Bowen v. Public Agencies Opposed to Social Security Entrapment

Background

The dispute began after California and many of its local agencies had entered agreements to cover state and local workers under the Social Security system and later filed notices to withdraw some employees. In 1983 Congress changed the law to prohibit any termination of those agreements on or after April 20, 1983, even if a notice had already been filed. Public agencies, employees, and the State sued, and a federal district court held that the amendment took away a contractual right without compensation in violation of the Constitution.

Reasoning

The key question was whether Congress’s amendment amounted to a forbidden taking of property. The Court explained that Congress had expressly reserved the right to alter the Social Security Act and that Agreements made “in conformity with” the statute incorporated that reservation. Because the termination clause merely mirrored the statute, conferred no independent bargain or payment, and was entered under a law that warned Congress could change it, the Court found no vested property right. The Court relied on long‑standing precedent that a sovereign’s reserved power to amend a statute can affect contracts made under that statute and concluded the amendment did not effect a taking. The judgment holding the amendment unconstitutional was reversed.

Real world impact

The ruling means States and local governments cannot end Social Security coverage for their workers as a result of the 1983 amendment, protecting trust-fund receipts tied to those employees. The decision affects state and local employers, their workers, and the federal administration of Social Security. The case is sent back to the lower court for proceedings consistent with this opinion.