UNITED STATES v. EMBASSY RESTAURANT, INC., ET AL.
No. 174
Supreme Court of the United States
Argued January 22, 1959. Decided March 9, 1959.
359 U.S. 29
Richard H. Markowitz argued the cause for the Welfare Funds, respondents. With him on the brief was Charles A. Rothman.
W. Randolph Montgomery filed a brief for the National Association of Credit Management, Inc., as amicus curiae, in support of the United States.
Jacob Sheinkman, Herbert Ferster and Mortimer Horowitz filed a brief for the Amalgamated Clothing Workers of America et al., as amici curiae, in support of respondents.
MR. JUSTICE CLARK delivered the opinion of the Court.
The sole issue involved here is whether contributions by an employer to a union welfare fund which are required by a collective bargaining agreement are entitled, in bankruptcy, to priority as being “wages . . . due to workmen” under
The facts are undisputed. Embassy Restaurant, Inc., was bound in collective bargaining agreements with Local Unions 111 and 301. The agreements related to hours, wages and other conditions of employment. Under these agreements Embassy was obligated to contribute to the trustees of the welfare funds of Locals 111 and 301 $8 per month per full-time employee. The welfare plans were organized to maintain “life insurance, weekly sick benefits, hospital and surgical benefits” and other advantages for members of the locals. Trustees administered each plan under a formal trust agreement and were authorized to formulate and establish the conditions of eligibility for benefits, control all the funds received, collect all contributions, and in their “sole discretion” to handle all legal proceedings incident thereto. Title to all of the funds, property and income was placed in the trustees exclusively and no employee or anyone claiming under him had any right whatsoever in the plan or any part thereof. In the
At the outset we point out that “The broad purpose of the Bankruptcy Act is to bring about an equitable distribution of the bankrupt‘s estate. . . .” Kothe v. R. C. Taylor Trust, 280 U. S. 224, 227, and that “if one claimant is to be preferred over others, the purpose should be clear from the statute.” Nathanson v. Labor Board, 344 U. S. 25, 29.2 Moreover, if the contributions are placed in the wage priority class, they will likewise be rendered nondischargeable under
The trustees attempt to bring contributions within this preferred class by claiming them to be “wages . . . due to workmen.” This class of claims has been given a preferred position in the Bankruptcy Act for over 100 years,4 long before welfare funds played any part in labor negotiations. True, the Congress has amended the Act, but such amendments have been few and guarded ones, such as raising the ceiling on the amount permitted,5 shifting
Let us examine the nature of these contributions. They are flat sums of $8 per month for each workman. The amount is without relation to his hours, wages or productivity. It is due the trustees, not the workman, and the latter has no legal interest in it whatsoever. A workman cannot even compel payment by a defaulting employer. Moreover it does not appear that the parties to the col-
It is contended, however, that since “unions bargain for these contributions as though they were wages” and industry likewise considers them “as an integral part of the wage package,” they must in law be considered “wages.” This approach overlooks the fact that we deal with a statute, not business practice. Nor do we believe that holdings that various fringe benefits are wages under the N. L. R. A.10 or the Social Security Act11 are apposite. We construe the priority section of the Bankruptcy Act, not those statutes. It specifically fixes the relative priority of claims of classes of creditors. Here that class is “wages . . . due to workmen.”
The contributions here are not “due to workmen,” nor have they the customary attributes of wages. Thus, they cannot be treated as being within the clear, unequivocal language of “wages . . . due to workmen” unless it is clear that they satisfy the purpose for which Congress established the priority. That purpose was to provide the workman a “protective cushion” against the economic displacement caused by his employer‘s bankruptcy.12 These payments, owed as they are to the trustee rather than to the workman, offer no support to the workman in periods of financial distress. Furthermore, if the claims of the trustees are to be treated on a par with wages, in a case where the employer‘s assets are insufficient to pay
Respondents argue that precedent allows the priority to be asserted by one other than the workman himself. We are cited to Shropshire, Woodliff & Co. v. Bush, 204 U. S. 186, and United States v. Carter, 353 U. S. 210. In Shropshire, wages due a workman had been assigned by him, and the assignee was seeking the wage priority enjoyed by his assignor. In allowing the claim to have priority, the Court said:
“When one has incurred a debt for wages due to workmen, . . . that debt . . . is entitled to priority . . . .
“The character of the debts was fixed when they were incurred, and could not be changed by assignment,” 204 U. S., at 189,
and also, that “The priority is attached to the debt and not to the person of the creditor . . . .” Id. Application of these principles to the facts here helps respondents not at all; the obligation to make contributions, when incurred, was to the trustees, not to the workmen. The debt was never owed the workmen. Furthermore, assignability of wage claims as in Shropshire, may benefit the bankrupt‘s employees, who are thus enabled to obtain their money sooner than they might by waiting out the bankruptcy procedure.
