Amicus Curiae Brief — Massachusetts v. Morash

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In the Supreme Court of the United

OCTOBER TERM, 1988

COMMONWEALTH OF MASSACHUSETTS, PETITIONER

RICHARD N. MORASH

ON WRIT OF CERTIORARI

TO THE SUPREME JUDICIAL COURT

FOR THE COMMONWEALTH OF MASSACHUSETTS

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING REVERSAL

CHARLES FRIED

Solicitor General

DONALD B. AYER

Deputy Solicitor General

CHRISTOPHER J. WRIGHT

Assistant to the Solicitor General

Department of Justice

Washington, D.C. 20530

(202) 633-2217

GEORGE R. SALEM

Solicitor of Labor

ALLEN H. FELDMAN

BETTE J. BRIGGS

EDWARD D. SIEGER

Attorneys

Department of Labor

Washington, D.C. 20210

QUESTIONS PRESENTED

1. Whether an employer’s agreement to pay de-

parting employees for accrued vacation time from

the employer’s general assets, rather than from a

trust fund, constitutes an “employee welfare benefit

plan” under Section 3(1) of the Employee Retire-

ment Income Security Act of 1974 (ERISA), 29

U.S.C. 1002(1).

2. Whether, if such an agreement is a welfare

benefit plan covered by ERISA, prosecution under a

Massachusetts criminal statute that penalizes the

nonpayment of vacation benefits is preempted by

ERISA’s broad preemption provision, or rather is

saved from preemption as within the exception of

Section 514(b) (4) of ERISA, 29 U.S.C. 1144(b) (4),

for generally applicable criminal laws of a state.

(I)

TABLE OF CONTENTS

EEE .. aT

Argument:

I. An agreement to pay accrued vacation benefits

upon termination of employment, from an em-

ployer’s general assets, is not governed by

e .. e

II. If the bank's vacation pay policy is a welfare

plan governed by ERISA, then the Massachu-

setts statute is not saved from preemption under

Section 514(b) (4) as a “generally applicable

...

F Ä “ .

TABLE OF AUTHORITIES

Cases:

Abella v. W. A4. Foote Memorial Hosp. Inc., 557

F. Supp. 482 (E. D. Mich. 1983), aff'd, 740 F. 2d

r .

Barry v. Dymo Graphic Systems, Inc., 394 Mass.

830, 478 N.E.2d 707 (1985)

Blakeman v. Mead Containers, 779 F.2d 1146 (6th

ES ES ES Se

Cairy v. Superior Court, 192 Cal. App. 3d 844,

Co K WO —

. ¼—— 25, 26, 27

California Hosp. Ass’n v. Henning, 569 F. Supp.

1544 (C.D. Cal. 1983), rev’d, 770 F.2d 856 (9th

Cir. 1985), cert. denied, 477 U.S. 904 (1986)..6, 7, 12,

13, 14, 15, 16, 17, 18

Chevron U.S.A. Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837 (198k)

(i)

Northern Indiana Pub. Serv. Co. v. Porter County

Chapter of the Izaak Walton League of Amer-

eS 8 SG ee 21

Pilot Life Ins. Co. v. Dedeaux, No. 85-1043 (Apr.

. ee ee Oe 11, 26

Sasso v. Vachris, 116 Misc. 2d 797, 456 N.Y.S.2d

r EASES PSN SEE ine 25

Scott v. Gulf Oil Corp., 754 F.2d 1499 (9th Cir.

—— — —— I he Fee 16

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983).. 23

Shea v. Wells Fargo Armored Serv. Corp., 810

ee 15, 19

Udall v. Tallman, 380 U.S. 1 (1965) ee. 18

United States v. Larionoff, 431 U.S. 864 (1977).... 21

Statutes, regulations and rule:

Employee Retirement Income Security Act of 1974,

29 U.S.C. (& Supp. IV) 1001 et seg 1

§ 3(1), 29 U.S.C. 1002(1) . 1-2, 5, 6, 13, 14,

16, 17, 19, 20

Cases—Continued : Page Statutes, regulations and rule—Continued : Page

Commonwealth v. Federico, 383 Mass. 485, 419 e cccepetenenetpense 18

R. A 1974 (069605 ——ß—5rVq“—— 8, 24 § 102(b), 29 U.S.C. 1022 (b ——— 18

Ford Motor Credit Co. v. Milhollin, 444 U.S. 555 § 104(a) (1), 29 U.S.C. 1024 (a) (i777 18

fo we — 21 § 104 (a) (2) (A), 29 U.S.C. (& Supp. IV)

Fort Halifax Packing Co. v. Coyne, No. 86-341 EEC A a 18

Ej „„—? 7, 8, 11, 22, 28, 29 § 104 (b), 29 U.S.C. 1024 (b) 18

Franchise Tax Bd. v. Construction Laborers Vaca- § 106(a), 29 U.S.C. 1026 (as) 1„„ 18

tion Trust, 463 U.S. 1 (1983) ............................... 14 e AT Sa 27

Gilbert v. Burlington Indus., Inc., 765 F.2d 320 ES ... 27

(2d Cir. 1985), aff'd, 477 U.S. 901 (1986) 7 § 502(a), 29 U.S.C. 1182 (a ————— 18

Holland v. Burlington Indus., Inc., 772 F.2d 1140 ee ne 28

(4th Cir. 1985), aff'd, 477 U.S. 901 (1986) 7 § 503 (1), 29 U.S.C. 1133 (17. 18

Holland v. National Steel Corp., 791 F.2d 1132 § 503 (2), 29 U.S.C. 1133 (2 nee 18

— ——— —ͤb —— ͤ —— 14 JJ I ici ccanecassernsnccsnnsesiideneeensece 13

Kanne v. Connecticut General Life Ins. Co., No. 85- Ir 27

5642 (9th Cir. Oct. 4, 1988 27 1 BI escsccencecneceenecnsnennesncnirnascnbones 3

Mackey v. Lanier Collection Agency & Serv. Inc., § 514(a), 29 U.S.C. 1144 (a)) 1-2, 5, 6, 10, 23

No. 86-1387 (June 17, 1988))))))j 14, 23 § 514(b) (4), 29 U.S.C. 1144 (b) (4) 2, 8, 10, 11, 23,

National Metalerafters v. McNeil, 784 F.2d 817 24, 25

, 18

Fair Labor Standards Act of 1938, 29 U.S.C. 218. 13

Labor-Management Relations Act of 1947, § 302

e 3, 16

Cal. Lab. Code § 203.5 (West 1971 & 1988 Supp.) 29

Del. Code Ann. tit. 19, § 1108 (1985) 28

Ill. Rev. Stat. ch. 48, para. 39m-4 (1987) 28

Mass. Ann. Laws ch. 149, § 148 (Law. Co-op. 1976

e . i lle 2,4

Mich. Comp. Laws (1985) :

