United States v. Embassy Restaurant, Inc.

PETITIONER:United States
RESPONDENT:Embassy Restaurant, Inc.
LOCATION:Union Station

DOCKET NO.: 174
DECIDED BY: Warren Court (1958-1962)
LOWER COURT: United States Court of Appeals for the Third Circuit

CITATION: 359 US 29 (1959)
ARGUED: Jan 22, 1959
DECIDED: Mar 09, 1959

Facts of the case

Question

Audio Transcription for Oral Argument – January 22, 1959 in United States v. Embassy Restaurant, Inc.

Earl Warren:

Number 174, United States of America, Petitioner, versus Embassy Restaurant, et al.

Mr. Davis.

John F . Davis:

Mr. Chief Justice, if the Court please.

The issue here is whether a sum of money owed by a bankrupt restaurant to the trustees of a union welfare fund, whether these sums of money are wages due to workmen within the terms of the Bankruptcy Act so that they will be entitled to a priority of payment.

If these sums due to the welfare fund are to be considered as wages due to workmen, then they are entitled to a priority to be paid immediately after the expenses of administering the estate.

If on the other hand they are not wages, then they will share with the other secured creditors.

Now, the Embassy Restaurant in Philadelphia had contracted to pay to the trustees of the welfare plans for the local unions, which represented their chefs, theirs cooks and the local union representing the waiters and waitresses, the sum of $8 a month for each union employee.

This obligation arose from a collective bargaining agreement which had been entered into between the Greater Philadelphia Restaurant Operators, Inc., representing the restaurants generally, and the Local Joint Executive Board of Philadelphia which was made up of the unions of the workers who worked in the restaurants and the hotels.

And the purpose of these — the purpose of these payments and it’s set forth, page 30 of the record, and this is quoted from the collective bargaining agreement under (b) and this is all what is stated about the purpose.

“These funds shall be maintained and utilized to promote life insurance, weekly sick benefits, hospital and surgical benefits and other benefits for the employees who are members of locals,” and it names them, “in the employee of the employer as in that practice.”

Now, the funds were to be operated — were to be used in accordance with a trust agreement which is also set forth in the record at pages 9 to — 9 to 24.

The restaurants are not a direct party to these trust agreements.

The trust agreement entered into by the local union, in this case, the chefs and cooks union, and the Board of Trustees for the welfare fund.

And this is the document under which the recipients of these payments from the — from the restaurant were to be governed in — in the administration of their trust.

This, too, is stated in the most general terms.

I call the attention of the Court to the provision on page 11, which names the purpose of the trust and to Article II, Section 2.

It says, “The purposes of the chefs, cooks, pastry cooks and assistants’ local union — Local 111 welfare plan shall be provide welfare benefits for employee who use — who meet the eligibility requirements for coverage as such eligible — eligibility requirements presently exist or are amended.

Almost a cut blank but they don’t define welfare benefits other than just welfare benefits as such.And then, in the duties of the trustees, the trustees are given authority to determine how these funds shall be used.”

And Article IV on page 13 states — gives these trustees the — the authority to make the determination as to what welfare purposes they shall be used for.

It’s one of the item in the — in the trust agreement and that is with respect to the rights, the beneficial rights of the union members.

On page 22, this was specifically stated, “The money is to be paid in the said Local 111 welfare plan shall not constitute or be deemed moneys due to the individual employees.

Hugo L. Black:

Where is that?

John F . Davis:

Page 22 of the record, Mr. Justice Black.

Now these, I think, are — are all the facts which we have before us in — in this case.

And the question which we have to answer is whether this $8 per employee, which was not paid, is to be considered wages within the provisions of 64 (a) of the Bankruptcy Act.

The language of that section is not helpful.

It merely says that there shall be a priority for wages due to workmen.

Legislative history of that section is also, as far as any reference to congressional debates or reports, is also not helpful.

The words have been in the statute in these words since about 1841, although there have been some changes in the details.

But as far as interpretation goes, it’s always just referred to wages to employees.

John F . Davis:

So far as judicial interpretations of this section are concerned, there is a split between the Second Circuit which in a case named Local 140 against Hack in 242 F.2d, decided that these funds were not wages on facts which are very close to this case.

And the decision of the Court of Appeals for the Third Circuit in the — in this very case which recognize the conflict and came to the office with result.

There are several District Court opinions in New York, in New Jersey and in Southern California.

New York and New Jersey going one way, California the other, and these opinions are divided on it.

I find them unusually — unusually helpful in — in analyzing the question, they’re good opinions and they raised the issues very close — very, very carefully.

As far as this Court is concerned, the closest that this Court has come to this question, I think, is in United States against Carter in 353 U.S. 210.

You did not have before you at that time priorities under the Bankruptcy Act.

You had a question as to whether a bond given to secure a payment in connection with construction of federal buildings, a bond which secured amounts justly to the persons for labor, would include an obligation to pay funds to a welfare plan.

