The Contracts Clause
Government Interference in Private Contracts
Allied Steel Co. v. Spannaus (1978)
438 U.S. 234 (1978)
Decision: Reversed
Vote: 5-3
Majority: Stewart, joined by Burger, Powell, Rehnquist, and Stevens
Dissent: Brennan, joined by White, and Marshall
Justice Blackmun took no part in consideration or decision of the case.
MR. JUSTICE STEWART delivered the opinion of the Court.
The issue in this case is whether the application of Minnesota’s Private Pension Benefits Protection Act to the appellant violates the Contract Clause of the United States Constitution …
In 1974, appellant Allied Structural Steel Co. (company), a corporation with its principal place of business in Illinois, maintained an office in Minnesota with 30 employees. Under the company’s general pension plan, adopted in 1963 and qualified as a single-employer plan under § 401 of the Internal Revenue Code … salaried employees were covered as follows: at age 65, an employee was entitled to retire and receive a monthly pension generally computed by multiplying 1% of his average monthly earnings by the total number of his years of employment with the company. Thus, an employee aged 65 or more could retire without satisfying any particular length-of-service requirement, but the size of his pension would reflect the length of his service with the company. …
In sum, an employee who did not die, did not quit, and was not discharged before meeting one of the requirements of the plan would receive a fixed pension at age 65 if the company remained in business and elected to continue the pension plan in essentially its existing form.
On April 9, 1974, Minnesota enacted the law here in question, the Private Pension Benefits Protection Act … Under the Act, a private employer of 100 employees or more — at least one of whom was a Minnesota resident — who provided pension benefits under a plan meeting the qualifications of § 401 of the Internal Revenue Code, was subject to a “pension funding charge” if he either terminated the plan or closed a Minnesota office. The charge was assessed if the pension funds were not sufficient to cover full pensions for all employees who had worked at least 10 years. The Act required the employer to satisfy the deficiency by purchasing deferred annuities, payable to the employees at their normal retirement age. A separate provision specified that periods of employment prior to the effective date of the Act were to be included in the 10-year employment criterion.
During the summer of 1974, the company began closing its Minnesota office. On July 31, it discharged 11 of its 30 Minnesota employees, and the following month it notified the
Minnesota Commissioner of Labor and Industry, as required by the Act, that it was terminating an office in the State. At least nine of the discharged employees did not have any vested pension rights under the company’s plan, but had worked for the company for 10 years or more, and thus qualified as pension obligees of the c