TT a a ee Oe 28

r Sa a 28

N. H. Rev. Stat. Ann. § 275.49 (1987)71 28

Okla. Stat. tit. 40, § 165.6 (1986) 29

J 5: REESE UESRENUenanennre Ene nannneD 28

29 C. F. R.:

. 4

e 1,9

Section 3610.8-1 (b) (1)— 13

SE ‚ 1 nance ccccccsceccaccnssseeccsee 6

. enn 13

Statutes, regulations and rule—Continued : Page

,,, AT ER 13

Section 2560.5031 (e) ( 28

ier 5

Miscellaneous:

American Motors Corp., Advisory Op. 81-55A

(Labor Dep’t June 26, 1981 19

Blue Cross & Blue Shield, Advisory Op. 79-48

(Labor Dep’t July 30, 19799999vꝙ;a 20

Joseph W. Kane, Advisory Op. 79-35A (Labor

n 24

119 Cong. Rec. 30004 (1973) oo ceccceceeeeeeeeeeeeee 12

120 Cong. Rec. (1974):

i ERE Se TR BE. SES Ee 12

SRE EES OF 25

EERE EES BS SOA Ee OE a 25

. ES SN SS ee 25

40 Fed. Reg. (1975):

. Be oo Pe AS OS ae 13

EE AS ee ETE A St a 6, 14

H.R. 2, 93d Cong., Ist Sess. (1973) (Senate: 24

H.R. 2, 93d Cong., 2d Sess. (1974) (House) 24

H.R. Conf. Rep. 93-1280, 93d Cong., 2d Sess.

ATCT 4 25

H.R. Rep. 93-533, 93d Cong., Ist Sess. (1973) 16

Private Welfare and Pension Plan Legislation:

Hearings on H.R. 1045, H.R. 1046, and H.R.

16462 Before the Subcomm. on General Labor

of the House Comm. on Education and Labor,

91st Cong., Ist & 2d Sess. (1970) 12

S. Rep. 93-127, 93d Cong., Ist Sess. (1973) 16

In the Supreme Court of the United States

OCTOBER TERM, 1988

No. 88-32

COMMONWEALTH OF MASSACHUSETTS, PETITIONER

RICHARD N. MORASH

ON WRIT OF CERTIORARI

TO THE SUPREME JUDICIAL COURT

FOR THE COMMONWEALTH OF MASSACHUSETTS

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING REVERSAL

INTEREST OF THE UNITED STATES

At issue in this case is the interpretation and

validity of a Department of Labor regulation, 29

C.F.R. 2510.3-1(b), defining the coverage of Title I

of the Employee Retirement Income Security Act

(ERISA), 29 U.S.C. (& Supp. IV) 1001 et seg. That

regulation identifies certain “payroll practices” that

are not “employee welfare benefit plan[s]” covered

by the statute, and the practices include vacation

payments made from an employer’s general assets

rather than from a trust fund. As a consequence of

being outside the scope of ERISA, state laws relating

to such payroll practices are not preempted under

the general preemption provision of ERISA, Section

(1)

514(a), 29 U.S.C. 1144(a). The Massachusetts Su-

preme Judicial Court in this case adopted an inter-

pretation of tlie payroll practices regulation limiting

its application in a manner inconsistent with the

Secretary of Labor’s construction of that regulation.

The Secretary of Labor has a substantial interest in

urging what she views as the correct interpretation

of the Department’s regulation in this case.

The Secretary also has an interest in the second

issue raised by this case—which needs to be addressed

only if the Court rejects the Department’s interpre-

tation of the payroll practices regulation. Having

found post-termination vacation payments made out

of general assets to constitute a “welfare plan” cov-

ered by ERISA, the court below further held that

the Massachusetts criminal statute at issue (Mass.

Ann. Laws ch. 149, § 148 (Law. Co-op. 1976 & Supp.

1988) ) does not come within the exception to ERISA

preemption for generally applicable state criminal

laws (§514(b)(4), 29 U.S.C. 1144(b)(4)). The

Secretary is charged with enforcing the reporting

and disclosure requirements and the fiduciary obli-

gations that Title I of ERISA imposes on adminis-

trators of employee benefit plans covered by the Act,

and therefore has a substantial interest in the proper

resolution of that issue. She agrees with the conclu-

sion of the court below.

STATUTORY AND REGULATORY

PROVISIONS INVOLVED

Section 3(1) of the Employee Retirement Income

Security Act, 29 U.S.C. 1002(1), provides:

For purposes of this subchapter:

The terms “employee welfare benefit plan”

and “welfare plan” mean any plan, fund, or

program which was heretofore or is hereafter

established or maintained by an employer or by

an employee organization, or by both, to the

extent that such plan, fund, or program was

established or is maintained for the purpose of

providing for its participants or their beneficiar-

ies, through the purchase of insurance or other-

wise, (A) medical, surgical, or hospital care or

benefits, or benefits in the event of sickness, ac-

cident, disability, death or unemployment, or va-

cation benefits, apprenticeship or other training

programs, or day care centers, scholarship funds,

or prepaid legal services, or (B) any benefit de-

scribed in section 186(c) of this title (other than

pensions on retirement or death, and insurance

to provide such pensions).

Section 514 of ERISA, 29 U.S.C. (& Supp. IV)

1144, provides, in pertinent part:

(a) Except as provided in subsection (b) of

this subsection, the provisions of this chapter

and subchapter III of this chapter shall super-

sede any and all State laws insofar as they may

now or hereafter relate to any employee benefit

plan * * *.

(b) * „* *

x * * * *

(4) Subsection (a) of this section shall not

apply to any generally applicable criminal law

of a State.

The cross-reference is to Section 302 (e) of the Labor-

Management Relations Act of 1947, 29 U.S.C. 186 (e), which

recognizes an employee benefit plan exception from the re-

strictions otherwise imposed on financial transactions be-

tween employers and employees or their representatives. That

section lists, in addition to many of the same benefits enum-

erated in Section 3(1) of ERISA, “pooled vacation, holiday,

severance cr similar benefits.”

The payroll practices regulation, 29 C.F.R. 2510.3-1,

provides, in pertinent part:

(b) Payroll practices. For purposes of Title

I of the Act and this chapter, the terms “em-

ployee welfare benefit plan” and “welfare plan”

shall not include—

(3) Payment of compensation, out of the em-

ployer’s general assets, on account of periods of

time during which the employee, although physi-

cally and mentally able to perform his or her

duties and not absent for medical reasons (such

as pregnancy, a physical examination or psychia-

tric treatment) performs no duties; for exam-

ple—

(i) Payment of compensation while an em-

ployee is on vacation or absent on a holiday, in-

cluding payment of premiums to induce em-

ployees to take vacations at a time favorable to

the employer for business reasons[.]

Mass. Ann. Laws ch. 149, § 148 (Law. Co-op. 1976

& Supp. 1988) provides, in pertinent part:

Every person having employees in his service

shall pay weekly each such employee the wages

earned by him * * *; and any employee dis-

charged from such employment shall be paid in

full on the day of his discharge * * *. The word

“wages” shall include any holiday or vacation

payments due an employee under an oral or

written agreement.