And the Court in deciding that the bond did cover those payments, was specific in saying that it covered more than wages.

And that even though these particular payments were designated as not being wages, they were still covered by the bond.

So that the case, insofar as it has any application, is not — is not inconsistent with the position which we take here.

I think that it is note — noteworthy that in other statutes, however, payments to welfare funds are generally not treated as wages.

Thus, they are not taxable to the employee under the Income Tax Law.

They’re not taxable to the employee under the Social Security taxes.

Under the Fair Labor Standards Act, payments made to welfare funds are not considered to be part of the regular wages which would be doubled for over time.

Charles E. Whittaker:

(Inaudible)

John F . Davis:

These — these are statutory provisions, Your Honor.

Charles E. Whittaker:

(Inaudible)

John F . Davis:

I’d say under the statute, under — for example, the Income Tax Law under the 20 — under the Revenue Code, 26 U.S.C. 106.

It specifically provided that these shall not be taxable to the employee.

Charles E. Whittaker:

(Inaudible)

John F . Davis:

No, the Fair Labor Standards Act doesn’t contain the provision, but it has been interpreted that these are not the standard wages, the — the administrator has — has so interpreted it.

There’s — as far as I know, there’s no judicial decision on that but it’s — that’s the way it’s been administered throughout.

I mean similarly, under the Walsh-Healey Act, it’s been administered by the Department of Labor where there is a provision for the payment of prevailing minimum wages.

That too has been always interpreted as not including welfare benefits within the term prevailing wages.

Charles E. Whittaker:

(Inaudible)

John F . Davis:

Yes, I think that is so, but on this —

Charles E. Whittaker:

(Inaudible)

John F . Davis:

That is — that is right.

That is right.

William J. Brennan, Jr.:

I suppose, Mr. Davis, bargaining on something like this would be mandatory under the obligation of the —

John F . Davis:

Yes, its is —

William J. Brennan, Jr.:

— National Labor Relations.

John F . Davis:

— it is clear that it would be mandatory.

There are several cases holding that this does fall within the fair labor — the NLRB as a — as a subject which they must bargain on.

But I may call your attention there that it’s not that — it’s not necessarily because they are wages, because the cases themselves speak not only of wages but other conditions of employment, so that — and the case has — in discussing whether this is a subject which must be bargained upon, say most of them say this is wages or it is other conditions of — of employment, so it must be — they must bargain on it.

There is a First Circuit — First Circuit case, however, which just says that for the purposes of the NLRB, it is wages.

It leaves out the Second — the Second Circuit.

William J. Brennan, Jr.:

Well, would there be any relevance in our consideration on how they answer this question that sometimes, perhaps even in this case, provisions of this kind compromise wage demands.

John F . Davis:

Well, yes.

I think it has some pertinency, but I think that you should have this in mind that many things are bargained for.

This — this particular welfare plan was a subject as I — as I pointed out of a collective bargain — bargaining agreement.

Many things are bargained for and are required to be bargained for which are not wages.

And even if it may be taken into consideration in the amount of wages.

William J. Brennan, Jr.:

No, what I had in mind was and I write sometimes to be the demand of X cents per hour increase which is resolved by an agreemen to this kind in lieu of a cents per hour increase?

John F . Davis:

That’s right.

In many times, the fringe benefits are taken into consideration in how much — how much they will be given in — in the direct wages.

Now, that — I’m not sure if that that helps us in the statute.

It shows that they are aligned, they have some relation to wages, but whether they are part of wages or instead of wages, I don’t know.

It’s almost a question of semantics whether you say that they are part of the wages or instead of wages.

You don’t have to give as much wages because you give other benefits.

Felix Frankfurter:

Would you say that abolishing the act, has been interpreted or specifically deals with these problems?

John F . Davis:

No, it’s been interpreted, Your Honor.

Felix Frankfurter:

Interpreted.

And you also said the federal — the Fair Labor Standards Act has been interpreted.

John F . Davis:

That’s right.

Felix Frankfurter:

And in both — and —

John F . Davis:

And the Fair Labor Standards Act is by regulation, I think in —

Felix Frankfurter:

Yes, was by regulation.

And for some — for some duration, both interpretation?

John F . Davis:

Yes.

It’s been the consistent interpretation of both —

Felix Frankfurter:

And both interpretations are as it weren’t — both interpretations implicitly are not taking what might be called the literal or latitude (Inaudible) view.

John F . Davis:

That — well —

Felix Frankfurter:

That is correct, isn’t it?

Well, I mean if — or just as a fact.

If — if these were included —

John F . Davis:

It would make larger — higher wages.

Felix Frankfurter:

It would make higher wages.

That’s right.

John F . Davis:

And more over time or higher percentage —

Felix Frankfurter:

That’s what I’m saying.

John F . Davis:

That’s right.

And —

Felix Frankfurter:

So that so far as any general talk about things should be construed infavorably.

Those two practical illustrations go against it.

John F . Davis:

That is right.