Nor does the Carter case, supra, support the granting of a priority to these contributions. There we dealt with the Miller Act,13 which granted to every person furnishing labor or material the right to sue on the contractor‘s payment bond “for the sum or sums justly due him.” The contractor defaulted and the trustees of a welfare fund similar to that involved here sued on the bond for recovery
The judgment is
Reversed.
MR. JUSTICE BLACK, with whom THE CHIEF JUSTICE and MR. JUSTICE DOUGLAS concur, dissenting.
I believe payments made by employers to union welfare funds are “wages . . . due to workmen . . .,” under the Bankruptcy Act‘s priority section.1
The history of the section is one of continuous congressional expansion. Priority for the “full amount of the wages due” on account of “any labor as an operative in the service of any bank-
The Chandler Act passed in 1938 raised the workers’ priority to second behind expenses of administration and ahead of federal and local taxes. At the same time its scope was further broadened to cover “workmen, servants, clerks, or travelling or city salesmen on a salary or commission basis, whole or part-time, whether or not selling exclusively for the bankrupt.”6 Finally, in 1956, Congress took occasion to guard against narrow interpretation of the class of workers covered by adding to the priority section of the Chandler Act the words “and for the purposes of this clause, the term ‘travelling or city salesmen’ shall include all such salesmen, whether or not they are independent contractors selling the products or services of the bankrupt on a commission basis, with or without a drawing account or formal contract.”7
This last change in the priority section was the sole subject of a very short Act passed by Congress. Like most of the earlier changes, it was enacted after court decisions barring some workers from the protected class or indi-
The Court argues, however, that payments to welfare funds are neither “wages” nor “due to workmen.” It is hard for me to see how they could not be “wages.” The payments are certainly not gifts. As was stated less than a year ago by a Senate Committee, which had made an extended study of plans such as those here involved, “regardless of the form they take, the employers’ share of the costs of these plans or the benefits the employers provide are a form of compensation.”9 Courts have long held that compensation for services rendered is a valid definition of “wages” both in the priority section of the Bankruptcy Act and in other contexts.10 This is certainly in accord with the customary meaning of the word. It appears, moreover, that unions and employees consider such payments as the equivalent of wages and
It cannot be argued that a sum paid by an employer for a worker‘s services loses its status as wages merely because it is used to purchase insurance benefits.13 For the Bankruptcy Act has as yet authorized no investigation of how a worker spends his money to determine if he is entitled to a priority for it. And in all events insurance payments would not seem to be the type of expenditure which Congress would discourage.
It is also hard for me to imagine how the fact that the moneys are paid to parties other than the workmen is in any way connected with the question of whether the payments are wages, whatever its relevance might be to whether the sums are “due to workmen.” This is especially true in the light of Shropshire, Woodliff & Co. v. Bush, 204 U. S. 186, which held that moneys due an assignee of the worker were entitled to priority as wages. The Government admits that if a formal assignment had been made here, wage status might be granted. It does not explain, however, how the lack of a formal assignment can change payments from “wages” to some-
The question of whether the payments are “due to workmen” is on its face somewhat more difficult. But to my way of thinking, the correct answer has been made easy by prior cases in this Court. In the Shropshire case, the Court said, “The priority is attached to the debt and not to the person of the creditor; to the claim and not to the claimant. The act does not enumerate classes of creditors and confer upon them the privilege of priority in payment, but, on the other hand, enumerates classes of debts as ‘the debts to have priority.‘” 204 U. S., at 189. It then held that an assignee of a worker had priority since the debt was wages due to workmen.
Even if it could be meaningfully argued that in Shropshire the money was at one time due to workmen, and therefore remained so after assignment, while here it never was due to them, we are, I think, precluded from that position unless we depart from the reasoning of United States v. Carter, 353 U. S. 210. That case construed § 2 (a) of the Miller Act,
Finally it seems to me undesirable to make a distinction in this area between payments on assignment and payments in trust. At best it would let the carrying out of congressional policy depend on the skill with which unions prepare legal documents, and on the various state laws covering the validity of wage assignments. At worst it would give priorities to assignees of the workmen, usually creditors, while denying them to insurance funds for their benefit. Unless we are prepared to repudiate what we said in the Carter and Shropshire cases, I think
I would affirm.
Notes
“(a) The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankrupt estates, and the order of payment, shall be . . . (2) wages . . . not to exceed $600 to each claimant, which have been earned within three months before the date of the commencement of the proceeding, due to workmen, servants, clerks, or traveling or city salesmen on salary or commission basis, whole or part time, whether or not selling exclusively for the bankrupt; . . . (4) taxes legally due and owing by the bankrupt to the United States or any State or any subdivision thereof: . . .”