STATEMENT

1. A Massachusetts criminal law, Mass. Ann.

Laws ch. 149, §148 (Law. Co-op. 1976 & Supp.

1988), requires employers to pay in full to any dis-

charged employee, on the day of discharge, all wages

earned by the employee, including “any holiday or

vacation payments due an employee under an oral or

written agreement.” For purposes of the statute, the

president of a corporation is deemed to be the em-

ployer of the corporation’s employees (ibid.). Fail-

ure to comply is punishable by a fine of $500 to

$3,000 or imprisonment for up to two months, or

both (ibid.).

In May 1986, petitioner, the Commonwealth of

Massachusetts, issued two complaints in the Boston

Municipal Court against respondent, Richard N. Mor-

ash, president of the Yankee Bank for Finance and

Savings (Pet. App. A4-A8). The complaints alleged

that Morash had failed to compensate two discharged

bank vice presidents for unused vacation days (id. at

A7-A8). It is undisputed that, upon termination of

their employment, bank employees who have accrued

vacation time are entitled to receive a lump-sum

cash payment from the bank’s general assets for the

unused vacation time (id. at A9).

Morash moved to dismiss the complaints on the

ground of federal preemption (Pet. App. A5-A6).

He argued that the bank’s vacation policy constitutes

an “employee welfare benefit plan” within the mean-

ing of Section 3(1) of the Employee Retirement In-

come Security Act of 1974 (ERISA), 29 U.S.C.

1002(1), and that the state’s prosecution for failure

to make vacation payments therefore runs afoul of

Section 514(a) of ERISA, 29 U.S.C. 1144(a), which

expressly preempts “any and all State laws insofar

as they * * * relate to any employee benefit plan.”

Pursuant to the procedure in Mass. R. Crim. P. 34

for resolving an “important or doubtful” “question of

law,” the trial judge reported the question to the

Massachusetts Appeals Court for decision, and the

Massachusetts Supreme Judicial Court sua sponte ac-

cepted the case for direct appellate review (Pet. App.

A4).

2. The Supreme Judicial Court of Massachusetts

held that ERISA preempts the state’s prosecution of

Morash (Pet. App. A32).

a. The court first focused on a Department of La-

bor regulation, 29 C.F.R. § 2510.3-1(b) (3), which

provides that numerous “payroll practices,“ includ-

ing the payment of vacation benefits “out of [an]

employers’ general assets” rather than from a trust

fund, are not “employee welfare benefit plan [s]“

within the meaning of ERISA.* It noted that in

Barry v. Dymo Graphic Systems, Inc., 394 Mass.

830, 478 N.E.2d 707 (1985), it had “interpreted the

Department of Labor regulation as applying only to

an employer’s discretionary practices and not to those

contractually required” (Pet. App. A12). In so con-

cluding, the court in Barry had relied upon the dis-

trict court’s decision in California Hosp. Ass’n v.

Henning, 569 F. Supp. 1544 (C.D. Cal. 1983), rev'd,

770 F.2d 856 (9th Cir. 1985), cert. denied, 477 U.S.

904 (1986), which noted that ERISA Section 3(1),

29 U.S.C. 1002(1), lists “vacation benefits” within

the definition of “employee welfare benefit plan[s]”

The Department of Labor promulgated the payroll prac-

tices regulation to distinguish payments that are like wages,

which are not governed by ERISA, from the employee bene-

fits that are covered by the federal statute. 40 Fed. Reg.

24642-24643 (1975). As a consequence of being defined as a

payroll practice rather than as a welfare plan, a practice is

outside the scope of ERISA’s coverage, and state laws relat-

ing to such a practice are not preempted by Section 514(a).

covered by ERISA, and concluded that [if that

regulation does indeed intend ERISA exemption of

every unfunded vacation program, it is at clear odds

with language of the statute itself?” (569 F. Supp.

at 1546 (quoted in Barry, 394 Mass. at 837, 478

N.E.2d at 712) ).

The court below next concluded that it “need not

decide” whether to modify its interpretation of the

regulation in light of the Ninth Circuit’s reversal of

the district court decision in California Hosp. Ass’n

(Pet. App. A13). The court found California Hosp.

Ass’n to be distinguishable as dealing with “an em-

ployer’s payments of compensation out of general as-

sets to an employee while he or she is on vacation,”

rather than “a lump-sum payment for unused vaca-

tion time upon discharge” (ibid. (emphasis by the

court)).* Payments of vacation benefits following

termination of employment, the court below held, “are

more akin to severance pay than to ordinary wages”

(ibid.), and, unlike wages, severance pay is plainly

governed by ERISA (Holland v. Burlington Indus.,

Inc., 772 F.2d 1140 (4th Cir. 1985), aff’d, 477 U.S.

901 (1986); Gilbert v. Burlington Indus., Inc., 765

F.2d 320 (2d Cir. 1985), aff'd, 477 U.S. 901 (1986) ).*

In fact, contrary to the assumption of the court below, the

issue in California Hosp. Ass’n was whether a California

statute requiring the payment of accrued vacation time on

termination was preempted. See 770 F.2d at 858.

*The court below also rejected Massachusetts’ argument

that the bank’s vacation policy, like the state-mandated plant-

closing benefits at issue in Fort Halifax Packing Co. v. Coyne,

No. 86-341 (June 1, 1987), involves a benefit as opposed to

an employee benefit plan, and therefore is not covered by

b. Having decided that the vacation pay practices

in issue constitute a welfare plan (Pet. App. A20),

the court further concluded that the Massachusetts

statute “relates to” such a plan within the meaning

of ERISA’s preemption provision. The court ex-

plained that “the statute as applied represents an

attempt by the State to enforce the provisions of the

plan,” and concluded that “State laws that attempt

to enforce benefit plans are preempted” (Pet. App.

A23 (citation omitted) ). The court further held that

the Massachusetts statute is not saved from preemp-

tion by the proviso in Section 514 (b) (4) of ERISA

that no “generally applicable criminal law of a State”

is preempted. That provision, the court stated, is

“ ‘directed toward criminal laws that are intended

to apply to conduct generally—criminal laws against

larceny and embezzlement, for example.’” Pet. App.

A27 (quoting Commonwealth v. Federico, 383 Mass.

485, 490, 419 N.E.2d 1374, 1377 (1981)). Here, the

court concluded that because our statute is lim-

ited to the nonpayment of ‘wages’ by an employer to

an employee, including agreed-upon vacation pay-

ments which will often be funded from ‘employee

benefit plans, it “is not so general as to fall within

the exception to preemption provided by Congress”

in Section 514 (b) (4) (Pet. App. A31-A32).

ERISA. The court noted that this Court’s holding in Fort

Halifax that there was no “plan” turned on a finding that

the state law manda “‘a one-time lump-sum payment

triggered by a single event’” (Pet. App. Al6 (quoting Fort

Halifax, slip op. 9)). By contrast, the court concluded, the

bank’s vacation policy necessita “a periodic demand for

adequate funds to meet commitments” (Pet. App. Al8).

