Malone v. White Motor Corporation – Oral Argument – January 10, 1978

Media for Malone v. White Motor Corporation

Audio Transcription for Opinion Announcement – April 03, 1978 in Malone v. White Motor Corporation

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Warren E. Burger:

We will hear arguments next in Malone against White Motor Corporation.

Mr. Allyn you may proceed whenever you are ready.

Excuse me, in Minnesota, I must address you as Mr. Solicitor General.

Richard B. Allyn:

Mr. Allyn is just fine Your Honor.

Mr. Chief Justice, may it please the court and counsel.

White Motor today asked you do apply your doctrine of labor law preemption to strike down a state’s statute, a statute which you have given affect would to some large extent, make sure that about 1200 or so retirees of a plant that has been shut down get their pension benefits.

Now, we believe our statute should not be preempted for three reasons.

First of all, Congress has specifically empowered the State to regulate in the area of pensions.

Secondly, we believe if you apply your standard and traditional case analysis where Congress is silent that our statute will pass muster.

And, finally, we believe that this limited statute falls within that area where the states may regulate under their police power to look out for the health and welfare of their citizens.

Mr. Chief Justice, I have exceeded 10 minutes of my argument to counsel for the United States who will address especially this last issue and I will try to make sure I watch my clock accordingly.

This case is commenced in federal court up at Minnesota in front of Judge Olsap in 1975.

He ruled that the state’s statute was not preempted.

The three-judge panels, Eight Circuit disagreed and that is why we are here today.

If I may say at the outset, it seems to me that the issue before you today is whether or not a state can regulate pension plans so as to ensure that retiring workers get their primus pensions not withstanding that the regulation disregards a provision of collectively bargained pension plan which would permit an employer to escape its pension liability.

William H. Rehnquist:

Well you would not be making that argument if the federal law had clearly said that the states could not pass this certain law.

Richard B. Allyn:

That is correct, Your Honor.

William H. Rehnquist:

So you are not challenging the constitutionality in any substantive due process?

Richard B. Allyn:

Those issues are not here today, question to due process, contract clause and so on and so forth, are still down below, Your Honor.

Although, a companion case that is pending before you for consideration on whether or not to take jurisdiction did pass upon constitutional issues other than preemption.

That is called the Fleck v. Spannaus and in that case the three-judge panel ruled that the statute did pass constitutional muster under these other theories.

I would like to describe for you briefly, but can the act it is here under attack, It is called the Minnesota Private Pension Benefit Protection Act.

I am going to call it the Pension Act for short.

It was adopted in April of 1974 by the Minnesota legislature about 4-and-a-half months before FERISA was adopted, the Federal Employees Retirement Income Security Act that is very important.

It was designed to eliminate two of the most common errors that or problems that have cropped into the pension plans, guaranties the workers for years.

One is Pension plans, it create impossibly difficult vesting provisions and secondly, underfunding of the pension plan and then disclaiming liability when they terminate the plan.

Now, to me the difficult vesting problem, the state said that if a person works for their company with a pension plan for 10 or more years, they at least qualify, their service starts to qualify account to the pension.

To meet the second problem, underfunding and liability disclaimers, the statute set up this system and said that the company wants to go out of business.

They are to notify the Commissioner of Labor Industry of Minnesota.

And he in turn conducts an investigation to find out what those pension obligations were and whether or not there is enough money in the pension plan to meet those obligations.

Richard B. Allyn:

He then notifies the company as to something called the Pension Funding Charge which is really nothing more than the difference between the amount of money the company did set aside and the amount of money needed to meet the pension obligations as they appear at that time.

William H. Rehnquist:

Do you think constitutional right to travel extends to corporations or just the persons?

Richard B. Allyn:

I am speechless and cannot answer that.

I had not contemplated that might that in the light of this case, Your Honor.

I think, my experience of the constitutional law is that some constitutional provisions protect corporations and some do not.

I know the Fifth Amendment does not the Fourth Amendment does.

I guess I am not prepared to knowledgeably answer that and I apologize to the court.

Now, what happens is the Commissioner of Labor Industry pre-notifies the company this amount of money, the company is supposed to go out and purchase annuities.

And these annuities are nothing more than an insurance policy are bond which when it pays off or pay off on a monthly basis, the amount of pension benefit, the employee would have got under the terms of the pension plan.

The Minnesota statute does not set up a benefit level.

Now one of the critical features of this Act, and of course lies at the heart of this lawsuit is our statute makes the company liable for its pension promises.

Pension promises cannot be disclaimed by staying, well, we are only liable in so far as the amount of money that we and our wisdom decide to set aside in the fund.

It is an important difference and it will be more clearly shown as we go on.

Warren E. Burger:

Did the employers’ contributions meet the requirements of the Collective Bargaining Contract?

Richard B. Allyn:

Your Honor, there is nothing in the Collective Bargaining Contract that I know of that specifically tells them how much to put in.

The Pension Plan, as a matter of fact, is an adjunct if you will, a separate department from the Collective Bargaining Contract.

The promise to pay the pension is in the pension plan.

The benefit level is in the pension plan.

These other rights are in the pension plan but it is up to the company to determine how much money they are going to put in there to meet that obligations that they are incurring.

William H. Rehnquist:

Would an employee have had an individual contract right against White for failure to comply with the promise contained in the pension plan?

Richard B. Allyn:

Mr. Justice Rehnquist, we believe that it is possible that they might, no employee has commenced such an action.

The reason I think it is passed was this.

The evidence shows that for 22 years that this pension plan was in effect, the rank and file, the people out there in the machine shop and what not believed they had a pension plan, acted in accordance, every few years there was a negotiation, benefit levels were increased, people started to retire, started to get pensions.

Right up to within a week or two before this pension plan was terminated, the company was sending letters to employees telling them what their full pension benefits would be.

I believe there is at least an arguable claim that there may be a quasi-contract argument between employee and perhaps even the Labor Union.

It is not an issue in this case but it is certainly something we have given some thought.

Well, the terms of the pension plan were in writing and were available for anybody to see, were they not?

Richard B. Allyn:

Unquestionably, we do not deny it and the fact that the pension plan contained this provision that the company limited its liability to the pension plan.

