OCTOBER TERM, 1991
Syllabus
GENERAL MOTORS CORP. ET AL.
v. ROMEIN ET AL.
CERTIORARI TO THE SUPREME COURT OF MICHIGAN No. 90-1390. Argued
December 10, 1991-Decided March 9,1992
In 1980, the Michigan Legislature raised maximum weekly workers'
compensation benefits and provided an annual supplemental
adjustment to workers injured before 1980. The following year it
enacted a statute allowing employers to decrease workers'
compensation benefits to those disabled employees eligible to
receive wage-loss compensation from other employer-funded sources.
Some employers, including petitioners, General Motors Corporation
and Ford Motor Company, took the position that the 1981 law's
"benefit coordination" provision allowed them to reduce workers'
compensation benefits to workers injured before the statute's
effective date, who were receiving benefits from other sources. The
State Supreme Court ultimately accepted this interpretation.
Chambers v.
General Motors Corp., 422 Mich. 636,375
N. W. 2d 715. In 1987, the legislature repudiated
Chambers
and required employers who had coordinated benefits for previously
disabled workers under the 1981 law to refund the benefits
withheld. The State Supreme Court upheld the 1987 law, rejecting
petitioners' arguments that the reimbursement provision was
unfairly retroactive and violated the Contract Clause and the Due
Process Clause of the Federal Constitution.
Held:
1. The 1987 statute did not substantially impair the obligations
of petitioners' contracts with their employees in violation of the
Contract Clause, because there was no contractual agreement
regarding the specific terms allegedly at issue. The contracts were
entered into after collective bargaining between the parties before
the 1981 law was enacted and make no express mention of workers'
compensation benefits. Nor was the workers' compensation law an
implied contract term whereby employers promised to pay the amount
required by law for each payment period, an obligation that was
completed by making payments for any disability period. There was
no occasion for the parties to consider in bargaining taking place
before the 1981 law's effective date the question whether an
unanticipated reduction in benefits could later be restored after
the "benefit period" had closed. Petitioners err in arguing that
such a term is "incorporated" by law into the employment contracts,
regardless of the parties' assent. Michigan law does not explicitly
imply a contractual term allowing an employer to depend on the
closure of past disability compensation periods; and such a
right
182
Syllabus
does not appear to be so central to the bargained-for exchange
between the parties, or to the enforceability of the contract as a
whole, that it must be deemed to be a contract term. State
regulations are usually implied terms regardless of assent only
when those laws affect the validity, construction, and enforcement
of contracts. See
United States Trust Co. of N. Y. v.
New
Jersey, 431 U. S.
1, 19, n. 17. While changes in the laws that make a contract
legally enforceable may trigger Contract Clause scrutiny if they
impair the obligation of pre-existing contracts, even if they do
not alter the contracts' bargained-for terms, the 1987 statute did
not change the legal enforceability of the contracts here. The
parties still have the same ability to enforce the bargained-for
terms that they did before the 1987 statute's enactment.
Petitioners' suggestion that every workplace regulation should be
read into private employment contracts would expand the definition
of contract so far that the Contract Clause would lose its purpose
of enabling individuals to order their personal and business
affairs according to their particular needs and interests; would
cause the Clause to protect against all changes in legislation,
regardless of those changes' effect on bargainedfor agreements;
would severely limit the ability of state legislatures to amend
their regulatory legislation; and could render the Clause entirely
dependent on state law. pp. 186-191.
2. The 1987 statute did not violate the Due Process Clause. Its
retroactive provision was a rational means of furthering the
legitimate legislative purpose of correcting the results of the
Chambers opinion. Cf.
Pension Benefit Guaranty
Corporation v.
R. A. Gray &
Co., 467 U. S.
717, 730. It preserved the legislative compromise that had been
struck by the 1980-1981 laws-giving workers injured before 1982
their full benefits without coordination, but not the greater
increases made to subsequently injured workers-and equalized the
payments made by employers who had relied on
Chambers with
those who had not, cf.
United States v.
Sperry Corp.,
493 U. S. 52,
64-65. pp. 191-192.
436 Mich. 515, 462 N. W. 2d 555, affirmed.
O'CONNOR, J., delivered the opinion for a unanimous Court.