SUMMARY OF ARGUMENT

1. It is clear from both the text and the legisla-

tive history of ERISA that Congress was concerned

with regulating and assuring payment of certain

types of benefits promised to employees, and that it

was particularly concerned wich abuses relating to

trust funds established to provide employee benefits.

It is equally clear that Congress in ERISA was not

addressing problems related to the payment of ordi-

nary cash wages from an employer’s general assets.

In light of ERISA’s focus on benefits rather than

wages and Congress’s particular concern with trust

fund abuses, the Secretary of Labor by regulation

(29 C.F.R. 2510.3-1(b)) interpreted the Act’s defi-

nitional provisions to exclude from the Act’s coverage

routine employer payroll practices, including vacation

leave paid directly from general assets rather than

from a trust fund. The Secretary’s interpretation of

the statute is consistent with the language, history,

and purposes of the Act, and is entitled to deference

as a reasonable and permissible construction of the

statute by the agency entrusted with its administra-

tion. The construction of the court below, in contrast,

would impose unnecessary regulatory burdens on

every employer providing paid vacation leave, and

would allow any employee complaining that he was

improperly denied vacation benefits to bring suit in

federal court.

The Massachusetts Supreme Judicial Court erro-

neously concluded that a lump-sum payment from

general assets for unused vacation time upon dis-

charge is covered by ERISA because it is more like

severance pay, a type of benefit Congress unques-

tionably intended ERISA to cover, than like ordinary

wages. While any payment received by an employee

upon termination of employment superficially re-

sembles severance pay simply by virtue of its timing,

there is no reason why vacation payments made from

general assets should be covered or not covered under

ERISA depending on whether made during or at the

end of one’s term of employment. Unlike severance

pay, which is payable solely upon the contingency of

termination of employment, vacation wages generally

are payable throughout the employment relationship

and are not contingent upon discharge or separation.

And, in contrast to severance pay, which is invariably

an added payment above and beyond ordinary wages,

accrued vacation leave is a component of. ordinary

wages.

2. If we are correct in viewing respondent’s vaca-

tion benefits as payroll practices rather than as a

welfare plan, then Massachusetts is free to prose-

cute respondent for failing to pay the benefits prom-

ised. If, on the other hand, we are incorrect on that

point, the Court must then construe ERISA’s gen-

eral preemption provision and its exception for gen-

erally applicable criminal laws. We agree with the

court below that ERISA’s preemption clause, Section

514(a), which expressly supersedes “any and all

State laws insofar as they * * * relate to” plans cov-

ered by the statute, bars Massachusetts’ prosecution

of the bank for failure to pay vacation benefits. The

acknowledged purpose of this prosecution is to en-

force the bank’s vacation leave policy, so the statute

plainly “relate[s] to” the plan.

The Massachusetts wage payment statute, which

imposes criminal penalties for nonpayment of vaca-

tion benefits, is not saved by Section 514 (b) (4),

ERISA’s exception to preemption for “generally ap-

plicable” state criminal laws. The statute is aimed

specifically at the non-payment of wages and certain

fringe benefits, and, like the court below, we think

that Congress did not mean to save such narrowly-

focused statutes from preemption. Rather, Congress

had in mind more broadly-based statutes such as

those prohibiting fraud or embezzlement. If a law

aimed specifically at employee benefits is saved from

preemption by Section 514(b)(4), then it is not

clear what kind of criminal law is not “generally

applicable.”

In addition, as the court below stated, the statute

at issue plainly provides an alternative means by

which employees may seek to obtain benefits. In Pilot

Life Ins. Co. v. Dedeaux, No. 85-1043 (Apr. 6, 1987),

however, this Court stressed that ERISA’s compre-

hensive civil enforcement provisions were intended

to provide the exclusive means for challenging benefit

denials. Furthermore, as this Court has explained,

ERISA’s preemption provision was designed to elimi-

nate the threat of conflicting and inconsistent state

and local regulation. Fort Halifax Packing Co. v.

Coyne, No. 86-341 (June 1, 1987), slip op. 6. If

statutes such as the Massachusetts law at issue are

not preempted, states will be able to impose conflict-

ing and inconsistent requirements on employee bene-

fit plan administrators.

ARGUMENT

I. AN AGREEMENT TO PAY ACCRUED VACATION

BENEFITS UPON TERMINATION OF EMPLOY-

MENT, FROM AN EMPLOYER’S GENERAL AS-

SETS, IS NOT A WELFARE PLAN GOVERNED BY

ERISA .

Congress enacted ERISA to correct “two principal

abuses: mismanagement of funds accumulated to

finance * * * benefits, and failure to pay employees

the benefits promised” (California Hosp. Ass’n, 770

F.2d at 859)). Prior to ERISA’s enactment, the

Secretary of Labor testified in detail with respect to

abuse of trust funds, listing 22 examples of misman-

agement drawn from both pension and welfare funds.

Private Welfare and Pension Plan Legislation: Hear-

ings on H.R. 1045, H. R. 1046, and H.R. 16462 Be-

fore the Subcomm. on General Labor of the House

Comm. on Education and Labor, 91st Cong., Ist & 2d

Sess. 470-472 (1970). Concerns about such abuses led

Congress to impose strict fiduciary duties on plan

administrators. See 120 Cong. Rec. 4277 (1974)

(statement of Rep. Perkins) (citing “breaches of

faith and self-dealing on the part of fund trustees

and administrators”); 119 Cong. Rec. 30004 (1973)

(statement of Sen. Williams) (citing “embezzlement

and bribery” involving trust funds).

Secretary Schultz cited, among the 22 examples of abuse,

“a jointly-administered welfare and retirement fund * * *

[that] deposited 67 million dollars in a non-interest-bearing

account in a bank that was controlled by the union which was

a party to the collective bargaining agreement setting up the

fund.” He also cited a welfare plan providing medical bene-

fits that paid 50 cents in administrative costs for every dollar

of benefits “due in part to the excessive fees paid to the fund

trustees.” Private Welfare and Pension Plan Legislation

Hearings, supra, at 472.

Congress was not concerned, in enacting ERISA,

with regulating wages. Other federal laws, such as

the Fair Labor Standards Act of 1938, 29 U.S.C. 218,

govern wages, and, unlike ERISA, “do not seek to

impose national uniformity through a broad preemp-

tion provision, but instead permit the states to pro-

vide more stringent protections if they wish” (Cali-

fornia Hosp. Ass’n, 770 F.2d at 861). In light of

ERISA’s inapplicability to wages, and in response

to numerous inquiries, the Secretary of Labor, who

has authority to prescribe regulations “necessary or

appropriate to carry out the provisions of [Title I

of ERISA]” (29 U.S.C. 1135), promulgated the pay-

roll practices regulation less than a year after ERISA

was enacted in order “to resolve some of the ques-

tions of coverage which have been raised“ as to the

meaning of “employee benefit plan” (40 Fed. Reg.

24642 (1975) ).