In other words, you could not go against the other people and so on.

That is in the pension plan and the fact that they could terminate it anytime was in the pension plan.

Richard B. Allyn:

We do not dispute it.

William H. Rehnquist:

That was consented too by the bargaining representative of the workers?

Richard B. Allyn:

No question about it.

Those provisions as far as we know were in the pension plan from the first day, when it was ever enacted in 1950, which dated the years the White Motor came out to see.

So if there is, we do not run away from the fact that our statute has the effect of disregarding or if you will modify, I really think it is more accurate to say modifying the provisions of that pension plan.

And the way it modifies it, it is simply this, is that, when the company expends all the money they have in that fund to pay off the pension, our statute permit the state to then go back to the corporation as a whole and seek to recover there.

It has not happen yet in this case.We have not got to that stage in the proceedings.

I think an important point to make here is that ERISA, Employee Retirement Income Security Act, it is on the court, there are arguments about this law before came along about 4-and-a half months later and in effect has preempted our statute.

Our statute went out of effective existence as to future matters, January 1, 1975 so we are in a peculiar one time only situation here.

There is no dispute either that ERISA’s protection does not apply to what is going on in this case.

Turning to the facts, Minneapolis Malone(ph) Company was a resident of Minnesota for many, many years, a farm implement manufacturing company starting in about 1950, the hourly workers in the plant had a pension plan and when White Motor purchased the company in about 1963, the pension plan, labor agreement and so on were taken over an have continued ever since.

It is the 1971 pension plan, that is that issue here.

There has not been a new and negotiated since then.

Now, their plan does provide, as I have said, a few things that are different.

There is one other difference and that is they would say that employee does not vest unless not only works 10 years but also has to be 40 years of age.

I would argue, now, that is different on our statute.

Our statute says 10 years employment.

As a matter of fact from our evidence the number of people, well, in this case that are affected by that is tiny.

Now, there is evidence in the record and I would like to just state this before we move on to how the dispute came to this court that the pension plan through the years was used to track and keep highly qualified and hardworking workforce.

And secondly, that it was used by the company to keep wage increases depressed evidence is un-rebutted and it is in the appendix.

So, I am going take issue right now on something that Eight Circuit said and that is that well perhaps employees got higher wages in return for not putting money in the pension plan, it is just exactly the opposite.

There is evidence here, people worked for the company for 33 or so years, the timekeepers, I recall and his top salary when he retired was $10,000.00.

Warren E. Burger:

Were not the terms of this pension agreement open to collective bargaining every time, the collective bargaining contract expired?

Richard B. Allyn:

Yes, they were Your Honor.

No question about it.

Every term presumably is subject to negotiation.

Now, what happened has here in 1972 is that the company —

Warren E. Burger:

Then how do you escape the proposition that the Minnesota statute has intervened and implanted, engrafted on to the Collective Bargaining Contract a new dimension?

Richard B. Allyn:

Alright, Your Honor, what our statute has affected in doing, saying that company must live up to the pensions that they have been promising for all these 22 years.

The bulk of the pension plan is a pension plan.

Richard B. Allyn:

It is not an escape clause.

Potter Stewart:

In order to find the content and nature and contours of a promise, you look to see what the promise was and this was in writing, available for anybody to inspect.

There is no claim here.

Is there that the White Motor did not keep its promise to anybody?

As that promise is spelled out in the pension plan which was the product of collective bargaining?

Richard B. Allyn:

There is not question that White Motor wants to live up to its promise to get out when it wanted to, that is true.

I ask you to look at the provisions that they are asking to activate.

They are not living up to the promise to pay a pension.

They are not living up to a promise to pay a certain level.

Potter Stewart:

Are there specific promises in the written agreement which Justice Stewart is referring to that White is not living up to?

Richard B. Allyn:

Well, if you will —

William H. Rehnquist:

Surely that could be answered, yes or no.

Richard B. Allyn:

Under my view of the facts, yes, the part they are not living up to is the pension promise, Your Honor.

William H. Rehnquist:

You are referring to some specific provision in the written pension agreement?

Richard B. Allyn:

Pension plans says if you work for so many years, you come to retire, a benefit level is computed based upon all the numbers —

Potter Stewart:

You just do not want to look at all the promises, because the promise says, but we do not need to do that beyond the certain point if certain things happen.

Richard B. Allyn:

That is true Your Honor.

Potter Stewart:

Is there a promise that is being breached or not?

Richard B. Allyn:

The statute has the effect of disregarding, if you will, term of the collectively bargain pension plan —

Potter Stewart:

So the statute is changing the contract the parties made?

Richard B. Allyn:

I would agree with that.

Potter Stewart:

Was there a contract clause claim made in this case?

Richard B. Allyn:

Yes.

Potter Stewart:

And that has not been resolved?

Richard B. Allyn:

It has not been resolved in this case and a similar case that has been resolved as far as the District Court, three-judge panel and they resulted against the company.

But let me address what the Chief Justice I believe is getting at, Your Honor.

Warren E. Burger:

All three of us, the last three questions are all directed at the same proposition and as the statute, as the Minnesota legislature engrafted a new term or provision on the contract , n Collective Bargaining Contract.

Richard B. Allyn:

The answer is it has added an additional obligation so I do not mean defensibly, I am trying to —

More than one, more than one additional obligation, it has eliminated their requirement at age 40 need to be reached and it added to requirement that these be full faced in credit plans and it is prohibited the company from terminating and all three of those are terms additional to the pension plan that was negotiated, are they not?

Richard B. Allyn:

Your Honor, it did not prohibit the company from terminating the pension plan, that is not so.

Richard B. Allyn:

Because statute does not prohibit them from terminating the plan at all.

What it said was that when you terminate the plan —

You have to pay the deal money.

Richard B. Allyn:

And if there is not enough money in the plan, then you are going to look to the assets of the corporation.

I must say, —

You can terminate the plan but you have to pay up as though it were not.

Richard B. Allyn:

You have to pay up to the pension promises that workers thought was made.

Now, the contract clause issue here is a difficult one.

I think we can establish —

Is that issue here?