Kenneth S. Geller argued the cause for petitioners. With him on
the briefs were Stephen M. Shapiro, Mark 1. Levy, James D.
Holzhauer, Charles A. Rothfeld, Lawrence C. Marshall, John M.
Thomas, Theodore Souris, Martha B. Goodloe, and Daniel G.
Galant.
Theodore Sachs argued the cause for respondents. With him
on the brief for respondents Romein and Gonzalez were
183
Robert M. Weinberg and
Laurence Gold. Frank
J. Kelley, Attorney General of Michigan,
pro se,
Gay Secor Hardy, Solicitor General, and
Thomas L. Casey,
Assistant Solicitor General, filed a brief for respondent Kelley.
*
JUSTICE O'CONNOR delivered the opinion of the Court.
In 1987, the Michigan Legislature enacted a statute that had the
effect of requiring petitioners General Motors Corporation (GM) and
Ford Motor Company (Ford) to repay workers' compensation benefits
GM and Ford had withheld in reliance on a 1981 workers'
compensation statute. Petitioners challenge the provision of the
statute mandating these retroactive payments on the ground that it
violates the Contract Clause and the Due Process Clause of the
Federal Constitution.
I
Since at least 1974, workers' compensation law in Michigan has
been the subject of legislative study and bitter debate. VanderLaan
& Studley, Workers' Compensation Reform: A Case Study of the
Legislative Process in Michigan, 14 U. Mich. J. L. Ref. 451,
452-454 (1981). "Literally dozens of conflicting legislative
proposals" were offered each year, and all were fought to a
standstill by competing interest groups.
Id., at 453. The
legislative logjam was finally broken in 1980, when the Governor
and four legislative leaders began a series of negotiations leading
to an agreement on reforms.
*Briefs of
amici curiae urging reversal were filed for
Citizens Insurance Co. of America et al. by
Donald S.
Young and
Kathleen McCree Lewis; for the Motor
Vehicle Manufacturers Association of the United States, Inc., et
al. by
David A. Strauss, William H. Crabtree, Dwight H.
Vincent, J. Walker Henry, and
Rachelle G.
Silberberg; and for the Washington Legal Foundation by
Scott G.
Campbell, Daniel J. Popeo, and
Richard A. Samp.
Briefs of amici curiae urging affirmance were filed for the
United States by Solicitor General Starr, Christopher
J.
Wright, Richard H. Seamon, Allen H. Feldman, Kerry L. Adams, and
Ellen L. Beard; and for the Council of State Governments et al. by
Richard Ruda and David Shapiro.
184
"Neither side was able to obtain everything it wanted-possibly a
good indication of the degree of balance this compromise
represents."
Id., at 458.
Among other things, the 1980 legislation raised maximum weekly
benefits to 90% of the state average weekly wage, and provided
workers injured before 1980 an annual supplemental adjustment of
their benefits of up to five percent. Mich. Compo Laws Ann. §§
418.355(2), 418.352(1) (West 1982). In 1981, the legislature
enacted a statute allowing employers to decrease workers'
compensation benefits to those disabled employees eligible to
receive wage-loss compensation from other employer-funded sources.
§ 418.354. This provision, allowing what is called "benefit
coordination," is at the heart of the controversy in this case.
The benefit coordination provision did not specify whether it
was to be applied to workers injured before its effective date,
March 31, 1982. Petitioners took the position that the 1981 law
allowed them to reduce workers' compensation benefits to workers
injured before March 31, 1982, who were receiving benefits from
other sources. For example, GM cut respondent Romein's weekly
payment by $132 per week, and Ford cut respondent Gonzalez' payment
by $176 per week. The lower state courts disagreed with
petitioners' interpretation, holding that coordination was allowed
only for employees injured after 1982. See,
e. g., Franks v.
White Pine Copper Div., Copper Range Co., 122 Mich. App.
177, 185, 332 N. W. 2d 447,449 (1982). Both Houses of the Michigan
Legislature passed a concurrent resolution declaring that the
coordination provisions were "not designed to disrupt benefits
which were already being received by an employee prior to the
effective date of this act or benefits resulting from injuries
incurred prior to the act's effective date." See Senate Con. Res.