Recognizing that Congress had listed “vacation ben-

efits” among the “welfare plans” enumerated in Sec-

tion 3(1), that it was especially concerned with trust

fund abuses, and that it did not intend to regulate

wages, the Secretary concluded through the payroll

practices regulation that vacation benefits paid out cf

general assets rather than through a trust fund are

not governed by the statute. As the Secretary ex-

plained when the regulation was proposed: Plaid

vacations * * * are not treated as employee benefit

plans because they are associated with regular wages

Among the other payroll practices listed in the regulation

are the payment of weekend premiums, the giving of holi-

day gifts, and scholarship programs where payments are

made from the employer’s general assets rather than from a

trust fund. 29 C.F.R. 2510.3-1(b) (1),“%d), and (k).

or salary, rather than benefits triggered by contin-

gencies such as hospitalization. Moreover, the abuses

which created the impetus for the reforms in Title

I were not in this area, and there is no indication

that Congress intended to subject these practices to

Title I coverage.” 40 Fed. Reg. 24642-24643 (1975).

Thus, under the regulation, the payment of vacation

benefits from a trust fund, which is a common prac-

tice where employees typically work for many em-

ployers in a single year, as do construction workers

(see Franchise Tax Bd. v. Construction Laborers

Vacation Trust, 463 U.S. 1, 4 & n.2 (1983)) and

longshore workers (see Mackey v. Lanier Collection

Agency d Serv. Inc., No. 86-1387 (June 17, 1988),

slip op. 1), is subject to ERISA. But otherwise the

payment of vacation benefits is governed by state law.

Noting that Section 3 (1) lists “vacation benefits“

among the types of welfare plans governed by ERISA,

the Massachusetts Supreme Judicial Court in Barry

concluded that the payroll practices regulation is “ ‘at

clear odds with language of the statute itself and an

invalid arrogation of power by the Department’ ”

(394 Mass. at 837, 478 N.E.2d at 712 (quoting Cal-

ifornia Hosp. Ass’n, 569 F. Supp. at 1546)).“ How-

ever, the statutory provision does not state that all

™Two courts of appeals have also concluded that vacation

benefits paid from an employer’s general assets are governed

by ERISA. In Holland v. National Steel Corp., 791 F.2d

1132, 1135 (1986), the Fourth Circuit concluded that the pay-

roll practices regulation is inconsistent with the plain mean-

ing of the statutory definition of “employee welfare benefit

plan,” and in Blakeman v. Mead Containers, 779 F.2d 1146

(1985), the Sixth Circuit concluded, without citation of the

payroll practices regulation, that a vacation pay plan was

covered by ERISA.

vacation benefits are subject to federal regulation

under ERISA. Nor does the statute define “vacation

benefits.” And the assertion that the payroll prac-

tices regulation is an “arrogation of power” by the

Secretary of Labor is rather peculiar, since the con-

sequence of the regulation is to remove the enumer-

ated practices from the scope of the Secretary’s

authority.

Two courts of appeals that have considered the

treatment of vacation benefits in the payroll practices

regulation have concluded that it is “a reasonable

and permissible construction of the statute to ex-

clude from its coverage * * * programs providing for

the traditional vacation during which the employee

continues to receive ordinary wages paid from the

general assets of the business.” California Hosp.

Ass'n, 770 F.2d at 859; accord Shea v. Wells Fargo

Armored Serv. Corp., 810 F.2d 372, 376 (2d Cir.

1987). As the Ninth Circuit pointed out in Cali-

fornia Hosp. Ass’n, the Department’s regulation rea-

sonably distinguishes vacation “payroll practices”

®* Contrary to the suggestion of the Massachusetts Supreme

Judicial Court in Barry (see page 6, supra), the payroll

practices regulation cannot be construed as limited to infor-

mal vacation benefit programs, as distinguished from plans

established by contract. Rather, as the court below correctly

stated, “neither a formal, written plan nor a separate fund

is a prerequisite to the establishment or maintenance of an

ERISA employee benefit plan” (Pet. App. Al1l1-A12); other-

wise, employers could exempt plans from ERISA’s coverage

by failing to comply with its requirements. Moreover, the

Secretary plainly intended to exempt all vacation plans where

benefits are paid from general assets from ERISA’s coverage,

as nothing in the regulation or the Secretary’s explanation of

its purpose suggests that it would not exempt vacation bene-

fits mandated by contract from the scope of the statute.

from ERISA-covered “vacation benefits” based both

on the close affinity between paid vacation leave and

ordinary cash wages and on the absence of a separate

fund (770 F.2d at 862). Congress did not intend to

make ERISA a vehicle for regulating ordinary wage

practices, but instead sought to regulate the wide

variety of fringe benefit programs that had developed

since World War II (see S. Rep. 93-127, 93d Cong.,

Ist Sess. 3 (1973); H.R. Rep. 93-533, 93d Cong., Ist

Sess. 2-4 (1973)). As the Ninth Circuit correctly

concluded, the payroll practices described in the regu-

lation are “ ‘easily analogized to ordinary wages.“

California Hosp. Ass’n, 770 F.2d at 860 (quoting

Scott v. Gulf Oil Corp., 754 F.2d 1499, 1503 (9th

Cir. 1985)). The continuation of an employee’s sal-

ary while he is on vacation is particularly hard to

distinguish from ordinary wages, and it is reasonable

to treat those same vacation benefits no differently

when they are paid at the termination of employment.“

Moreover, the “inclusion of routine vacations-with-

pay within ERISA [would] contribute nothing to the

The Ninth Circuit correctly rejected the argument that

Congress, through its cross-reference in Section 3(1) to the

benefits described in 29 U.S.C. 186 (e) (6) (which mentions,

inter alia, pooled vacation benefits), incorporated separately

funded vacation benefit plans, and so, unless it intended to

repeat itself, must have meant by its reference to vacation

benefits in Section 3(1) to include vacation benefit plans where

benefits are paid from an employer’s general assets. That

simply reads too much into the structure of Section 3(1). As

the court stated in California Hosp. Ass’n: “Many of the

benefits incorporated in section [3(1)] by the cross-reference

to section 186(c) are already found in section [3(1)]. Thus

it is evident that Congress was not concerned with duplica-

tion, but only with assuring that all benefits covered by sec-

tion 186(c) were also covered by section [3(1)].” 770 F.2d

at 861.

solution of the problems Congres. sought to solve”

(California Hosp. Ass’n, 770 F.2d at 860). As the

Ninth Circuit pointed out, “[t]raditional vacations

during which the employer continue[s] to pay the

employees’ regular wages present [] neither of the

evils Congress intended to address” (id. at 859).

Since vacation wages, like ordinary wages, are gen-

erally paid in cash from the employer’s business re-

sources, there is no fund to administer and no

special risk of loss or nonpayment” (ibid.). The reg-

ulations do include within ERISA’s coverage plans

establishing trust funds for the payment of vacation

leave because such plans raise one of Congress’s con-

cerns in enacting ERISA—the mismanagement of

benefit funds. The Department’s interpretation of

the statute to cover vacation benefits paid from trust

funds is consistent with the significant historical fact

of which Congress was undoubtedly aware that col-

lectively-bargained vacation benefit funds have long

been the practice in a number of industries, most

notably construction and longshoring (see page 14,

supra). It was certainly reasonable for the Depart-

ment, in construing “vacation benefits” in Section

3(1) of ERISA, to keep in mind Congress’s likely

concern with these specialized vacation benefit pro-

grams.”

