- [Narrator] The United States Supreme Court,
in Allied Structural Steel Company v. Spannaus,
considered the constitutionality of a state law
altering an employer's contractual pension obligations.
Allied Structural Steel Company, or Allied for short,
was an Illinois company with an office in Minnesota.
Allied provided pensions for its employees.
Pension rights vested when an employee turned 65 years old,
regardless of the employee's length of service.
Though the size of the pension varied
based on how long the employee worked for Allied.
Pensions for younger employees vested
only if they met certain combinations of age and tenure.
If, for any reason, the worker's employment ended
before pension rights vested,
then that worker received no pension benefits at all.
The pension plan gave Allied discretion to amend the plan,
or terminate it and distribute the assets anytime.
In 1974, Minnesota enacted
the Private Pension Benefits Protection Act.
The act assessed a charge on employers
who terminated private pension plans
or closed a Minnesota office.
The law applied to employers with 100 employees or more,
if at least one employee was a Minnesota resident.
Minnesota assessed the charge if the pension funds
were insufficient to pay full pensions
to all employees who worked at the company
for 10 years or more.
Further, any employee who'd worked 10 years
on the date of the law's enactment,
was instantly entitled to full pension benefits.
A few months after the enactment,
Allied began closing its Minnesota office
and releasing employees.
Allied had funded its pension plan adequately
to meet its contractual obligations to employees.
However, Allied's contributions wouldn't cover
the additional employees protected under Minnesota's act.
At least nine employees,
who were discharged when the Minnesota office closed,
didn't have any vested benefits under Allied's pension plan,
but did qualify for benefits under the Minnesota act.
As a result, Minnesota assessed Allied
a pension funding charge of $185,000.
Allied sued Warren Spannaus, the Minnesota Attorney General,
in federal district court to challenge the Minnesota act.
A three judge panel upheld
the Minnesota law's constitutionality.
Allied appealed directly to the United States Supreme Court,
which had jurisdiction over appeals
from any order issued by a three judge district court panel.
At issue was weather Minnesota's law regulating pensions
violated the Constitution's Contracts Clause.
Justice Stewart, writing for a five justice majority,
concluded that Minnesota's law
violated the Contracts Clause.
The clause prohibits states from passing laws
that impair existing contractual obligations.
First, the majority analyzed whether the state law
had substantially impaired a contractual relationship.
Laws that only minimally impaired contractual relationships
weren't subject to further scrutiny,
and generally passed constitutional muster.
But a law that severely impaired a contractual relationship
would prompt careful examination
of the law's nature and purpose.
Here, the Minnesota Pension Law
severely impacted Allied's contractual obligations.
The law substantially, and retroactively,
modified a basic term of the pension contract.
With no notice, Minnesota declared
that several additional employees had vested pension rights.
Allied's carefully negotiated and calculated
pension contributions were instantly rendered inadequate.
Therefore, the court needed to conduct
further careful examination of the law's nature and purpose.
There was no evidence that Minnesota's severe disruption
of Allied's contractual expectations was necessary
to meet any important general social problem.
The Pension Law protected only a narrow class of people.
The law applied only to employers
who'd established private pension plans,
had 100 or more employees,
at least one of whom was a Minnesota resident,
and intended to terminate the plan
or close a Minnesota office.
Due to the law's narrow scope,
it didn't protect a broad social interest,
and its interference with established pension agreements
was beyond what the Contracts Clause allowed.
The Court concluded that the Minnesota act
violated the Contracts Clause,
and reversed the district court's judgment.
Justice Brennan dissented.
In Brennan's view, the Contracts Clause
applied only to state laws reducing
or negating contractual obligations,
not to state laws that expanded contractual obligations.
Instead, Brennan focused on
the 14th Amendment's Due Process Clause.
The Pension Law satisfied due process,
because the law represented a reasonable exercise
of legislative judgment to remedy a serious social problem.
Allied Structural Steel was the first case since the 1930s
to invalidate a state law based on the Contracts Clause.
However, the clause's comeback was short lived.
Nine years later, the court in Exxon Corporation v. Eagerton
clarified that the Contracts Clause would invalidate
only laws that had the sole effect
of altering contractual duties.
Laws imposing general rules of applicable conduct
designed to advance a broad social interest
would survive Contracts Clause scrutiny.