Joint Industry Board of Electrical Industry v. United States
Docket: 616
Court: Supreme Court of the United States; May 20, 1968; Federal Supreme Court; Federal Appellate Court
Mr. Justice White delivered the Court's opinion on the application of Section 64a (2) of the Bankruptcy Act, which prioritizes "wages due to workmen" up to $600 for wages earned within three months prior to bankruptcy proceedings. The key issue was whether unpaid employer contributions to an employee annuity plan established by a collective bargaining agreement could be classified as wages entitled to this priority. The referee and District Court denied this priority, a decision affirmed by the Court of Appeals.
The Annuity Plan, part of a collective bargaining agreement between Local Union No. 3 and electrical contractors, required employer contributions of $4 per day for each day worked. Contributions were managed by trustees and credited to individual employee accounts, but were only payable upon specific conditions like death or retirement, not during bankruptcy.
When A. S Electric Corporation declared bankruptcy in 1963, the Joint Industry Board filed a claim for $5,114 in unpaid contributions due within three months prior to bankruptcy. The United States contested this claim, arguing it should not receive priority. The courts sided with the United States, referencing United States v. Embassy Restaurant, Inc., which held that similar contributions to a welfare fund did not meet the priority criteria under Section 64a (2). The Court concluded that, like the welfare fund contributions in Embassy Restaurant, the annuity plan contributions were not immediate payments to employees but were instead payable only to trustees, thus failing to provide prompt financial relief to employees facing unemployment due to bankruptcy.
Benefits from the annuity fund are not payable until specific events occur, such as death, retirement after age 60, permanent disability, military service entry, or cessation of participation in the plan. Employees cannot assign, pledge, or borrow against their contributions, which underscores that the fund is not designed to address temporary unemployment issues, including employer bankruptcy. The unpaid contributions do not fulfill the priority wage claims outlined in 64a(2) of the Bankruptcy Act, which ensures priority for wages due to employees up to $600 earned within three months prior to bankruptcy. Previous interpretations, such as in Embassy Restaurant, have established that delinquent contributions for deferred benefits cannot have equal priority with direct wages, as this would diminish the immediate payments to employees and shift assets away from lower-priority creditors. Congress has been aware of the issues surrounding 64a(2) since 1966, yet has not amended it to change the priority for contributions. The plan stipulates that benefits cannot be assigned or subjected to legal processes to cover debts. Employer contributions to the fund are not taxable to employees until benefits are received. The history of 64a(2) and its interpretations are referenced in both majority and dissenting opinions in relevant case law. Additionally, workmen's compensation claims and certain tax withholdings have their own priority statuses in bankruptcy, highlighting a structured hierarchy of claims.