Finally, as the Ninth Circuit recognized, inclusion

of routine paid vacations within ERISA would “im-

% That is not to say that the existence of a trust fund is a

prerequisite to coverage under ERISA. It is clear that, in the

case of payments that are not analogous to wages, such as

severance benefits, an employer’s promise to pay the benefits

from the employer’s general assets establishes a plan subject

to ERISA. See Holland v. Burlington Indus. and Gilbert v.

Burlington Indus.

pose a substantial and needless burden upon employ-

ers and the federal courts.” Employers would be

subject to “numerous statutory requirements for for-

mulating plans, establishing procedures, giving no-

tices, and filing reports.” 770 F.2d at 860-861 (citing

29 U.S.C. (& Supp. IV) 1022, 1022 (b), 1024 (a) (1),

1024 (a) (2) (A), 1024 (b), 1026 (a), and 1133 (1) and

(2)). In addition, [a]ny employee claiming denia

of vacation leave could sue his employer in federa!

court” (id. at 861, citing 29 U.S.C. 1132 (a)). Cer-

tainly, “[i]t is unlikely Congress intended to create

burdens of this magnitude without evidence of need,

and without comment” (770 F.2d at 861). See also

National Metalcrafters v. McNeil, 784 F.2d 817, 823

(7th Cir. 1986) (declining to decide whether ERISA

preempts a state’s attempt to enforce a vacation plan,

but noting that a ruling in favor of preemption “could

bring a host of trivial cases into the federal courts’).

Based on the purposes and legislative history of the

statute, and given the “substantial and needless bur-

den” that would be imposed by including paid vaca-

tions within ERISA, the Department’s payroll prac-

tices regulation, which was adopted less than one

year after ERISA was enacted, is a reasonable, con-

temporaneous construction of the statute which is en-

titled to deference by the courts. Chevron U.S.A. Inc.

v. Natural Resources Defense Council, Inc., 467 U.S.

837, 843 (1984); see also Udall v. Tallman, 380 U.S.

1, 16 (1965).

The court below erroneously concluded that because

the vacation payments at issue in this case would be

received after termination of employment, they more

closely resemble severance benefits than ordinary

wages, and therefore fall outside the payroll prac-

tices regulation (Pet. App. A13). The Department

of Labor has interpreted its payroll practices regu-

lation to exclude from ERISA’s coverage all vaca-

tion benefits paid from general assets, including

earned but unused vacation days, irrespective of when

the payment is made. See Gov’t Amicus Br. in Opp.

at 9 n.5 in California Hosp. Ass’n v. Henning, No.

85-1648." This is a sensible approach, since there is

no good reason to view the character of vacation

benefits as changing merely because they are paid

upon termination of employment.” As the Second

Circuit explained in Shea, where the vacation wages

available to employees are not “contingent upon ter-

mination of employment or severance,” but are pay-

able whether or not employment continues, “[t]he

conclusion is inescapable that [there is] no payroll

severance policy” (810 F.2d at 377 (emphasis

added) ).

From the standpoint of the sponsoring employer,

a traditional vacation policy is intended to provide

employees with a respite during the course of em-

ployment; such a policy cannot be said to be “estab-

lished or maintained * for the purpose of pro-

viding” severance benefits (29 U.S.C. 1002(1)). If

an employee accrues vacation time and collects pay-

ment upon termination of employment, the entitle-

11 We have served a copy of our brief in California Hosp.

Ass’n on the parties to this case.

1 Only where a plan permitted employees to make an ir-

revocable deferral of vacation benefits, which were then avail-

able only upon termination of employment or, in the employ-

er’s discretion, upon demonstration of an immediate financial

emergency, has the Department found that a plan in effect

provided severance benefits as opposed to vacation pay. See

American Motors Corp., Advisory Op. 81-55A (Labor Dep’t

June 26, 1981).

ment still arises on account of the vacation benefit

policy.“ Even where there is an incentive for em-

ployees to delay taking vacations—to earn a greater

réturn when leave is taken at a higher salary, or to

provide a cushion in the event of layoff or termina-

tion of employment—the fundamental purpose and

character of the benefit as periodically accrued vaca-

tion compensation does not change. See Blue Cross

& Blue Shield, Advisory Op. 79-48A (Labor Dep't

July 30, 1979) (accumulated paid sick leave is not

the type of benefit] in the event of sickness” (29

U.S.C. 1002(1)) that Congress intended ERISA to

cover). See also Abella v. W.A. Foote Memorial Hosp.

Inc., 557 F. Supp. 482 (E.D. Mich. 1983), aff’d per

curiam, 740 F.2d 4 (6th Cir. 1984) (to the same

effect regarding accumulated paid sick leave provided

during the term of employment). Indeed, even should

the employer offer an inducement to employees not

to use their accumulated leave during some particu-

lar period, such inducement is not among the benefits

covered in the Act. The payroll practices regulation

The payroll practices regulation refers to “[p]ayments

of compensation while an employee is on vacation.” Contrary

to the conclusion of the court below (Pet. App. A13), the Sec-

retary did not intend by that language to require that a vaca-

tion plan provide that an employee must work for an employer

both before and after a period for which vacation benefits are

paid, or the plan would be deemed to be a severance pay plan.

An employee may reasonably be viewed as being on vacation”

from an employer upon termination of employment. From the

employer’s perspective, it would make little difference if the

employee returned to work for one day and then terminated

the employment relationship; the primary difference would

be that the employer would pay the employee periodically if

he were returning to work, rather than in a lump sum. That

difference does not transform a vacation benefit into a sever-

ance benefit.

specifically provides, with respect to vacation bene-

fits, that the payment of premiums to induce em-

ployees to take vacations at a time favorable to the

employer for business reasons” is not an employee

benefit governed by ERISA. If a premium paid to

induce an employee to accrue vacation leave rather

than take a vacation at an inconvenient time for the

employer is not a welfare benefit, then the accrued

vacation benefit should not be deemed to have been

transformed into a severance benefit merely because

it is collected upon termination of employment.

In sum, the Department’s interpretation recognizes

that vacation leave paid from an employer’s general

assets is simply a form of wages which, if not used

during the life of the employment relationship, may

be collected upon its termination. Because the De-

partment’s interpretation is consistent with the pur-

poses and policies of the payroll practices regulation

and the statute under which the regulation was prom-

ulgated, it is entitled to deference by the Court.

Northern Indiana Pub. Serv. Co. v. Porter County

Chapter of the Izaak Walton League of America, Inc.,

423 U.S. 12, 15 (1975) (per curiam). See also

United States v. Larionoff, 431 U.S. 864, 872

(1977) (in construing administrative regulations, the

agency’s interpretation carries “controlling weight”

unless “plainly erroneous or inconsistent with the

regulation.”) At the very least, in the face of legis-

lative or regulatory silence, “caution requires atten-

tiveness to the views of the administrative entity

appointed to apply and enforce a statute.” Ford

Motor Credit Co. v. Milhollin, 444 U.S. 555, 565

(1980).