Now, I think that the basic purpose of this provision for priority is — is quite clear.

It was clearly intended to recompense in cash, employees who were thrown out of work by reason of the bankruptcy of their employers and who had money due from the employers.

And the idea was that these people were entitled to something more than — than other creditors.

They were not in as good a bargaining position perhaps and any way, they should get taxed.

Now, to give this kind of priority for a welfare fund, and to give this kind of a debt for a welfare fund, that priority probably fulfills that — that purpose.

The workers cannot buy bread with a priority given them for a welfare fund.

I think that if we —

William J. Brennan, Jr.:

But tell me though, Mr. Davis, if this debt isn’t paid through the funds, I take it that it will have some effect perhaps more, but some effect, will it not, on the benefits payable or to the affected employee and are eligible to see those.

John F . Davis:

I think it — I think we must assume that it will be a detriment to these — to these employees if they will have less protection from the welfare fund.

William J. Brennan, Jr.:

So now, is there any concept of payments of this kind?

Is there really in the sense of preferred wages?

John F . Davis:

Well, there are —

William J. Brennan, Jr.:

(Voice Overlap) —

John F . Davis:

There are with pensions.

There are with pensions, but not with respect to this — not with — with respect to this kind of welfare payment of such a —

William J. Brennan, Jr.:

Well, what kind — what — what is the assignment?

John F . Davis:

Well, it’s actually — welfare plans and this is pretty much the standard — in some respects, the standard plan, is for group life insurance, sick benefits, hospitalization, surgery benefits, and sometimes insurance to pay them while they’re out of work, while they’re sick.

I mean, that — that sickness insurance, that kind of disability insurance.

That’s the kind of thing which is generally covered by these welfare plans and which seems to be contemplated in this contract.

Potter Stewart:

And of course, the — the beneficiaries of this plan included not only the — the employees of the bankrupt but many, many other people, isn’t that true?

John F . Davis:

That is true.

It included the — well, I — I don’t want to overstate that.

It included the members in the Philadelphia area of these locals.

It wasn’t a national welfare plan in the sense of the — of the — John L. Lewis has called welfare plan.

Potter Stewart:

But —

John F . Davis:

It was — it was — there were — the — the employees of the Bellevue Stratford and — and book binders, had just as much interest in these payments by the Embassy Restaurant, as the pastry cook and the onion peeler in — in the —

Potter Stewart:

In the Embassy.

John F . Davis:

— in the Embassy Restaurant itself.

Potter Stewart:

So to that extent, too, you — could you not distinguish this from the policy behind giving a priority to wage payments.

That’s for the exclusive benefit of employees of the bankrupt.

John F . Davis:

That’s right.

This would give the same benefit to the other members of the union who would have an interest in the plan that it would to the particular employees who are threw — thrown out of work–

William O. Douglas:

The — the employees of the union.

John F . Davis:

Well, the union, too, are included in this.

I’m sorry, I didn’t mean employees of the union, but that is another feature of this plan that it includes not only employees —

William O. Douglas:

I’m just asking.

I —

John F . Davis:

They are included, yes.

The employees of the other restaurants and the employees of the union.

The terms of the trust in defining employees on page 10 of the record, show that the employee shall include employees employed by the union who don’t work for any restaurant.

Felix Frankfurter:

Mr. Davis, may I ask you, perhaps two general questions?

I was wondering how is the Court to decide this case, this kind of a case.

On the one hand, you can’t say as — you can’t say this is an old statute.

Felix Frankfurter:

The term wages comes down from 100 years and nobody thought about wages to include these fringe benefits in 1841 or whatever it was.

That’s no good because the term in the statute is ambulatory and — and creates to itself whatever new menu may properly be applied with.

That’s — that’s —

John F . Davis:

That’s right.

Felix Frankfurter:

Then one can say, “Well, this ought to be what is called liberally construed,” and you bring forth other cognate statutes, which in practice could have been construed to include this (Inaudible), but that’s on the other side.

Then also, that is the preference for me, very strong consideration, an element that this priority statute has been construed certainly by this Court to make 1% out of Shylock.

On the whole, that statute has been very strictly and closely construed to — to give Uncle Sam, if I may use the colloquialism, every break.

I am in that — in that odd mixture of consideration, how do you — how do you resolve those conflicting considerations?

John F . Davis:

Well —

Felix Frankfurter:

If you tell me that, I know how to answer your problem.

John F . Davis:

Well, I — I think that — I think that two ways that we have to approach the — this interpretation.

One is by the rather painstaking way of looking at the attributes of these payments and the attributes of wages.

These are paid not measured by the labor of the individual but paid by the person.

They’re not paid to these individuals, they’re paid to somebody else, someone else.

We look at these attributes and put them against wages and say, “Do we think these look like wages?”

Now, that’s what I say is a narrow thought of in —

Felix Frankfurter:

On the other hand, other consideration of Justice Brennan.

John F . Davis:

That’s right.

And on the other hand, you say that they are bargained.