Richard B. Allyn:

No, it is not and maybe, I better avoid it right now.

I think it is a supremacy policy issue here.

Richard B. Allyn:

Yes, it is Your Honor.

Now, we believe we have come to —

Which we know we would reach first.

Richard B. Allyn:

Yes, Your Honor.

We believe that you should in deciding this case, cited just before you, look to see whether or not Congress has evidence to belief to intention that the states could regulate pension plans over and above any kind of contract claim.

And we argue that the Pension and Disclosure Act of 1958, plus the adoption of ERISA is evidence for the fact that Congress believed that the states were free to regulate the administration and operation of pension plans.

Potter Stewart:

Nobody quarrels about the thought that a state could make a criminal offense to embezzle these funds or even to impose preventive procedures to prevent misuse of these funds and so on but that is not — this is changing the substantive terms of it which is quite different from regulating, is it not?

Richard B. Allyn:

Well, Your Honor, it well could be but in our case when you look at the language in the statute, the specific language to see what Congress intended and then match that to the kind of ills and the problems that Congress was looking at.

It was underfunding.

It was liability disclaimers, difficult vesting provisions.

Warren E. Burger:

But these are all provisions agreed to by both of the negotiating parties to the contract, were they not?

Richard B. Allyn:

No question about it, Your Honor.

Potter Stewart:

Was this a compulsory subject of bargaining, do you think, under the Federal Law?

Richard B. Allyn:

I think pension plans are no doubted compulsory subject to collective bargains.

Do you think that the state could have said they are awfully sorry but nobody may adopt a pension plan?

Richard B. Allyn:

No, I do not, Your Honor.

And could they say nobody can adopt a pension plan unless our Director of Labor consents?

Richard B. Allyn:

No, I do not, Your Honor.

Or could they say everybody, every Collective Bargaining Agreement must contain a pension plan.Could the state say that?

Richard B. Allyn:

No, Your Honor, no, we do not.

We are just simply saying that if you are going to terminate your plan look out for those people that you have been making a promise to for a long, long time.

And I think that that has got to be the essence of the operation and ministration of a pension plan.

If you do not put enough money into it, what kind of pension plan do you have?

Mr. Allyn, how do you distinguish the Oliver case?

Richard B. Allyn:

Okay, thank you, Your Honor.

My remaining few seconds, Oliver, I would believe it is dramatically different, that case, the state’s statute struck down the heart of their wage structure.

There is no question about it, the State Anti-Trust Statute.Our statute did not come along in mandate or strike down the heart of the pension plan.

As a matter of fact, our statute has effect of upholding what we would say is certainly the intention of most of the people, the employees, that they thought and planned on for over 22 years.

Potter Stewart:

But the Federal Law is that you do not force parties to come to an agreement, you have not bargain it out and the state is in effect saying you got to bargain about this, you must have one result.

There is one thing you cannot agree to.

You cannot agree to a no-pay termination.

Richard B. Allyn:

What we are saying is that if you are going to terminate, your company’s got to look to its assets to stand behind the pension obligations and you cannot just escape by having a pension fund and and not putting any money on it.

I do not mean to imply they did not put any money in it.

There are some small benefits now being payed to these workers.

We are not claiming here.

They are a desk door.

Potter Stewart:

Can the state put on a minimum wage?

Richard B. Allyn:

Yes, Your Honor.

Potter Stewart:

Contrary higher that the bargain for wage?

Richard B. Allyn:

Congress has said it, can set minimum wages, Your Honor.

So I guess, yes.

The answer is yes.

If congress says we can do it, then we can do it.

Potter Stewart:

But do you think it said this about pension plan?

Richard B. Allyn:

No question about it, Your Honor.

That is where we are different from Oliver.

This is really an important point.

At Oliver, you do not have any congressional statement to the state.Go ahead and set up an Anti-trust Law to prohibit the kind of thing they went after.

Richard B. Allyn:

In our state, in our situation, Congress said in the Pension Disclosure Act and in ERISA, indirectly that you can regulate —

The independent argument based on evidence of congressional intent to leave the states — but putting that to one side is there any distinction?

Richard B. Allyn:

Well, I think there is no question that we admit that our statute bears a term of Collective Bargaining Agreement.

It is, in our judgment, so minimal and so not contrary to the purposes of the NLRA.

We would ask you to look at that and know —

It is minimal, $70,000,000?

Richard B. Allyn:

Alright, let me just put that up, my time is up.

The fact to the matter is since the $90,000,000 assessment was set, the commissioner holds a hearing and at that hearing is for certain going to be reduced by $7,000,000 which is the amount in the so called guarantee letter they have set up.

It is going to be reduced by the amount of money they have now put in at Hopkins (ph), their new plant, new pension plan in the plant and the amount of money that has been paid since an arbitrary is a word, our reply brief addresses this and it says it is going to be between six and eight million dollars.

Thank you very much!

I would like to cede what little time there is left.

Warren E. Burger:

Mr. Ryan?

Allan A. Ryan, Jr.:

Mr. Chief Justice, may it please the court.

The United States supports the appellant Malone in this action and we urge that the judgment below be reversed.

In our view, the Court of Appeals erred in holding that the National Labor Relations Act preempted the authority of the state to enact the Minnesota Pension Act.

The law of preemption is largely judge made but its constant touchstone is the presumed intent of Congress.

And we think that in this case the intent of Congress is clear.

It was expressed in the Disclosure act of 1958 which we discussed in our brief.

That act required that the financial operations of pension plans be made public but Congress said, and I quote, “We leave to the states, the detailed regulations relating to insurance, trusts and other phases of the pension plans operations.”

And quoting again, “This legislation by design endeavors to leave regulatory responsibility to the states.”

Byron R. White:

Well, you think your state did forbid a pension plan.

Allan A. Ryan, Jr.:

I do not think that, Mr. Justice White, because —

Byron R. White:

And provide a pension plan unless it provides for no cancellation?

Allan A. Ryan, Jr.:

It could in effect provide that any pension plan written in this state must have a Termination Insurance Program.

So I would answer that question, yes.

Warren E. Burger:

Could it provide that any pension plan in the state must provide at least 60% of the wages earned in the last three years of employment?