575, adopted by the Senate on April 1, 1982, and by the House on
May 18, 1982; 1982 Senate J. 626, 706-707; 1982 House J. 1262. The
same year, a bill was introduced in the Michigan Senate to amend
the statute in this respect,
185
but it was not passed. Senate Bill 834, introduced on May
26,1982.
Meanwhile, petitioners continued to attempt to persuade the
Michigan courts that the 1981 statute should be applied to workers
injured before its effective date. In 1985, petitioners'
interpretation was accepted by the Michigan Supreme Court.
Chambers v.
General Motors Corp., decided with
Franks v.
White Pine Copper Div., Copper Range Co.,
422 Mich. 636, 375 N. W. 2d 715. The court held that the benefit
coordination provision applied to all payment periods after its
effective date, regardless of the date the employee had been
injured. The court also held that application of the coordination
provisions to employees injured before 1982 did not violate the
Contract Clause or the Due Process Clause.
After the decision in
Chambers, employers who had not
coordinated benefits for employees injured before 1982 began to
demand reimbursement from these employees. See Jones, Firms Cut
Checks for Disabled Workers, Detroit Free Press, Nov. 29, 1985, p.
3A. The Michigan Legislature responded almost immediately by
introducing legislation to overturn the court's decision. On
October 16, 1985, before the Michigan Supreme Court had ruled on
the motion for rehearing in
Chambers, House Bill 5084 was
introduced. As amended and passed by the House on January 29, 1986,
the bill repudiated the
Chambers decision, declared that
employers who had not coordinated benefits before the
Chambers decision could not seek reimbursement from affected
employees, and required employers who had coordinated benefits
before
Chambers to reimburse their employees. Meanwhile, the
Senate passed its own version of the bill, Senate Bill 67, also
disapproving the
Chambers decision and providing that
employers could not require employees to reimburse them for
benefits not coordinated after 1982. The Senate bill was amended by
a Conference Committee to provide for reimbursement of benefits
withheld as a result of coordina-
186
tion, putting employers who had coordinated benefits for
previously disabled workers in the same position as those who had
not. House Legislative Analysis of Senate Bill 67, p. 2 (May 7,
1987). The amended Senate bill passed into law on May 14, 1987.
1987 Mich. Pub. Acts No. 28.
As a result of the 1987 statute, petitioners were ordered to
refund nearly $25 million to disabled employees. They protested
that the provision requiring reimbursement of benefits withheld was
unfairly retroactive and violated the Contract Clause and the Due
Process Clause. The Michigan Supreme Court upheld the statute
against these challenges, on the ground that the employers had no
vested rights in coordination for Contract Clause purposes, and
that the retroactive provisions furthered a rational legislative
purpose. 436 Mich. 515, 462 N. W. 2d 555 (1990). We granted
certiorari, 500 U. S. 915 (1991), and now affirm.
II
Article I, § 10, of the Constitution provides: "No State shall
... pass any ... Law impairing the Obligation of Contracts."
Petitioners claim that the 1987 statute requiring reimbursement of
benefits withheld in reliance on the 1981 coordination provisions
substantially impaired the obligation of the contracts with their
employees.
Generally, we first ask whether the change in state law has
"operated as a substantial impairment of a contractual
relationship."
Allied Structural Steel Co. v.
Spannaus,
438 U. S. 234, 244 (1978);
Energy Reserves Group, Inc.
v.
Kansas Power &
Light Co., 459 U. S. 400, 411
(1983). This inquiry has three components: whether there is a
contractual relationship, whether a change in law impairs that
contractual relationship, and whether the impairment is
substantial. Normally, the first two are unproblematic, and we need
address only the third. In this case, however, we need not reach
the questions of impairment, as we hold that there was no
187
contractual agreement regarding the specific workers'
compensation terms allegedly at issue.
The contracts allegedly impaired by the 1987 statute are
employment contracts entered into after collective bargaining
between petitioners and respondents. It is undisputed that the
contracts themselves were formed before the 1981 law was enacted
requiring benefit coordination. It is also undisputed that the
contracts make no express mention of workers' compensation
benefits. Petitioners argue that the workers' compensation law is
an implied term of the contracts, because the parties bargained for
other compensation with workers' compensation benefits in mind.