Felix Frankfurter:

(Voice Overlap) wages, that’s the form of wages.

John F . Davis:

We say that they’re bargained for and they take the place of wages and that way is on the other side.

Now, there is the broader way of looking at this thing and that is.

I think whether — and this I think is — is the — the type of interpretation this Court often looks at and that is what is the — what is Congress really getting at in this kind of thing is it — does Congress want to favor these welfare plans?

Does Congress want to — want this Court to give its broader construction to wages as possible because Congress is in favor of welfare plans.

And it’s argued in some of the cases below and — and the respondent argues that there is a congressional policy that favors these so that we should — in order to achieve that policy in this setting, we should give wages a broad interpretation.

Well, I think that’s a — that’s the appropriate thing to inquire into, but I believe that if you have — one look at what the congressional position is on welfare plans that you will not find that there is a general policy to favor the union welfare plans as such.

Good welfare plans, yes, bad welfare plans, no.

And Congress, in — in legislating in this field has been selective.

It has encouraged some and it has discouraged others.

The Taft-Hartley Act , for example, in providing for employer contributions makes it illegal to contribute — for an employer to contribute to an employee welfare plan, unless there’s joint control of that plan by the employer and the employee.

John F . Davis:

Unless the funds are used exclusively for the benefit of the employees and unless there is an audit, I think it’s an annual audit of the plan which is made available to the employees.

If — unless a plan meets those conditions under the Taft-Hartley Act, it’s an unfair labor practice for an employer to make a contribution to the plan.

This is what I mean by saying that Congress picks and chooses among the plans to decide which plans it believes are beneficent and which are bad.

Felix Frankfurter:

So that even if —

Earl Warren:

I’m just going to say that that indicates that — that Congres is less favorable to these plans or — or on the other hand, they just wants to see that the — that the plans serves the purposes designed for and what’s that regulation on.

John F . Davis:

Well, I think that’s — I think that’s right.

It — it puts that regulation on it.

It — may I say this plan would not fit — would not fill that fill at all.

This — on this plan, if this — if this company were subject to the National Labor Relations Act and Taft-Hartley Act, this — this would be an unfair practice for the employer to make a contribution in this case.

What I’m suggesting is that Congress hasn’t put a blessing on welfare plans as such.

It has put a blessing on welfare plans which work for the welfare of — of the employees.

Felix Frankfurter:

Are you suggesting that we might make a distinction?

Do you think that would or would not be unfair labor practices?

Do this Court grantins priorities that promote unfair labor practice?

John F . Davis:

No.

I think this Court should probably — what I’m suggesting really is that you should leave to the Court, leave to the — leave to Congress a determination as to whether it wants to include this as one of the benefits to be given to welfare plans or whether — if it does want to give it to them, it wants to be selective.

There was a bill introduced at last — the last session of — of Congress.

It didn’t pass, but Congressman Cellar introduced it.

And I — I understand it was introduced with the — with the approval of the CI — of the AFL-CIO.

And this bill would have granted a priority to employee welfare plans.

But it also provided that it would it would grant the priority only to welfare plans where the contributions were made proportionate to the hours of labor of wages paid for the employee.

And where the welfare plan would be a — recognized as a proper one for a deduction by the employer in the income tax plot.

Felix Frankfurter:

And those are the considerations, I was wondering if you would illumin that — that Judge Hallanan set forth in his opinion in the District Court.

And you’ve quoted on page 24 and 25 of your brief.

Says, if this is to be done, then it can’t be the one way or the other, there might be all sorts of qualifying to that duration.

John F . Davis:

That’s — that’s right.

Now, I do not think that is an inappropriate judicial process to — there’s a possible one to look at each one of these plans and say, “There’s enough of the benefit that these go to the employees so that we should call this wages.”

Felix Frankfurter:

That’s an impossible way —

John F . Davis:

It’s a difficult one.

And therefore I suggest that what should happen is that it should be left to Congress.

John F . Davis:

Now, there’s just one — one other feature on this question of the policy of — of aiding a labor in this case.

To give a priority in this case, undoubtedly in one sense is a — is a help to labor.

And another sense however, it tucks into a right which is already given.

Under the present priority statutes, employees are limited to $600 a piece in the priority which they would receive.

If this is to be considered as part of their wages, it would seem to me that it would result in cutting that much into the direct benefits and — and siphoning it into the — into the welfare payments.

William J. Brennan, Jr.:

Well, Mr. Davis, do you suppose if this came within — in this instance, wages that to those plans that some employers have usually not for workers who are members of labor organizations but for executive and other personnel under which the employer voluntarily supports programs of this kind , would they also have to come within the sweep of wages for the — in the event the employer then would think (Voice Overlap) —

John F . Davis:

I would think they would be even closer — even more closely wages than this, Your Honor, because they would be cases where at least the benefits would be going specifically to employees of this — of this employer.