Allan A. Ryan, Jr.:

I think it could under the scheme.

Warren E. Burger:

Not withstanding a prior agreement?

Allan A. Ryan, Jr.:

Well, yes.

Warren E. Burger:

I am speaking of an Act passed now.

Warren E. Burger:

That is what we have an Act passed long after the Collective Bargaining Agreement had setup a pension plan.

Allan A. Ryan, Jr.:

I think the retroactivity question of the Minnesota Legislation is not before the court now.

It is simply a question of whether —

Warren E. Burger:

It is pretty retroactive, is it not?

Allan A. Ryan, Jr.:

It is retroactive indeed but I think that the question of whether Minnesota can pass the statute and impose its terms on the parties is not before this court except for the preemption, the Supremacy Clause Argument.

Byron R. White:

And this is even though pension payments might be a whole part of wages?

Allan A. Ryan, Jr.:

Well, in an industrial sense, yes they might be called the part of wages but that is to say no more than if Congress sets a minimum wage of two dollars and says the states can go higher then Minnesota could certainly say the minimum wage in this state is three dollars and it could require the parties to start with three dollars.

Byron R. White:

And why is that?

Allan A. Ryan, Jr.:

Because Congress has said in, I believe, it is the Fair Labor Standards Act, Congress has said the states can go higher.

And we submit that in this case, congress has said, in the Disclosure Act, in the pre ERISA days, Congress said, and the states can regulate pension plans.

Byron R. White:

Well, it said that but you are just saying that means almost everything including termination dates, level obtainments.

Allan A. Ryan, Jr.:

Well, it includes everything that Congress had in mind when it said states may regulate pension plans.

And we think that the Disclosure Act supports the conclusion that that includes the ability of the state so say the pension plan shall be at a certain level of benefits and so forth.

It does not include the state saying that there shall be no pension plans or the state saying, there must be a pension plan because that is under, in Steel, that is a mandatory subject of bargaining and the state cannot say otherwise.

Byron R. White:

At least do you think, your submission is at least it is very clear that there are some things the state can do that the parties to a Collective Bargaining Agreement can agree not to do.

Allan A. Ryan, Jr.:

Cannot set aside?

Byron R. White:

Yes.

Allan A. Ryan, Jr.:

That is correct.

Byron R. White:

There are some things, anyway.

Allan A. Ryan, Jr.:

There are some things.

Warren E. Burger:

Would this be one example that the State Law would require that no official in the union be a trustee of the pension fund?

And that no official of the company be a trustee that it must be a neutral and independent trustee?

Allan A. Ryan, Jr.:

I believe before ERISA that would be a permissible state regulation because I believe the Disclosure Act does not address that, therefore it is one those thing that Congress left to the states.

Warren E. Burger:

That would be regulation without any substantive change, however, would it not?

Allan A. Ryan, Jr.:

It would be.

I think tenure for the submission also is absent the Disclosure Act, there would be preemption.

Allan A. Ryan, Jr.:

Absent the Disclosure Act, that is not you position, Mr. Justice, White.

Byron R. White:

You go beyond that even without the Disclosure Act.

Allan A. Ryan, Jr.:

Even without the Disclosure Act, we would say that regulatory responsibilities lie in the first instance with the state.

And this is where —

Byron R. White:

Even though it is a mandatory subject to Collective Bargaining and even though the Labor Law Policy is not to force agreements on the parties.

Allan A. Ryan, Jr.:

That is true.

Byron R. White:

Well, do you say, despite that the state would have the power.

Allan A. Ryan, Jr.:

Despite that the state would have the power?

We believe the Court of Appeals was wrong in one respect when it said in effect that the states have only the power that the Disclosure Act of 1958 gave to them.

We think the opposite is the case.

The state had plenary power except what the Disclosure Act took away from them and except for interfering with the doctrine under —

Byron R. White:

And what the National Labor Relations Act might have taken away from it.

Allan A. Ryan, Jr.:

Of course.

William H. Rehnquist:

Do you think the state could pass a law saying that any wages bargained for in a Collective Bargaining Unit Agreement have to be paid the day after they are earned, regardless of any provisions of the country in the Collective Bargaining Agreement?

Allan A. Ryan, Jr.:

I would think that that is probably a matter where the states would be preempted by the National Labor Relations Act so the answer would be —

William H. Rehnquist:

Why there and not here?

Allan A. Ryan, Jr.:

Because I think in this case, Congress left regulatory responsibility of pension plans to the state.

William H. Rehnquist:

But, I thought, your argument did not depend on the history of the Withholding Act, it was just the plenary powers that state had not been removed by the Withholding Act, by the Disclosure Act.

Certainly Congress had ever even addressed itself to the subject when wages should be paid.

Allan A. Ryan, Jr.:

Following the National Labor Relations Act in the years between that Act and 1958 when the Disclosure Act was passed, I think, it would have been a nice question.

It would have been a difficult question.

I think, in 1958 and from then until 1974, Congress made it an easy question.

They said specifically we leave regulatory responsibility in this area of pension regulation to the states.

In 1974, they took it away.

But at least in those 16 years if not before, the states had the power to do this.

Warren E. Burger:

Could the State Legislature provide that the minimum increase each year in Collective Bargaining Negotiations must be equal to — must reflect the Bureau of Labor Statistics cost of living?

Allan A. Ryan, Jr.:

I think not, Mr. Chief Justice.

I think that is too close to — well, perhaps I speak too soon.

If as we assume, the states can set a minimum wage higher than the federal wage and I think that is true and Congress has specifically said so in the Fair Labor Standards Act then I misspoke.

There would be no problem in the state saying, the minimum wage in this state is whatever the federal index is plus 2% or whatever they choose to do.

The states do have the power in the wage area to set a higher minimum wage that the federal minimum wages.

Warren E. Burger:

My question did not go to minimum wages.

It goes only to the annual negotiations at which time the Labor Act certainly guarantees the employer the right to say no increase at all, has it not?

Allan A. Ryan, Jr.:

Normally it would, yes, certainly.

Warren E. Burger:

Well normally?

Not always?