This implied term that was allegedly impaired by the 1987 statute
is defined as a promise to pay the amount of workers' compensation
required by law for each payment period. Once performance of this
obligation is completed by making payments for any disability
period, petitioners claim that they have a settled expectation that
cannot be undone by later state legislation. Because the 1987
statute "reopens" these closed transactions, petitioners contend
its retroactive provisions violate the Contract Clause.
The Michigan Supreme Court held that the term suggested by
petitioners was not an implied term of the employment contracts
between petitioners and respondents. We "accord respectful
consideration and great weight to the views of the State's highest
court," though ultimately we are "bound to decide for ourselves
whether a contract was made."
Indiana ex rel. Anderson v.
Brand, 303 U.
S. 95, 100 (1938). The question whether a contract was made is
a federal question for purposes of Contract Clause analysis, see
Irving Trust Co. v.
Day, 314 U. S. 556, 561
(1942), and "whether it turns on issues of general or purely local
law, we can not surrender the duty to exercise our own judgment."
Appleby v.
City of New York, 271 U. S. 364, 380
(1926). In this case, however, we see no reason to disagree with
the Michigan Supreme Court's conclusion.
188
While it is true that the terms to which the contracting parties
give assent may be express or implied in their dealings, cf.
Garrison v.
City of New York, 21 Wall. 196, 203
(1875), the contracting parties here in no way manifested assent to
limiting disability payments in accordance with the 1981 law
allowing coordination of benefits. The employment contracts at
issue were formed before the 1981 law allowing coordination of
benefits came into effect. Thus, there was no occasion for the
parties to consider in bargaining the question raised here: whether
an unanticipated reduction in benefits could later be restored
after the "benefit period" had closed.
Petitioners argue that their right to rely on past payment
periods as "closed" is a contractual term "incorporated" by law
into the employment contracts, regardless of the assent, express or
implied, of the parties. While petitioners cite passages from our
prior decisions that" 'the laws which subsist at the time and place
of the making of a contract ... enter into and form a part of it,'"
Home Building &
Loan Assn. v.
Blaisdell,
290 U. S. 398,
429-430 (1934) (quoting
Von Hoffman v.
City of
Quincy, 4 Wall. 535, 550 (1867)), that principle has no
application here, since petitioners have not shown that the alleged
right to rely on past payment periods as closed was part of
Michigan law at the time of the original contract. Though Michigan
courts, in awarding interest on unpaid workers' compensation
awards, had held that such awards were more analogous to
contractual damages than tort damages, see,
e. g., Wilson v.
Doehler-Jarvis Division of National Lead Co., 358 Mich. 510,
517-519, 100 N. W. 2d 226,229-230 (1960);
Brown v.
Eller
Outdoor Advertising Co., 139 Mich. App. 7, 14, 360 N. W. 2d
322, 326 (1984), Michigan law does not explicitly imply a
contractual term allowing an employer to depend on the closure of
past disability compensation periods. Moreover, such right does not
appear to be so central to the bargained-for exchange between the
par-
189
ties, or to the enforceability of the contract as a whole, that
it must be deemed to be a term of the contract.
Contrary to petitioners' suggestion, we have not held that all
state regulations are implied terms of every contract entered into
while they are effective, especially when the regulations
themselves cannot be fairly interpreted to require such
incorporation. For the most part, state laws are implied into
private contracts regardless of the assent of the parties only when
those laws affect the validity, construction, and enforcement of
contracts. See
United States Trust Co. of N.
Y. v.
New Jersey, 431
U. S. 1, 19, n. 17 (1977).
While it is somewhat misleading to characterize laws affecting
the enforceability of contracts as "incorporated terms" of a
contract, see 3 A. Corbin, Contracts § 551, pp. 199-200 (1960),
these laws are subject to Contract Clause analysis because without
them, contracts are reduced to simple, unenforceable promises. "The
obligation of a contract consists in its binding force on the party
who makes it. This depends on the laws in existence when it is
made; these are necessarily referred to in all contracts, and
forming a part of them as the measure of the obligation to perform
them by the one party, and the right acquired by the other .... If
any subsequent law affect to diminish the duty, or to impair the
right, it necessarily bears on the obligation of the contract."
McCracken v.
Hayward, 2 How. 608, 612 (1844). See
also
Von Hoffman v.
City of Quincy, supra. A change
in the remedies available under a contract, for example, may
convert an agreement enforceable at law into a mere promise,
thereby impairing the contract's obligatory force. See
Sturges v.