™ Massachusetts also argues that, under the rationale of

Fort Halifax (see note 4, supra), the bank’s policy of paying

II. IF THE BANK’S VACATION PAY POLICY IS A

WELFARE PLAN GOVERNED BY ERISA, THEN

THE MASSACHUSETTS STATUTE IS NOT SAVED

FROM PREEMPTION UNDER SECTION 514(b)(4)

AS A “GENERALLY APPLICABLE CRIMINAL

LAW”

If we are correct in our conclusion that, under the

payroll practices regulation, the bank’s payment of

vacation benefits is not a welfare plan governed by

ERISA, then Massachusetts is free to regulate such

for unused vacation leave upon termination of employment

is not an employee benefit “plan” because it involves only “a

one-time lump-sum payment triggered by a single event” and

therefore “requires no administrative scheme whatsoever to

meet the employer’s obligation” (Pet. 22-25 (quoting Fort

Halifax, slip op. 9)). We agree with the court below that

there is no merit to that contention. As this Court explained

in Fort Halifax, payments that are triggered by predictable

and recurring events “may represent a one-time payment

from the perspective of the beneficiaries, * * * [but] the em-

ployer clearly foresees the need to make regular payments

* * * on an ongoing basis,” and this “ongoing, predictable

* * * obligation * * * creates the need for an administrative

scheme to process claims and pay out benefits” (slip op. 12

n.9). Here, the bank’s policy creates the need for an ad-

ministrative scheme to pay accrued vacation benefits on an

ongoing basis, since employees may terminate their employ-

ment and demand payment at any time.

This contrast between Fort Halifax and this case is illum-

inated by the discussion in the opinion in Fort Halifax of the

severance pay plan at isue in Holland v. Burlington Indus.

and Gilbert v. Burlington Indus., where the courts held that

an employer’s promise to make severance payments from its

general assets is a welfare plan covered by ERISA. There,

this Court explained, “‘[t]he employer had made a commit-

ment to pay severance benefits to employees as each person

left employment,“ and this commitment created the

need for an administrative scheme to pay these benefits on

an ongoing basis’” (Fort Halifax, slip op. 15 n.10 (quoted

at Pet. App. A19-A20) ).

benefits. Accordingly, its prosecution of respondent

for failing to pay the benefits promised would not be

preempted. If, on the other hand, we are incorrect

and the bank’s vacation policy is subject to ERISA,

the Court must construe ERISA’s general preemp-

tion provision and its exception for generally appli-

cable criminal laws to determine whether the prose-

cution is preempted.

Section 514(a) of ERISA generally preempts any

and all state laws that “relate to any employee benefit

plan.” This Court has explained that a state law

relates to an employee benefit plan, in the normal

sense of the phrase, if it has a connection with or

reference to such a plan.“ Mackey, slip op. 3 (quot-

ing Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97

(1983)) (emphasis in Mackey). As the court below

recognized, the Massachusetts statute sought to be

enforced in this case “represents an attempt by the

State to enforce the provisions of the plan” (Pet.

App. A23). Accordingly, the Massachusetts statute

plainly “relate[s] to” the bank’s payment of vaca-

tion benefits. Thus, if the bank’s plan for the pay-

ment of vacation benefits out of general assets is

governed by ERISA, the Massachusetts statute is

preempted under Section 514(a) unless one of

ERISA’s exceptions applies.

Section 514(b) (4) of ERISA saves “any generally

applicable criminal law of a State” from preemption,

and Massachusetts contends that it applies here. In

our view, however, the Massachusetts statute. which

provides that a discharged employee “shall be paid

in full on the day of his discharge,” including any

“vacation payments due,” is not a “generally appli-

cable criminal law” within the meaning of Section

514(b)(4). The majority of courts that have con-

sidered the matter have agreed, as the court below

noted (Pet. App. A29-A30), that the exception

“ ‘seems directed toward criminal laws that are in-

tended to apply to conduct generally—criminal laws

against larceny and embezzlement, for example’ (id.

at A29 (quoting Federico, 383 Mass. at 490, 419

N.E.2d at 1377)). The Massachusetts statute at

issue does not apply to “conduct generally,” but in-

stead governs only the wage and benefit payment

practices of employers. We doubt that Congress in-

tended to save laws of such narrow focus.”

The legislative history is consistent with the view

that only laws regulating general conduct, as opposed

to laws specifically aimed at employee benefit plans,

are saved from preemption by Section 514 (b) (4).

In enacting ERISA, the House and Senate both passed

bills which generally preempted state laws regulating

subject matter governed by ERISA, and neither con-

tained a provision saving state criminal laws from

preemption. See H.R. 2, 93d Cong., Ist Sess., § 699

(1973) (Senate); H.R. 2, 93d Cong., 2d Sess., § 514

(1974) (House). Both the broad preemption provi-

“In Joseph W. Kane, Advisory Op. 79-35A (Labor Dep't

May 31, 1979), the Department of Labor opined that a state

law prohibiting embezzlement from employee benefit plans, and

applying only to such plans, was not a law of general appli-

cability within the meaning of Section 514 (b) (4). The De-

partment added that general larceny statutes would be saved

from preemption by that provision. The statute at issue here

is slightly broader than that at issue in the 1979 advisory

opinion, since it applies to wages as well as to certain fringe

benefits. That difference does not, in our view, make it a

generally applicable statute. A contrary conclusion would

allow states to regulate all sorts of employee benefit plans

simply by aiming criminal statutes at wages as well as

benefits.

sion and the exception for generally applicable crim-

inal laws were added by the Conference Committee

(see H.R. Conf. Rep. 93-1280, 93d Cong., 2d Sess.

383 (1974)), whose primary objective was to expand

the statute’s preemptive effect. A House sponsor de-

scribed “the reservation of Federal authority * * *

to regulate the field of employee benefit plans“ in the

Conference substitute as the “crowning achievement”

of ERISA. 120 Cong. Rec. 29197 (1974) (statement

of Rep. Dent). In contrast, there was no indication

that the exception for generally applicable criminal

laws was to be construed broadly. To the contrary, one

of the Senate sponsors stated that “with the narrow

exceptions specified in the bill, the substantive and

enforcement provisions of the conference substitute

are intended to preempt the field for Federal regu-

lation [].“ Id. at 29933 (statement of Sen. Williams

(emphasis added)). While they stressed that the

preemptive effect of ERISA had been significantly

broadened, the sponsors mentioned the exception for

generally applicable criminal laws only in passing.

Id. at 29942 (statement of Sen. Javits).

The minority of courts that have concluded that

criminal laws relating to ERISA’s subject matter

are saved from preemption by Section 514(b) (4)

have based that conclusion on the proposition that “a

law is of general applicability if it extends to the

entire state and embraces all persons or things in a

particular class” (Cairy v. Superior Court, 192 Cal.