Allan A. Ryan, Jr.:

Is your question, Mr. Chief Justice, a state Act that speaks only to Collectively Bargained Agreements and not to others?

Warren E. Burger:

All.

Simply saying that the employer now has a right surely under the labor law to say I am very sorry business is very poor we cannot give you any increase this year, you agree to that?

Allan A. Ryan, Jr.:

Yes.

Warren E. Burger:

Even though he then listens and takes part in bargaining in the usual way?

But you said the legislature could come along and say the starting point is 6.3 because of the percent increase because that is what the Bureau of Labor Statistics designated as the increase in cost of living.

Allan A. Ryan, Jr.:

On those facts I would say, no, because then you are not talking about a minimum wage, you are talking about a worker who might be earning $20,000 a year is still entitled to a 6.3% increase this year.

And that is not a minimum wage provision and that is preempted by the Nation Labor Relations Act.

John Paul Stevens:

But Mr. Ryan, Assume you did not have a Fair Labor Standard Act to express recognition of the state’s power to set a minimum wage.

You merely had the Wagner Act and Taft-Hartley Act, could the state, would the state have the power to set a minimum wage higher than a contract wage?

Allan A. Ryan, Jr.:

In our view, no, Mr. Justice Stevens, it would not.

John Paul Stevens:

It would not because of the —

Allan A. Ryan, Jr.:

Because of preemption, even if it was statewide.

Byron R. White:

Because of the Collective Bargaining Systems?

Allan A. Ryan, Jr.:

Because it would be preempted by the Fair Labor Standards Act, there is an explicit provision.

I understand that.

Suppose there were no Fair Labor Standards Act at all?

Allan A. Ryan, Jr.:

Suppose there were no Fair Labor Standard Act at all?

Byron R. White:

I thought that is what was Mr. Justice Stevens —

Allan A. Ryan, Jr.:

Oh, I am sorry.

John Paul Stevens:

I am saying, assuming no Fair Labor Standards Act, but the state of Minnesota decides a minimum wage in Minnesota is going to be five dollars an hour.

And every Collective Bargaining Agreement may have only reached four dollars an hour.

You are saying the state has no power to do that.

Allan A. Ryan, Jr.:

No, the question that I was answering, I misunderstood you, was that if there were no provision in the Fair Labor Standards Act saying the states can go higher.

John Paul Stevens:

I said that assuming there is just no federal statute at all on the minimum wage.

Allan A. Ryan, Jr.:

Did your question assume there is a federal minimum wage or no?

John Paul Stevens:

No.

Allan A. Ryan, Jr.:

There is no federal minimum wage.

John Paul Stevens:

The only federal labor policy is that set forth in the Wagner Act and Taft-Hartley Act.

Allan A. Ryan, Jr.:

I see.

There is no federal minimum wage can the state of Minnesota impose a minimum wage on its own?

John Paul Stevens:

Yes.

Allan A. Ryan, Jr.:

That is a difficult question, I must say.

Byron R. White:

It is the same question this case presents, is it not?

John Paul Stevens:

No, I do not think it is the same question that this case presents, because –difficulty in that question, there is no such thing as an easy labor preemption question.

I think we start from that point.

And in your hypothetical, sir, I think it would be a very, very difficult question because you would have to go back, you would have to set aside 20 years or 30 years of congressional history and go back then.

And I just do not want to —

Byron R. White:

Is there any case close to that except Oliver?

Oliver is like that but what other case says that a state cannot affect the end result of the bargaining process as opposed to the process itself?

Allan A. Ryan, Jr.:

A case that says the state cannot affect the end result of the bargaining process?

Byron R. White:

Yes, it cannot dictate what terms the parties may agree upon.

Allan A. Ryan, Jr.:

I think, and I do not have the citations but I believe there are cases if not from this court then from lower ones which uphold the authority of the states to set, for example lighting requirements or sanitary standards, things of that nature.

I do not have the citations but I think it is that police power exception if you will or the health and welfare exception which we think is the wellspring from which the 1958 Act comes in this case.

We think that ’58 Act fits in very comfortably with the history Congress had demonstrated intent to preserve to the states their health, welfare, safety and police power.

Byron R. White:

I take it your first submission as you do not need to reach these tough questions because of the Disclosure Act that Congress has expressly said state power.

Allan A. Ryan, Jr.:

That is our position Mr. Justice White.

And I think the Disclosure Act I would say as augmented by the legislative history of ERISA.

We think those go hand in hand but that is our position that this court in this case, need not paint the entire canvass if you will of the health, welfare exception to preemption.

Byron R. White:

Let me disagree with you on the Disclosure Act.

Allan A. Ryan, Jr.:

Unless the court disagrees on the Disclosure Act —

Byron R. White:

Then we have to, then we get in the Oliver territory and this question you are debating with Justice Stevens.

Allan A. Ryan, Jr.:

That is correct.

If the court finds that the Disclosure act and ERISA is not persuasive evidence on this point.

We believe it is very persuasive.

Byron R. White:

Mr. Ryan, I understand that from the Fair Labor Standards Act that a state may set a minimum wage higher than the federal level.

Allan A. Ryan, Jr.:

Yes, sir, that is my understanding.

Byron R. White:

Do you think the state could do that retroactively, say for 10 years?

Byron R. White:

It required employers to pay additional wages for 10 years contrary to the terms of the body’s agreement, it had in effect.

Allan A. Ryan, Jr.:

To pass in 1974, a statute saying the minimum wage is ‘x’ dollars per hour as of 1964.

And everyone who did not earn it in that 10 year period is now entitled to it retroactively.

I think there are substantial contract clause problems presented by that situation.

Having in mind the impact on Collective Bargaining Agreement already negotiated.

Allan A. Ryan, Jr.:

Well, my inclination would be to say that they presumptively could do that.Subject to whatever other arguments may be made on the other side and by that I mean, I would start off by saying the setting of minimum wages is an aspect to state’s police power.

Whatever problems may be presented by doing it retroactively would certainly have to be contended with.

But I would start by saying —

That is a contract clause problems, is it not?

Allan A. Ryan, Jr.:

I preface my answer to Mr. Justice Powell, by saying, yes.

But aside from contract clause problems and there may well be other problems but I would start off by saying the states can do it.

