Massachusetts v. Morash

Citation109 S.Ct. 1668,104 L.Ed.2d 98,490 U.S. 107
Decision Date18 April 1989
Docket NumberNo. 88-32,88-32
PartiesMASSACHUSETTS, Petitioner v. Richard N. MORASH
CourtUnited States Supreme Court
Syllabus

Petitioner Commonwealth issued criminal complaints charging that, in failing to compensate two discharged bank vice presidents for vacation time they accrued but did not use, respondent bank president had violated a Massachusetts statute making it unlawful for an employer not to pay a discharged employee his full wages, including vacation payments, on the date of his discharge. Respondent moved to dismiss on the ground that the bank's vacation policy constituted an "employee welfare benefit plan" under § 3(1) of the Employee Retirement Income Security Act of 1974 (ERISA), and that the prosecution therefore ran afoul of § 514(a) of ERISA, which pre-empts "any and all State laws insofar as they . . . relate to any employee benefit plan." The trial court reported the preemption question to the Massachusetts Appeals Court for decision. For the purpose of answering the reported question, the parties stipulated that the bank had agreed to pay employees in lieu of unused vacation time, and that such payments were made out of general assets in lump sums upon employment termination. The Supreme Judicial Court of Massachusetts transferred the case to its docket on its own initiative and held that the bank's policy constituted an "employee welfare benefit plan" and that the prosecution was therefore pre-empted.

Held: A policy of paying discharged employees for their unused vacation time does not constitute an "employee welfare benefit plan" within the meaning of § 3(1) of ERISA, and a criminal action to enforce that policy is therefore not foreclosed by § 514(a). Pp. 112-121.

(a) Although § 3(1) defines an "employee welfare benefit plan" as "any plan . . . maintained for the purpose of providing . . . vacation benefits," the reference to such benefits—when viewed in the context of the many other, related types of welfare benefits listed in the section and in light of ERISA's primary purposes of preventing the mismanagement of accumulated plan funds and the failure to pay benefits from such funds—must be understood not to relate to ordinary vacation payments, which typically are fixed, due at known times, not dependent on contingencies outside the employee's control, and payable from the employer's general assets; rather, it encompasses only those vacation benefit funds which accumulate over a period of time and in which either the employee's right to a benefit is contingent upon some future occurrence or the employee bears a risk different from his ordinary employment risk. The regulations of the Secretary of Labor, which are entitled to deference as the reasonable interpretations of the official specifically authorized to define ERISA's terms, adopt this understanding of the statute by providing that numerous "payroll practices" are not "employee welfare benefit plans," including the payment of (1) vacation benefits out of an employer's general assets rather than from a trust fund and (2) premium rates for work during special periods such as holidays and w ekends, which position the Secretary has consistently followed even when the premium pay is accumulated and carried over to later years. Pp. 112-119.

(b) There is no merit to respondent's argument that the bank's policy did not constitute an exempted "payroll practice" under the Secretary's regulations because employees were allowed at their option to accumulate vacation time and defer payment for such time until termination. Although neither regulation explicitly covers this precise practice, the reasons for treating premium and vacation payments as payroll practices are equally applicable here, and the vacation benefit cannot be transformed into an "employee welfare benefit plan" solely because the employees did not use their vacation days prior to their formal termination. Moreover, except for the fact of deferral, the payments in question are as much a part of regular basic compensation as overtime pay or salary payments made while the employee is on vacation; amount to the same kind of premium pay that is available for holiday or weekend work; and, unlike normal severance pay, are not contingent upon employment termination. Pp. 119-121.

402 Mass. 287, 522 N.E.2d 409, reversed and remanded.

STEVENS, J., delivered the opinion for a unanimous Court.

Carl Valvo, Boston, Mass., for petitioner.

Jason Berger, Boston, Mass., for respondent.

Justice STEVENS delivered the opinion of the Court.

This case requires us to determine whether a company's policy of paying its discharged employees for their unused vacation time constitutes an "employee welfare benefit plan" within the meaning of § 3(1) of the Employee Retirement Income Security Act of 1974 (ERISA or Act), 88 Stat. 833, as amended, 29 U.S.C. § 1002(1), and whether a criminal action to enforce that policy is foreclosed by the Act's broad pre-emption provision.