App. 3d 844, 237 Cal. Rptr. 715, 717 (1987) ), a view

that originated in Sasso v. Vachris, 116 Misc. 2d 797,

800-801, 456 N.Y.S. 2d 629, 632 (1982). That in-

terpretation of Section 514(b)(4) is plainly flawed

since, under it, almost every state criminal law (and

perhaps every such law), would be saved from pre-

emption. Cairy, 192 Cal. App. 3d at 844, 237 Cal.

Rptr. at 717. It is difficult to think of a state crim-

inal law that applies only in certain portions of a

state, or one that governs only certain persons in

the particular class at which the law is aimed; at

the least, such laws are highly unusual. Such a con-

struction would allow substantial involvement in the

regulation of benefit plans by means of state criminal

provisions aimed specifically at the performance of

functions unique to such plans. That result would

significantly erode the general purpose of ERISA to

serve as the exclusive and comprehensive source of

benefit plan regulation.

More specifically, this Court held in Pilot Life Ins.

Co. v. Dedeaux, No. 85-1043 (Apr. 6, 1987), slip op.

10, that “Congress clearly expressed an intent that

the civil enforcement provisions of ERISA § 502(a)

be the exclusive vehicle for actions by ERISA plan

participants and beneficiaries asserting improper

processing of a claim for benefits, and that varying

state causes of action for claims within the scope of

§ 502(a) would pose an obstacle to the purposes and

objectives of Congress.” The Court based that hold-

ing on the fact that ERISA contains “a comprehen-

sive civil enforcement scheme” that would be under-

mined if claimants “were free to obtain remedies

under state law that Congress rejected in ERISA”

(slip op. 12). Under Pilot Life, it is clear that the

two discharged bank vice presidents would not be able

to pursue any civil remedies provided by Massachu-

setts law.

While the Massachusetts law at issue is a crim-

inal statute, there can be no doubt that it is, in

practice, primarily an avenue by which discharged

employees may obtain unpaid wages and benefits. The

Massachusetts Supreme Judicial Court stated that

“the statute as applied represents an attempt by

the State to enforce the provisions of the [bank’s

vacation] plan” (Pet. App. A23). It reiterated that

“ ‘the state is attempting directly to regulate the

terms and conditions of a [welfare benefit] plan by

using its criminal law to obtain compliance with

those terms and conditions’” (id. at A26 (quoting

Cairy, 192 Cal. App. 3d at 843, 237 Cal. Rptr. at

717)). Congress provided no criminal penalties in

ERISA for mere failure to pay benefits, and peti-

tioner’s attempt to impose such penalties through

a statute specifically directed at unpaid wages and

benefits conflicts with ERISA’s carefully balanced

civil enforcement scheme as much, if not more, than

did the attempt by the plaintiff in Pilot Life to obtain

punitive damages under state common law (see slip

op. 2, 7-8).

16 Congress provided, in Section 501, 29 U.S.C. 1131, crimi-

nal penalties for willful violations of ERISA’s reporting and

disclosure provisions. It also provided criminal penalties in

Section 511, 29 U.S.C. 1141, for certain coercive interferences

with statutory or plan rights of participants and beneficiaries.

Its provision of criminal penalties for such violations, but

not for mere failure to pay benefits, supports the conclusion

that it did not think that criminal penalties are appropriate

in routine benefits claims disputes, but that the comprehensive

civil penalties it provided in Section 502 are adequate to assist

claimants in obtaining benefits due them. Accordingly, it

would be contrary to Congress’s intent to supplement the

remedies available in cases involving claims for benefits with

state law criminal actions.

* In Kanne v. Connecticut General Life Ins. Co., No.

85-5642 (9th Cir. Oct. 4, 1988), the court recognized, follow-

ing Pilot Life, that a law that fell into one of ERISA’s excep-

tions for laws regulating insurance (slip op. 12500) ) is never-

theless preempted if it supplement [s] the ERISA civil en-

forcement provisions available to remedy improper claims

In addition, by requiring employers to pay vacation

benefits immediately upon discharge, the Massachu-

setts statute conflicts with ERISA’s regulation gov-

erning claims procedures. The regulation, which is

authorized by 29 U.S.C. 1133, provides that em-

ployers must establish claims procedures, states that

claims for benefits must be granted or denied within

a reasonable time, and specifically provides that a

period in excess of 90 days is generally unreasonable,

although it allows for a further 90-day extension (29

C. F. R. 2560.503-1 (e) (3)). Thus, under the regula-

tion, and in contrast to the requirement of the Massa-

chusetts statute that benefits be paid immediately,

employers may have as long as 90 days or more to

determine whether vacation benefits are due.

Finally, as this Court recognized in Fort Halifax

(slip op. 6), the main purpose of ERISA’s broad pre-

emption provision is to eliminate the threat of con-

flicting and inconsistent state and local regulation,

and laws such as the Massachusetts statute at issue

impose differing, and sometimes inconsistent, require-

ments to govern the procedures for paying wages or

benefits. For example, states sometimes vary the time

of payment according to the occupation of the em-

ployee (see, e. g., Ill. Rev. Stat. ch. 48, para. 39m-4

(1987)) or according to whether the employee is

still employed, quit work, or was fired (see, e. .,

Mich. Comp. Laws §§ 408.472, 408.475 (1985); Wis.

Stat. § 109.03 (1988)). States also impose their own

recordkeeping and posting requirements (e.g., Del.

Code Ann. tit. 19, § 1108 (1985); N. H. Rev. Stat.

Ann. § 275.49 (1987) ), and sometimes more substan-

processing” (id. at 12501). Thus, even if the Massachusetts

statute at issue were a “generally applicable” state law, it

would nevertheless be preempted by ERISA’s enforcement

provisions.

tive obligations (see, e. g., Cal. Lab. Code § 203.5

(West 1971 & 1988 Supp.) (bonding requirements to

assure payment under certain state contracts) ; Okla.

Stat. tit. 40, § 165.6 (1986) (liability of contractor

for wages of a subcontractor’s employees). State

laws such as these, if applied to employee benefit

plans, would effectively defeat ERISA’s goal of allow-

ing employers to meet their many ERISA obligations

by establishing a uniform administrative scheme to

guide claims processing and the disbursement of ben-

efits. The result of such a patchwork scheme of reg-

ulation would be inefficient operation of benefit pro-

grams, “which might lead those employers with ex-

isting plans to reduce benefits, and those without

such plans to refrain from adopting them” (Fort

Halifax, slip op. 8).

CONCLUSION

The judgment of the Massachusetts Supreme Court

should be reversed.

Respectfully submitted.

CHARLES FRIED

Solicitor General

DONALD B. AYER

Deputy Solicitor General

GEORGE R. SALEM CHRISTOPHER J. WRIGHT

Solicitor of Labor Assistant to the Solicitor General

ALLEN H. FELDMAN

Associate Solicitor

BETTE J. BRIGGS

EDWARD D. SIEGER

Attorneys

Department of Labor

NOVEMBER 1988

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