I may say, we are convinced otherwise, that is an aspect of their police power or health and welfare power or whatever you choose to term it.

John Paul Stevens:

Mr. Ryan, before you sit down, can I ask you a question?

Allan A. Ryan, Jr.:

Certainly.

John Paul Stevens:

As you know, the amicus brief of the AFLCIO in this case takes the position that, first of all, that we should reverse the Court of Appeals.

Secondly, if we do not we should limit our decision in this case to the question of preemption of Federal Labor Law by the impact of these state laws only on existing Collective Bargaining Agreements.

If you will, the retroactive effect of the state law.

I understood you a moment ago or a few moments ago to say an answer to a question propounded to you by the Chief Justice that that issue could not be decided here.

That that was not in this case, the retroactivity and that that was not, did you mean that that was not covered by grant of certiorari or what?

Allan A. Ryan, Jr.:

Well, the short answer to that is, I would agree that the court could if it wanted to reach the result propounded by the AFLCIO.

Byron R. White:

It is in the case to this question presented in the petition for certiorari, is it not?

Allan A. Ryan, Jr.:

Yes, I believe it is. —

Byron R. White:

I believe it is based in it, is it?

Allan A. Ryan, Jr.:

Yes.

Yes it is.

My point was that the question of whether Minnesota, assuming it is empowered to act at all on this area could act in this particular way is not before the court.

The contract clause questions, the due process questions and so forth, I believe all sides have stated separately.

Byron R. White:

The preemption is there — there is no reason why we could not consider the question of preemption only in so far as this state law impacted upon an existing Collective Bargaining Agreement.

That is correct, is it not?

Allan A. Ryan, Jr.:

That is correct.

Byron R. White:

Which is the fact in this case?

Allan A. Ryan, Jr.:

Which is the fact in this case.

Byron R. White:

Alright, thank you!

Warren E. Burger:

I think your time is up, Mr. Ryan.

Mr. Heath?

Frank C. Heath:

Mr. Chief Justice, may it please the court.

To hear the argument and to read the briefs of the state and Labor Board as I call the other brief, one would think that there are grave questions of fact undecided in this question of preemption.

And that is not true.

Let us restate the operative facts that relate to questions of preemption.

Counsel inferred and I think said that, well, there were labor contracts negotiated but not pension plans and that the pension plans did not say what funds had to be put in.

That is not right.

All the pension plans from the first pension plan in 1950 were collectively bargained.

Every amendment to those plans was collectively bargained.

Those plans were made part and parcel of Collective Bargaining Agreement.

Every pension plan that was negotiated contained pension schedules and not as a separate provision but as part of the contract itself.

Two very important provisions which are clear and unambiguous and were not put in fine print.

One, Section 609 of the Pension Plan, pension shall be payable only from the fund and rights to pension shall be enforceable only against the fund.

And in a separate section of the plan, which if you please, was collectively bargained and negotiated and ratified.

Neither the company nor any trustee or pension committee or any member thereof shall be liable therefore being payment of pension benefits in any manner or to any extent.

We do not have here a promise and that the state would like to say a disclaimer of a promise.

And that is made clear when you understand what pension plans were like and the kind of problem that arose from funding the pension plans.

When pension plans were placed for the first time or when they are increased, credit is given to service of employees, not just service that they will have from that point forward but services taken place in the past, perhaps not only with this employer but with predecessor employers.

The result is in giving credit for that, you get a paper figure and I will explain it in a minute that is called a Past Service Liability.

It is a contingent liability because it comes into play only if the pension plan continues in effect, only if the employee continues in employment to qualify for a full pension or at least if he quits has enough service to qualify for a deferred vested pension.

Unions and the UAW that negotiated most of these agreements, there is a strong experience and knowledge of all American union, they and other unions recognized that the only way to get agreement on pensions was to have a deferred funding arrangement under which past service liability, this credit system, would be paid over a period of many years.

And that was provided in this plan, in 1971, which is the key point.

The pension plan by negotiation provided that these credits that were given to employees for past service would be funded over a period of 35 years, a long time, and created uncertainty but to have what Minnesota has to create here, instant funding would create a situation which would make it impossible for companies, and they would not have agreed the pension plans because if they put a pension plan in, five or ten years later, the plant and had a misfortune and they had to close it, they would have a liability that would be out of all proportion to what they could stand.

So there was a reason for deferred funding which was common.

Now, with that background, what was the situation in 1971?

As I have said, there was an agreement between the union and the company, the union being the Collective Bargaining agent for all these employees.

Frank C. Heath:

There was an agreement for 35 year funding which I have just described.

The union knew in 1971 that during the three year period from ’69 through ’71, this farm division of White Motor has lost $ 21,000,000.

The UAW being knowledgeable also was aware of the fact, that the plan was far from fully funded and in that situation, although the company already had, before ’71, an agreement that we will put in so many dollars each year to fund this over a long term.

The union came in.

This is a great example of Collective Bargaining.

The union came in and said we are concerned.

We want to bargain with you about guaranteeing pensions, if the plant is closed and the plan is terminated and that is what the very pension guarantee that was negotiated in 1971 says and that is on page 172 and 173 of the Appendix.

It expressly provides for just that circumstance and the union in the circumstances when you consider that it was dealing with a company that was suffering the losses did a remarkable job because they obtained from White, an agreement in addition to its funding obligations that if to unfortunate circumstances, this plant were closed, White would guarantee pensions at a certain level which actually as the record shows produced an additional obligation of $7,000,000.

What White agreed to guarantee were pensions for years of service with White itself at the level provided in the 1968 plan and agreement and lower pensions for years of service with prior employment.

That was a situation in 1972, the unfortunate circumstances resulted in the closing of the plant.

The Collective Bargaining Agreement terminated in 1974, the company has honored all of its commitments and the suggestion that there are lurking in the background contract actions is simply not so.

That is simply, I am sorry an attempt to create facts that are different from what we have here.

What the state did, in this where retroactivity clearly comes into preemption.

The state has said time and again and it is in their brief, we did not interfere with your collective bargaining process in 1971.

We let you go ahead and make the agreement.

That is right!