William J. Brennan, Jr.:

And not — there, and those instances of course is — is not — nothing that in that type of employer ordinarily that involves the National Labor Relations Act to — in the other statues (Voice Overlap) —

John F . Davis:

I think that’s right.

I’d like to reserve the rest of my time.

Earl Warren:

Mr. Markowitz.

Richard H. Markowitz:

May it please the Court.

I think that the first and essential consideration and problem which we must face in this case is a definition of the term “wages” as it appears to the Bankruptcy Act.

Congress has never defined this term in this Bankruptcy Act but has left it to the definition of courts for many years.

And courts have consistently, beginning back in 1903, defined the term as meaning compensation for services rendered, reward for labor performed.

And this is the meaning which is attached and described to the term wages.

And I think it’s critically important that it be considered in this fashion in the context of this case.

Because, the term wages, as Mr. Justice Frankfurter pointed out, has been an ambulatory one.

It’s expanded tremendously as are industrial economy has expanded.

Then there’s various and new types of compensation have been developed in the field of collective bargaining.

Vacation pay , severance pays, sick leave pay, holiday pay and numerous kinds of fringe benefits all exist and are all today considered by our Court’s to be wages for the purposes of the Bankruptcy Act.

It’s well settled.

For example, as vacation pay is wages.

As Mr. Justice Brennan pointed out, it’s deferred wages.

The courts have said, the Third Circuit said in the early Public Ledger case.

And I think that concept of compensation of reward for labor performed is one which is inherit in the definition of the term wages as it appears in the Bankruptcy Act.

Now, how does that relate to this case?

Felix Frankfurter:

What if — may I ask you this point?

Would any that I’m concerned.

Then it was out of business plans, be included in the income tax of the employee’s annual report.

Richard H. Markowitz:

No, sir.

Congress has accepted benefits such as hospitalization benefits, sickness and accident benefits which are received from disability from income tax.

And it’s gone even further insofar as the contributions themselves are concerned as I’ll point out if I may in a few moments.

But I think we must consider how this contribution, as welfare contribution arises here.

It arises from the product of collective bargaining.

It’s due to the welfare fund as a result of the compensation and as part of the compensation due to employees.

In normal situation, an employer and a union sit down to negotiate a collective bargaining agreement.

Union makes numerous demands.

The employees want 20 cents an hour increase and they want a welfare fund contribution and they want more vacation pay and they want additional holidays.

And as the parties gradually meet and counter proposals are made and they merge toward a middle ground where there’s going to be a meeting in their minds.

The employer says to himself, “I have so much money to spend for a two-year agreement.

I can afford to pay 20 cents an hour for labor fees for two years.”

And he in effect, says to the union, “You do what — what you want with this amount.”

You can take 8 cents in wages this year and 5 cents next year and somewhat 2 cents which will cover increase vacation cost and 5 cents to a welfare fund or have it anyway you please within certain limitations.

If you want to take 10 cents this year and 5 cents to welfare fund, that’s up to you.”

But the union and the employees of course and the union acting as collective bargaining agent for the employees decide that they want so much money in welfare fund contribution.

If they want 5 cents an hour or in this case $2 a week or $8 a month to go to the welfare fund, and this is a part of their compensation.

This is the part of the reward for the labor that they performed.

Just as if they put this 5 cents an hour in their pocket as part of their wages, is added to their hourly rate of pay.

So they take 5 cents and had — and asked the employer to give it directly to the welfare fund as part of the compensation for the labor that they performed.

Potter Stewart:

We can agree that it’s a part of their compensation.

So with the various other fringed benefits be part of compensation.

But the statute doesn’t use the word compensation, doesn’t it?

Richard H. Markowitz:

Statute uses the term wages, sir.

And wages is defined as compensation due to employees for labor performed.

William J. Brennan, Jr.:

Well tell me, Mr. Markowitz.

I think I am correct, am I not?

That sometimes, negotiations of this kind will result in agreements by the employer to provide at his expense only group insurance.

And suppose in the event of bankruptcy, there’s — owing premiums on that group insurance to the insurance company.Doesn’t your reasoning suggest that the premiums unpaid then constitute wages for the purposes of — of this section?

Richard H. Markowitz:

Yes, sir.

Richard H. Markowitz:

It does.

And I — I would go further and point out the — it seems to me that the — the fact that the Government’s position does not withstand logical analysis.

Because suppose we take this 5 cents per hour that the employer and the union have negotiated to be contributed to the collective bargaining agreement.

Now, the Government says, “When you take this 5 cents per hour, you pay it directly to the welfare fund.

It’s not wages, it’s not entitled the priority.”

But suppose that the 5 cents per hour were paid directly to the employee who then signed an authorization and said, “Please pay 5 cents per hour to the welfare fund or to the insurance company or whatever the direction in order to obtain the same benefits.”

Now, the Government says in the — the Ross case in California and the Second Circuit case which the Government supports all say that this is entitled a priority, this is wages.

And the analogy goes even further because in this case, we have a — a direct proof, the record shows, that this welfare fund contribution is a direct substitute for sick leave which is direct payment to employees.

