Massachusetts v. Morash

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.