But what they did in 1974, 20 days before the agreement was terminated, was to come in and change the qualifications for eligibility for vested pensions imposed on the company in the event of termination of a plant immediate payment through annuities of all pensions instead of the limited liability through deferred funding.

William H. Rehnquist:

What if under other Collective Bargaining Agreement there had been extensive provisions in assuming the company is engaged in the business of coal mining, extensive provisions for maintaining the safety of the mine that had been agreed to in the process of the Collective Bargaining Agreement in 1971, and three years later, the state of Minnesota enacts a provision that is much more stringent and that provided for in the Collective Bargaining Agreement, would that in you view be preempted?

Frank C. Heath:

That depends on how this court interprets what is called as Local Interest Exception, and the safety and health provisions set forth in Oliver.

That could be preempted perhaps under the rather tight standards which seem to be set in Machinists and seem to be set in the two-bus employee cases.

On the other hand, strictly on the language of Oliver, where that is a true safety standard.

It could be, you could avoid preemption and I am not in a position to tell you precisely where that point is, Your Honors, but I am in a position to say to you, that the Safety and Local Safety and Health Regulation referred to in Oliver or included in the Local Interest Exception does not include as the state and the Solicitor General argued.

It does not include all actions taken for economic welfare of employees or all actions taken to the general wellbeing of employees because if so you wipe out completely the doctrine of Labor Law preemption and with it you seriously undermine Collective Bargaining.

It would cover a situation arguably, a situation such as my brother Rehnquist has described and certainly a situation such as this assuming this for a Trucking company in the Collective Bargaining Agreement had provided that it was the duty of all drivers to do their best to drive at a constant speed of 60 miles an hour.

And then the state had much later but during the existing existence of the Collective Bargaining Agreement, it reduced the speed limit to 55 miles an hour.

There is no question about it.

Frank C. Heath:

I have —

There is no question about preemption.

Frank C. Heath:

I am sorry Mr. Justice.

No, I have no question about that.

And that is what the local safety and health —

Frank C. Heath:

That is what it means.

As I read the cases, there may be some variation in how far the local safety and health goes, but it does not go to economic benefit because if so it would do what nobody can say Congress believed should be done.

It would wipe out the preemption.

Warren E. Burger:

A state could not have lesser standards that the Federal Alliance Safety Act, could it?

Frank C. Heath:

No, I do not think it could.

Consequently, it is clear that we do have not only conflict between the Act and the negotiated plan but what can safely be called a massive conflict.

How anyone could call that conflict peripheral contact, as the state calls it, I am sorry, it is beyond me.

Anybody can call anything, anything.

Frank C. Heath:

And make others believe it, Mr. Justice, that is my point.

There is that conflict.

Clearly then, we have the next question, does the Labor Law protect negotiated agreements, negotiated pension plans against that conflict?

And it does.

And this is where retroactivity comes in.

The state acted retroactively and says, well we did not interfere with the process all we did is changed your contract.

And even though we too, we think that that would also raise and we have pleaded that it raises a contract question.

The plain fact is it also raises a question which is clearly covered by Labor Law not only Oliver but the cases that preceded Oliver under the Railway Labor Act.

It said expressly that the Labor Agreement negotiated under that Act which has the same promotion of Collective Bargaining Theory as a Labor Law has the imprimatur of Federal Law upon it and cannot be amended or vitiated by the laws of a state.

Hanson said it.

Taylor said it.

This court, well, the issue was not up, this court repeated that conclusion in insurance agents said there has to be no interference of the state.

William H. Rehnquist:

Well, why is that stronger in the case of an agreement already negotiated in a prospective agreement?

I would think what is being protected is the process.

Frank C. Heath:

Both are being protected, Mr. Justice Rehnquist.

There is not any question and the courts have said and this court has said that the Collective Bargaining Process is protected but you cannot get out from under by waiting until the Collective Bargaining Process is finished and the bargain is made because part of the obligation to bargain under the Act, under Section 8D as I recall it, you are not only must bargain collectively but if requested and you reach an agreement, you must put that bargain in writing.

William H. Rehnquist:

But that argument only gets your past agreement up to your present negotiation.

It does not elevate it above that.

Frank C. Heath:

No, it does not and actually there was other interference.

There were negotiations that took place in 1975 where the presence of the Act interfered with it but there is not any question that the Labor Law, the National Labor Relations Act, we believe protects both the process of bargaining and the bargain made and I am not trying to say that only one is protected.

Potter Stewart:

Well, it is subtle though, is it not that the process of bargaining takes place against the background of existing state and federal law?

Frank C. Heath:

Of course it does.

Potter Stewart:

And if for example, a state law requires, the banks have certain minimum deposits and so on, collective bargaining cannot change that.

Frank C. Heath:

No.

Broadly speaking I suggest —

Potter Stewart:

In that state, although a Collective Bargaining might be perfectly valid and in other state it did not have such a law.

Frank C. Heath:

What you say is true, Mr. Justice Stewart.

There is always the condition that the state law must be one of a type that is not preempted.

Now there has been talked here about wage in our law.

The wage in our law when passed was quite specific as to what states could do.

We have other laws, AFLCIO points out all these other laws and how they point out on the one hand very careful.

Congress has been to say exactly what states can or cannot do in the substantive area, then they jump a great gap and say that having been the case in the Disclosure Act, they did that and they did not do that in the Disclosure Act and let me talk briefly about that if I may.

John Paul Stevens:

Mr. Heath just before you get to that, I assume this is apparent from what you said but I just want to be sure.

It is your view I take it that if there were no Federal Labor, Fair Labor Standards Act, no minimum Federal Law, a state would not have the power to fix a state minimum wage?

Frank C. Heath:

That is right,Mr. Justice Stevens.

And I think that was held by this court in 1914 in the early Railroad case —

John Paul Stevens:

As a matter of preemption.

Frank C. Heath:

As a matter of preemption that is all I am talking about is preemption.

That is right.

John Paul Stevens:

Can a state have Child Labor Laws?

Frank C. Heath:

Probably only if authorized as they are by the Wage and Hour Act, although there you might get into the question of whether or not you fall into a health and safety exemption but except for that, no.