Crowninshield, 4 Wheat. 122, 197-198
(1819);
Edwards v.
Kearzey, 96 U. S. 595, 601 (1878).
For this reason, changes in the laws that make a contract legally
enforceable may trigger Contract Clause scrutiny if they impair the
obligation of pre-existing contracts, even if they do not alter any
of the contracts' bargained-for terms. See,
e. g., Von
Hoffman v.
City of Quincy, supra (repeal of tax designed
to
190
repay bond issue);
Bronson v.
Kinzie, 1 How. 311,
316 (1843) (law limiting foreclosure rights);
McCracken,
supra, at 611614 (same).
The 1987 statute did not change the legal enforceability of the
employment contracts here. The parties still have the same ability
to enforce the bargained-for terms of the employment contracts that
they did before the 1987 statute was enacted. Moreover,
petitioners' suggestion that we should read every workplace
regulation into the private contractual arrangements of employers
and employees would expand the definition of contract so far that
the constitutional provision would lose its anchoring purpose, i.
e., "enabl[ing] individuals to order their personal and
business affairs according to their particular needs and
interests."
Allied Structural Steel, 438 U. S., at 245.
Instead, the Clause would protect against all changes in
legislation, regardless of the effect of those changes on
bargained-for agreements. The employment contract, in petitioners'
view, could incorporate workplace safety regulations, employment
tax obligations, and laws prohibiting workplace discrimination,
even if these laws are not intended to affect private contracts and
are not subject to bargaining between the employer and employees.
Moreover, petitioners' construction would severely limit the
ability of state legislatures to amend their regulatory
legislation. Amendments could not take effect until all existing
contracts expired, and parties could evade regulation by entering
into long-term contracts. The ultimate irony of petitioners'
proposed principle is that, taken to an extreme, it would render
the Contract Clause itself entirely dependent on state law. As
Justice Story pointed out:
"It has been contended, by some learned minds, that the
municipal law of a place where a contract is made forms a part of
it, and travels with it, wherever the parties to it may be found.
If this were admitted to be true, the consequence would be, that
all the existing laws of a State, being incorporated into the
contract, would con-
191
stitute a part of its stipulations .... If, therefore, the
legislature should provide, by a law, that all contracts thereafter
made should be subject to the entire control of the legislature, as
to their obligation, validity, and execution, whatever might be
their terms, they would be completely within the legislative power,
and might be impaired or extinguished by future laws; thus having a
complete ex post facto operation." 2 J. Story, Commentaries
on the Constitution of the United States § 1383, pp. 252-253 (5th
ed. 1891).
III
Petitioners also contend that the 1987 statute violated due
process because its retroactive provisions unreasonably interfered
with closed transactions. Retroactive legislation presents problems
of unfairness that are more serious than those posed by prospective
legislation, because it can deprive citizens of legitimate
expectations and upset settled transactions. For this reason,
"[t]he retroactive aspects of [economic] legislation, as well as
the prospective aspects, must meet the test of due process": a
legitimate legislative purpose furthered by rational means.
Pension Benefit Guaranty Corporation v.
R. A. Gray
&
Co., 467
U. S. 717, 730 (1984).
The statute in this case meets that standard. The purpose of the
1987 statute was to correct the unexpected results of the Michigan
Supreme Court's
Chambers opinion. The retroactive repayment
provision of the 1987 statute was a rational means of meeting this
legitimate objective: It preserved the delicate legislative
compromise that had been struck by the 1980 and 1981 laws-giving
workers injured before 1982 their full benefits without
coordination, but not the greater increases given to subsequently
injured workers. Also, it equalized the payments made by employers
who had gambled on the
Chambers decision with those made by
employers who had not. Cf.
United States v.
Sperry Corp.,
493
192
u. S. 52, 64-65 (1989) (legitimate to legislate retrospectively
in order to ensure that similarly situated persons bear similar
financial burdens of program).
In sum, petitioners knew they were taking a risk in reducing
benefits to their workers, but they took their chances with their
interpretation of the 1981 law. Having now lost the battle in the
Michigan Legislature, petitioners wished to continue the war in
court. Losing a political skirmish, however, in itself creates no
ground for constitutional relief.
Affirmed.
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