wells v. General Motors, Corp., 881 F.2d 166, 168 (5th Cir.1989), cert. denied, 495 U.S. 923, 110 S.Ct. 1959, 109 L.Ed.2d 321 (1990).

In the present case, under section 183 of the Massachusetts statute, any eligible employee terminated in the twelve months preceding a transfer of control⁵ is entitled to a severance payment equal to twice the employee's weekly compensation multiplied by his completed years of service. Such payment must be made within four pay periods following the change in control. Similarly, eligible employees terminated in the two years following a transfer of control are entitled to severance benefits within one pay period of their termination. An employee is considered eligible for benefits under the statute if he or she has worked for the employer for three or more years and if his or her termination was considered involuntary within the meaning of Mass.Gen.L. ch. 151A, § 25, the Massachusetts Unemployment Compensation Statute. Under section 25, an employee's termination is involuntary so long as his or her discharge was not "attributable solely to deliberate misconduct or willful disregard of the employing unit's interest." Mass.Gen.L. ch. 151A, § 25(e).

Like the statute in Fort Halifax, section 183 requires one-time, lump sum payments triggered by a contingent event. But section 183 also requires not only that an employer be prepared to monitor terminations over a period of approximately three years and payments over a period of approximately two years, but also that the employer establish and maintain procedures for determining which employees are eligible for payment.

In cases applying Fort Halifax to severance pay statutes and programs, the characterization of these payments as a "plan" or merely "...