The employees at these establishments enjoy seven days sick leave per year and the collective bargaining agreement on page — on page 29 points out that the article as to welfare plan shall be operative only in the event that — or because of the fact that the sick leave provisions have been given up.

So the employ —

Hugo L. Black:

I beg your pardon.

Richard H. Markowitz:

Excuse me.

Hugo L. Black:

I think it’s —

Richard H. Markowitz:

The employees have given up their right to receive sick leave directly in return for the employer contribution to the welfare fund.

Felix Frankfurter:

And you (Inaudible) would be logical, can be logical in the sense that abrstractly logical.

Take — take the reason settlement and deliver a man in New York, they wanted to have some extra holiday instead of extra money.

Richard H. Markowitz:

Yes, sir.

Felix Frankfurter:

Now, can you translate the value of those extra holidays in dollars and cents —

Richard H. Markowitz:

Yes, sir.

Felix Frankfurter:

— they just want to be?

Richard H. Markowitz:

Yes, sir, directly.

Felix Frankfurter:

Can you?

Richard H. Markowitz:

And it’s done consistently by employers in collective bargaining.

Felix Frankfurter:

I — I mean, but — if it is done if they figure it out, but they say, “We just want Columbus day and Kosciusko day and so on.”

And that’s translated into dollars and cents?

Richard H. Markowitz:

Yes, sir.

And — and that’s their right to — to desire that amount in terms of a fringe benefit.

Now, suppose the employer went bankrupt and did not pay the holiday pay.

I think that clearly, there’d be no question for — to that holiday pay.

Felix Frankfurter:

Yes, if he — if he assured it is to be paid.

Felix Frankfurter:

If you — if he goes bankcrupt and then he owes them for — that’s not — that’s true.

But suppose it’s just a holiday of his own, they want more holidays.

Richard H. Markowitz:

Well they have a right to ask that just as they ask for more vacation.

Felix Frankfurter:

Yes, but would it then translate the value of that holiday for which the employer doesn’t pay?

Richard H. Markowitz:

The employer does pay, sir because it’s a paid holiday.

When you talk about holidays under a collective —

Felix Frankfurter:

I mean, and —

Richard H. Markowitz:

— the employer pays.

Felix Frankfurter:

I knew some holidays that are not paid.

Richard H. Markowitz:

Well, I don’t —

Felix Frankfurter:

They were —

Richard H. Markowitz:

— I don’t know of any such holidays — [Laughs]

Felix Frankfurter:

Do they want —

Richard H. Markowitz:

— that are not paid, sir in collective bargaining.

Felix Frankfurter:

They want — they want to be free on certain days.

You can take some holidays from the Government and not be paid for it.

Richard H. Markowitz:

While you — that that maybe where the sick leave.

I dont know that — that example exist in — in collective bargaining relationships, sir.

When — you have holidays, they are paid for by the employer and represent a cost to the employer.

Potter Stewart:

No, what I’m talking about — taking an equivalent example would be shorter working hours, wouldn’t it be?

Richard H. Markowitz:

Yes, sir.

Where — which would increase the hourly rate that which they’d take home.

Potter Stewart:

Which you might make through the necessity of more employees, doesn’t it?

Richard H. Markowitz:

Yes.

Potter Stewart:

For example the —

Richard H. Markowitz:

Yes.

Potter Stewart:

I don’t know anything about except from what I read from papers but the airplane pilots want a maximum of 75 hours a month instead of 85, which would mean that perhaps hiring more pilots.

But that wouldn’t increase the — it would be monetarily measurable from the point of view of the employer, but it would not increase —

Richard H. Markowitz:

Oh, yes.

Potter Stewart:

— be measurable from the point of view of the — it wouldn’t be wages to the employee, would it?

Richard H. Markowitz:

Well, decreased working hours —

Potter Stewart:

That increases.

Richard H. Markowitz:

— can’t be compensated except in the increase in the hourly rate to the employer for the time which is worth, assuming the same take home pay is involved.

Potter Stewart:

That’s Mr. Justice Frankfurter’s example really in — on paid holidays —

Richard H. Markowitz:

Well, there’s no — there’s no —

Potter Stewart:

— in short, of working hours.

Richard H. Markowitz:

Well, there’s no compensation I suppose that can be given for a holiday which is not paid for.

But then actually, it’s — it’s not paid for so there’s no pay involved in it.

Felix Frankfurter:

But there’s benefit involved?

Richard H. Markowitz:

Well, I don’t know that there’s benefit sir if there’s no pay.

William J. Brennan, Jr.:

Why would this —

Richard H. Markowitz:

But —

William J. Brennan, Jr.:

I think there are a number of employers who provide recreational facilities in camps, in that sort of thing for their employees that the employees use without cost to themselves but the expense of the employer.

Suppose in such circumstances, an employer goes bankrupt and owes the butchers, the bakers, the coalman and all the others who have serviced that facility.