I

In May 1986, petitioner, the Commonwealth of Massachusetts, issued two complaints in the Boston Municipal Court against respondent, Richard N. Morash, president of the Yankee Bank for Finance and Savings (Bank). The complaints charged Morash with criminal violations of the Massachusetts Payment of Wages Statute, Mass.Gen.Laws c. 149 § 148 (1987).1

Under the Massachusetts law, an employer is required to pay a discharged employee his full wages, including holiday or vacation payments, on the date of discharge. Similar wage payment statutes have been enacted by 47 other States,2 the District of Columbia,3 and the United States,4 and over half of these include vacation pay. The complaints filed in the Boston Municipal Court alleged that respondent had failed to compensate two discharged bank vice presidents for vacation time they accrued but did not use.

Respondent moved to dismiss the criminal complaints on the ground that the Massachusetts statute, insofar as it applied to these complaints, had been pre-empted by ERISA. He argued that the Bank's vacation policy constituted an "employee welfare benefit plan" under the Act, and that the State's prosecution of him for failure to comply with the policy therefore ran afoul of § 514(a) of the Act, 29 U.S.C § 1144(a), which pre-empts "any and all State laws insofar as they . . . relate to any employee benefit plan." 5 Without ruling on the motion, the trial judge reported the preemption question to the Massachusetts Appeals Court for decision; the Supreme Judicial Court then transferred the case to its docket on its own initiative. For the purpose of answering the reported question, the parties stipulated that the Bank had made oral or written agreements stemming from handbooks, manuals, memoranda, and practices to pay employees in lieu of unused vacation time, and that "such payments are made out of the Bank's general assets" in lump sums upon termination of employment.

The Supreme Judicial Court held that the policy constituted an employee welfare benefit plan and that the prosecution was pre-empted by ERISA. 402 Mass. 287, 522 N.E.2d 409 (1988). The court found that under the plain language of the statute and its earlier decision in Barry v. Dymo Graphic Systems, Inc., 394 Mass. 830, 478 N.E.2d 707 (1985), the Bank's policy constituted a plan, fund, or program for the purpose of providing its participants vacation benefits. It rejected the Commonwealth's argument that a regulation promulgated by the Secretary of Labor (Secretary),6 had excepted payments out of an employer's general assets for unused vacation time from the definition of a welfare plan because even if regular vacation pay was not included in ERISA, the lump-sum payment for unused vacation time upon discharge was akin to severance pay covered by ERISA. The fact that it woul be necessary for an employer to maintain records relating to its employees' unused vacation time, plus the need to accumulate funds to pay the benefits, made it appropriate to treat the employer's promise to its employees as a "plan." The court concluded that the Massachusetts statute related to the plan within the meaning of § 514, and was not excluded from its coverage by the provision saving from pre-emption a "generally applicable criminal law." ERISA § 514(b)(4), 29 U.S.C. § 1144(b)(4).

Because the federal question decided by the Supreme Judicial Court is an important one over which the courts have disagreed,7 we granted certiorari, 488 U.S. 815, 109 S.Ct. 53, 102 L.Ed.2d 31 (1988). We now reverse.

II

ERISA was passed by Congress in 1974 to safeguard employees from the abuse and mismanagement of funds that had been accumulated to finance various types of employee benefits. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 15, 107 S.Ct. 2211, 2219, 96 L.Ed.2d 1 (1987). The "comprehensive and reticulated statute," Nachman Corp. v. Pension Benefit Guaranty Corporation, 446 U.S. 359, 361, 100 S.Ct. 1723, 1726, 64 L.Ed.2d 354 (1980), contains elaborate provisions for the regulation of employee benefit plans. It sets forth reporting and disclosure obligations for plans, imposes a fiduciary standard of care for plan administrators, and establishes schedules for the vesting and accrual of pension benefits. Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 732, 105 S.Ct. 2380, 2385, 85 L.Ed.2d 728 (1985). Suits to enforce the terms of the statute and to recover welfare benefits wrongfully withheld arise under federal law and can be brought in federal court without regard for the amount in controversy. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 108, 109 S.Ct. 948, 953, 103 L.Ed.2d 80 (1989).

The precise coverage of ERISA is not clearly set forth in the Act. ERISA covers "employee benefit plans," which it defines as plans that are either "an employee welfare benefit plan," or "an employee pension benefit plan," or both. ERISA § 3(3), 29 U.S.C. § 1002(3). An employee welfare benefit plan, in...

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