Massachusetts v. Morash

Background

Massachusetts brought criminal charges against a bank president for failing to pay two discharged bank vice presidents for unused vacation time, under a state law that requires wages, including vacation pay, to be paid on the day of discharge. The parties agreed the bank had promised vacation pay through handbooks and practices and paid those sums in lump sums out of the bank’s general assets when employees were terminated. The Massachusetts high court held that the bank’s policy was an ERISA welfare plan and that the State’s prosecution was barred by ERISA.

Reasoning

The Supreme Court considered whether ordinary employer-paid vacation that is paid from general assets is the kind of accumulated, trust-funded benefit ERISA was meant to regulate. The Court explained ERISA focuses on funds held separately and benefits that arise from contingencies outside an employee’s normal pay. It relied on the Department of Labor’s regulation treating payroll practices, including vacation pay out of general assets, as outside ERISA coverage. The Court concluded that deferred payment of regular vacation wages does not transform them into an ERISA plan and that a different outcome might follow if a separate fund or trust had been created.

Real world impact

The ruling lets States enforce their wage laws, including criminal penalties, for unpaid vacation wages when those wages come from an employer’s general assets. It avoids imposing ERISA’s reporting and disclosure duties on routine vacation pay and leaves open different results for pooled or trust-funded vacation plans. The case is reversed and sent back for further proceedings consistent with this opinion.