William H. Rehnquist:

Well what is the basis for the health and safety exemption if it does not extend to some other aspects of traditional police power too?

Frank C. Heath:

The basis for it was to have a very limited exception of the type which had been historically recognized and…

William H. Rehnquist:

Historically recognized where?

Frank C. Heath:

Well, under the Railway Labor Act for instance, there were safety laws and there have been for many years, a states, usually the Industrial Commission of the State, may set expressed provisions of what safety devices must be used here and there on machines.

And that kind of law had been in effect.

I can only believe and assume that that is what was meant in Oliver.

Actually, this court in restating the local interest exception as it did in Machinists perhaps, stated so tightly that it would be less broad than in Oliver.

William H. Rehnquist:

Does Oliver seem crystal clear to you when reading it?

Frank C. Heath:

The case, the decision?

William H. Rehnquist:

The language.

Frank C. Heath:

Yes, I think it is Your Honor for the purpose for which I read it.

William H. Rehnquist:

I suppose a lot of people could say that with different clients than yours.

Frank C. Heath:

And let me say this, I have not talked about it here but the suggestion that Oliver has viability only when you are talking about the Anti-Trust laws simply does not have any validity because the decisions which Oliver followed, Hanson and Taylor were not Anti-Trust cases.

And when this court in Machinists and earlier in Insurance Agents said it is perfectly clear that we will not let a state interfere with the substantive solution of Collective Bargaining.

They were not talking about Anti-Trust law, so I do not think Oliver is limited in that sense.

John Paul Stevens:

Well suppose it were clear that the state prospectively could do what it is doing here.

It could with respect to new Collective Bargaining Agreements that its action would not be preempted.

You say nevertheless it is preempted here?

Frank C. Heath:

Well in the first place, I do not agree with the limitation which the AFLCIO has put on Oliver here.

Although we are glad that except for the argument as to Disclosure Act which we do not think is very meaningful, they agree with us that what was done here is an intolerable interference of Collective Bargaining.

John Paul Stevens:

Suppose this court were to decide that prospectively with respect to new agreements, Minnesota could do what it did.

Would the question be in so far as preemption and Supremacy Clause is concerned, would the issue be different with respect to passed contracts as far as Supremacy Clause is concerned?

Frank C. Heath:

No, in Oliver for instance, Oliver was dealing with an Ohio anti-trust law the Valentine Act which has been in effect in Ohio since the early teens as I recall it.

So the fact that it was in effect before does not matter and as I recall in Hanson, the Nebraska Constitution prohibiting co-shops had been on effect before and perhaps even in Taylor, the —

John Paul Stevens:

Well yes but does it make the case a better case for you that the law was not in effect when the Collective Bargaining Agreement Involved here was made?

Does it make it better for you as far as the Supremacy Court is concerned?

Frank C. Heath:

I think it creates a more gross situation.

As we have said in our brief, I do not think there would be a difference but arguably if you had a statute that was already in effect, you could bargain around it if you please.

And let me say that the Chamber of Commerce makes a very good point that that would be intolerable interference because if you have to spend all of your money, the money you had available, to satisfy the statute of a state with respect to one fringe benefit, the union could come in and say, well we do not want that fringe benefit we would rather have longer rest periods.

We would rather have some holiday.

We do not want that particular benefit.

And then there would be material interference with the Collective Bargaining Process.

Warren E. Burger:

What if a bank employee said, we would much rather you do not keep all these reserves that the state banking law requires, we want higher wages?

Frank C. Heath:

I do not think that is a bargainable subject.

I think that is outside the realm of what you would need to bargain on under the National Labor Relations Act.

Warren E. Burger:

To bargain about wages?

Frank C. Heath:

Yes, they can say that they may not like that.

I think the employees to their union have a right to say we do not care what reserves you keep.

We think you keep too much but whether you keep those reserves or not we want more dollars but I do not think they can say we demand that you keep lower reserves.

I think that is outside the realm of Collective Bargaining and perhaps I am getting far a few from the case here but I think –.

In other words they could picket the bank but they could not change the state’s requirements for reserves?

Frank C. Heath:

That is my feeling, Mr. Chief Justice.

Let me say, if I have a few minutes, comment briefly on the Pension Disclosure Act argument, I think there has on its face a little weight.

But it can be demonstrated to be invalid, because AFLCIO seems to say something a little different which may be as even less validity but relying upon the language that Congressmen and senators used in the Pension Disclosure Act debate.

We are going to leave to the states their traditional functions, functions related to operation and administration.

Aha, says the state, that means that that they can change the terms of pension agreements because says the state, it is not necessary to cede that power to them and the state expressly says that in their reply brief at page 9, the state did not need to cede anything.

All they had to do with leave to the states, the power that it had and that does not make sense.

The day before the Pension Disclosure Act what was the situation?

Railway Labor Act had been in effect for a long time.

National Labor Relations Act was in effect, this court had articulated the principal of Labor law preemption clearly in Hanson and Taylor and talked about the imprimatur of federal law protecting contracts and so at that day before the Disclosure Act, there was not any right on the part of a state to change a collective bargaining agreements whether it is in pensions or otherwise.

They did not have that right then.

Because if they had that right Labor Law preemption is gone again, it is undermined because if the day before the Pension Disclosure Act, it the state could have said we are going to dictate the terms of Pension agreements, they could say, we are going to insist if you please as the minimum that you give everybody 30 minutes of every hour off so that our employees in our state are well rested.

We are going to give everybody a five weeks vacation and those examples also proved, if the court please, that there is no magic in simply saying all we are doing is setting minimums because by setting minimums you can destroy collective bargaining.

If you say everybody must have 30 minutes an hour off and five weeks of vacation after they have been there one year, this is going to impose burdens if it were valid, burdens on a employer that would be intolerable and the employer would say, well if I have to bear those burdens, If that were valid, if I had to bear those burdens, I cannot assume other burdens.

So on its face we think that the Pension Disclosure Act does not do anything, to give the state’s power.

It does not cede power to them and it did not have the power to act in this way before the Pension Disclosure Act.

Thank You.

Warren E. Burger:

Thank you gentleman.

The case is submitted.