Do the claims of those people come within the category of wages for the purposes of fairness?

Richard H. Markowitz:

I don’t think so, sir.

It seems to me, they are normal business claims and as a general — their — their debtor-creditor relationships.

William J. Brennan, Jr.:

Well, I — I’m thinking — thinking that the —

Richard H. Markowitz:

They’re not — they’re not — they don’t arise out of the employer-employee relationships.

William J. Brennan, Jr.:

Well, I’m suggesting they do.

Richard H. Markowitz:

There’s no relation to compensation for services rendered.

William J. Brennan, Jr.:

I’m suggesting they do.

That the employer provides them in lieu of higher wages than otherwise.

Felix Frankfurter:

For the men themselves.

Richard H. Markowitz:

Well, yes.

But — but they aren’t — it — it is true that they maybe or I — I think I misunderstood your question for which — I am sorry.

It is true certainly that the employer provides them that their part in a sense of compensation, although that — although they don’t — there’s no direct benefit to the employee derived from this form of compensation so to speak.

They’re — they’re more or less of an attribute, more than — more perhaps in the form of compensation, I think.

Hugo L. Black:

Suppose he gets so much?

Richard H. Markowitz:

Well, that’s a form of compensation, certainly.

Richard H. Markowitz:

And — and it’s computed actually for income tax purposes, particulary in the restaurant industry, if Your Honor please.

Tom C. Clark:

But he was the caterer.

He was bankrupt and he was a caterer to that (Inaudible) lunch, would that be what it is?

Richard H. Markowitz:

The — if the employee, he also cater — I suspect not, because that’s not — that’s not part of the compensation of the employee.

If the employee has already eaten a lunch, he’s gotten a compensation.

Tom C. Clark:

You think [Laughs]

Richard H. Markowitz:

Now (Inaudible) —

Tom C. Clark:

— they included on the compensation (Inaudible)

Richard H. Markowitz:

Well, I just — there’s no question but that compensation may achieve many forms and can perhaps be expanded.

But it seems to me that where the Bankruptcy Act talks about wages due to workmen and that with the term wages, while certainly it means compensation.

I think it means in terms of employer cost for labor performed.

Now, the Internal Revenue Code which Mr. Davis mentioned and a number of other taxing statutes all specifically accept wages from the definition of income.

And we contend that this doesn’t show that these contributions are not — weigh also specifically accept — excuse me — welfare fund contributions from the definition of income.

So that an employee is not taxed for the benefit that he receives by virtue of the employer contribution to the welfare fund.

Now, this shows it seems to us, number one, a recognition by Congress that where the exception not made, this welfare fund contributions would be income, would be wages to the employee.

But the need for a specific exception from the definition of income shows that — shows the Congressional recognition of the fact that otherwise, they would be interpreted to be wages.

And in fact, the — the congressional purpose of benefiting welfare funds by encouraging contributions is to be found in this exception in the Internal Revenue Code, the Social Security Act nor the other taxing statutes.

And if we take this 5 cents which I mentioned before and pay it directly to the employee and have him assign it to the welfare fund or have it — have him assign it to the insurance company or to the welfare fund where the Government says, “This is entitled a priority,” he there has to pay taxes on that money because it’s paid to him.

But if it’s paid directly by the employer to the welfare fund there is no tax on it.

Felix Frankfurter:

I suggest, it merely showed the Congress in the great enactments have addressed itself directly to that question, and you’re trying to prove it here argumentatively.

Richard H. Markowitz:

Well, by analogy perhaps except in the recent welfare fund and Pension Fund Disclosure Act which was passed and approved last August, the legislative history of that statute shows without a doubt that Congress recognized that welfare fund contributions are part of the compensation to employees that they are part of the wages which employees earned.

And they’re earned by employees by virtue of their labor.

Now, I cited the — the Senate Committee reports in our brief and there’s no sense repeating them here.

I would like to call the Court’s attention to the Carter case which we think is most important and in which we think the analysis and the rationale of the Court clearly points the way to defining these welfare fund contributions as wages.

In the Carter case, there was a collective bargaining relationship obligating the employer to make a welfare fund contribution.

And the Miller Act under which that case arose provided that a contractor who engages in construction work for the Government must file a bond guaranteeing to labor and material men, all sums justly due to them.

Now, the employer did not make his welfare fund contributions and the trustees of the welfare fund brought suit against the bonding company, against the surety, saying that you’re responsible for this welfare fund contributions.

And the bonding company defended on the ground that these aren’t sums justly to the employees who performed the work.

And the both — this Court reversed both the District Court and the Court of Appeals and said that the trustees in the welfare fund stand in the shoes of the employees who performed labor to receive these contributions.

And the trustees to the welfare fund have the right to collect these benefits because they are in a sense, although perhaps not the formal or technical assignees to the employees, they are — they stand in the shoes of the — the exact phrased used.

Richard H. Markowitz:

And they — the – -the trustees, the welfare fund have as much right to receive these benefits as the employees did to receive their wages in cash.

Now, I believe that contrary to the Government’s position, the original purpose of the wage priority is fulfilled by granting a priority to these welfare fund contriubutions because the very purpose of these contributions is to give protection to the employee against illness, accident, hospitalization, not only of himself but also of his family in a time when he most needs it.

Because certainly, when illness strikes at times — at time of unemployment, that certainly is when the benefit is most needed and there is a direct benefit to the employee, because of the contribution.

Potter Stewart:

Suppose the (Inaudible) but there’s no indication, is there, in this record as to how many beneficiaries they were of this welfare fund and how many employees of this bankcrupt if there are?

Richard H. Markowitz:

I don’t — I don’t think the record gives any indication, sir, of that fact.

As a matter of fact, that this covers just the restaurants in Philadelphia.

It does not cover the Bellevue Stratford (Voice Overlap) —

Potter Stewart:

But there are many, many restaurants in Philadelphia.

Richard H. Markowitz:

Pardon?

Potter Stewart:

There are good many of those in Philadelphia.

Richard H. Markowitz:

Yes, sir, there are.

Potter Stewart:

And — so presumably, the — the benefit accruing to the former employees of this bankrupt corporaton would be diluted by maybe one to ten or (Voice Overlap) —

Richard H. Markowitz:

Well there’s no question about it because the eligibility rules of the welfare fund may — may make the determination in the receipt of benefits dependent upon the receipt of contributions for so many hours of employment.

And if those contributions aren’t received, an employee may not be eligible to receive benefits unless if they aren’t granted a priority, he may not be entitled to the funds which the welfare fund would pay him in case of accident, illness, hospitalization and so on.

And — and this Court recognized that fact in the Carter case where in a footnote it’s pointed out, that eligibility may depend upon receipt of contributions for certain number of hours work.

So that essentially and basically, the position of the welfare funds here is that the contributions are part of the collective bargaining package.

They’re part of the wage picture.

They can’t be divorced from the labor rendered in the services performed by employees, and they are just as much wages within the meaning of the Bankruptcy Act as vacation pay or as the money actually received in the pocket of the employee pursuant to his daily rate.

Thank you.

Earl Warren:

Mr. Davis.

John F . Davis:

Mr. Chief Justice, and may — if the Court please.

I made a mistatement in my reply to Mr. Justice Whittaker with respect to the Fair Labor Standards Act.

The Fair Labor Standards Act provides that this type of payment shall not be considered in the regular wage.

It makes a specific statutory provision to that effect rather than it being a matter of interpretation and regulation.

And the citation of that is 41 U.S.C. Section 35.

I made a — a list of the kind of benefits which employers give sometimes which are growing up today in which have more or less comparable to what we have here.

And it — I think it’s the — it shows what kind of things we’re getting into if we consider all this kind of thing wages.

In this particular case, they bargained for one free meal a day.

When they — when they were an employee in the restaurant with a specific provision that this would not be taxable to the employee as income.

They bargained for locker space in this particular thing and frequently, they are these provisions with respect to — to working conditions.

William J. Brennan, Jr.:

Well, this is the part (Inaudible) those things are paid whether or not the expense of supplying it.

In fact, the employees have receipts.

John F . Davis:

That’s right.

William J. Brennan, Jr.:

Into the locker then eat the meals?

John F . Davis:

That — that is right.

William J. Brennan, Jr.:

4(Inaudible)

John F . Davis:

Yes of course.

The — but when you come to considering whether or not these things are wages not in this sense but in the general sense of wages for the Fair Labors Standards Act, for the other purposes.

They’re not generally treated as wages, they are fringed benefits.

They go beyond what is ordinarily wages.

We don’t — I don’t think we really have any question of the priority under the Bankruptcy Act with respect to these things.

William J. Brennan, Jr.:

Well, I think —

Felix Frankfurter:

What do you say to the suggestion — the sole argument is that wages must be read to equal compensation in the priority statute.

And substitue strike out wages, according to the first compensation because wages has now had — has received a judicial gloss.

That’s what wages mean.

John F . Davis:

Well, I don’t think it has received that gloss.

I think that he uses compensation, really to mean the benefits by which an employee — employees bargain.

And in a sense, that is a compensation but I don’t think that that’s necessarily the same as wages, that’s really the question which is before us.

Now, just one other thing, if the Court is interested in what the nature of this type of plan is.

What the benefits are, the United States Department of Labor Bureau of Labor Statistics has put out a bulletin, Bulletin Number 1221 which I don’t think is cited in any of our — in our briefs which gives a description of the type of insurance plans which are covered in these collective bargaining agreements.

I can leave this copy of it with the — with the clerk or the marshall if it would be helpful.

William J. Brennan, Jr.:

Bulletin Number 1211?

John F . Davis:

1221 — 1221, Bulletin Number 1221.

Earl Warren:

Very well, Mr. Davis.

We’ll adjourn now.

John F . Davis:

Well, thank you.