McKennon v. Nashville Banner Publishing Co.

OCTOBER TERM, 1994

															Syllabus

															McKENNON v. NASHVILLE BANNER PUBLISHING CO.

															CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH
CIRCUIT

															No. 93-1543. Argued November 2, 1994-Decided January 23,1995

															Alleging that her discharge by respondent Nashville Banner
Publishing Company violated the Age Discrimination in Employment
Act of 1967 (ADEA), petitioner McKennon filed suit seeking a
variety of legal and equitable remedies available under the ADEA,
including backpay. After she admitted in her deposition that she
had copied several of the Banner's confidential documents during
her final year of employment, the District Court granted summary
judgment for the company, holding that McKennon's misconduct was
grounds for her termination and that neither backpay nor any other
remedy was available to her under the ADEA. The Court of Appeals
affirmed on the same rationale. Held: An employee discharged in violation of the ADEA is
not barred from all relief when, after her discharge, her employer
discovers evidence of wrongdoing that, in any event, would have led
to her termination on lawful and legitimate grounds had the
employer known of it. Pp. 356-363.

															(a) Such after-acquired evidence is not a complete bar to ADEA
recovery. Even if the employee's misconduct may be considered to be
supervening grounds for termination, the ADEA violation that
prompted the discharge cannot be altogether disregarded. The Act's
remedial provisions, 29 U. S. C. § 626(b); see also § 216(b), are
designed both to compensate employees for injuries caused by
prohibited discrimination and to deter employers from engaging in
such discrimination. The private litigant who seeks redress for his
or her injuries vindicates both of these objectives, and it would
not accord with this scheme if after-acquired evidence of
wrongdoing barred all relief. Mt. Healthy City Ed. of
Ed. v. Doyle, 429 U. S. 274 , 284-287,
distinguished. Pp. 356-360.

															(b) Nevertheless, after-acquired evidence of the employee's
wrongdoing must be taken into account in determining the specific
remedy, lest the employer's legitimate concerns be ignored. Because
the ADEA simply prohibits discrimination, and does not constrain
employers from exercising significant other prerogatives and
discretions in the usual course of hiring, promoting, and
discharging employees, employee wrongdoing is relevant in taking
due account of such lawful preroga- 353 tives and the employer's corresponding equities arising from the
wrongdoing. pp.360-361.

															(c) The proper boundaries of remedial relief in cases of this
type must be addressed on a case-by-case basis. However, as a
general rule, neither reinstatement nor front pay is an appropriate
remedy. It would be both inequitable and pointless to order the
reinstatement of someone the employer would have terminated, and
will terminate, in any event and upon lawful grounds. The proper
measure of backpay presents a more difficult problem. Once an
employer learns about employee wrongdoing that would lead to a
legitimate discharge, it cannot be required to ignore the
information, even if it is acquired during the course of discovery
in a suit against the employer and even if it might have gone
undiscovered absent the suit. The beginning point in formulating a
remedy should therefore be calculation of backpay from the date of
the unlawful discharge to the date the new information was
discovered. The court can also consider any extraordinary equitable
circumstances that affect the legitimate interests of either party.
Pp.361-362.

															(d) Where an employer seeks to rely upon after-acquired evidence
of wrongdoing, it must first establish that the wrongdoing was of
such severity that the employee in fact would have been terminated
on those grounds alone had the employer known of it at the time of
the discharge. The concern that employers might routinely undertake
extensive discovery into an employee's background or job
performance to resist ADEA claims is not insubstantial, but the
courts' authority to award attorney's fees under §§ 216(b) and
626(b) and to invoke the appropriate provisions of the Federal
Rules of Civil Procedure will likely deter most abuses. Pp.
362-363. 9 F.3d
539 , reversed and remanded.

															KENNEDY, J., delivered the opinion for a unanimous Court.

															Michael E. Terry argued the cause for petitioner. With him on
the briefs were Elaine R. Jones, Theodore M. Shaw, Charles Stephen
Ralston, and Eric Schnapper.

															Irving L. Gornstein argued the cause for the United States et
al. as amici curiae urging reversal. With him on the brief were
Solicitor General Days, Assistant Attorney General Patrick, Deputy
Solicitor General Bender, Kent L. Jones, Dennis J. Dimsey,
Mark L. Gross, James R. Neely, Jr., Gwendolyn Young Reams, and
Carolyn L. Wheeler. 354 354 McKENNON v. NASHVILLE BANNER PUBLISHING CO. R. Eddie Wayland argued the cause for respondent.

															With him on the brief was Elizabeth B. Marney.* JUSTICE KENNEDY delivered the opinion of the Court. The question
before us is whether an employee discharged in violation of the Age
Discrimination in Employment Act of 1967 is barred from all relief
when, after her discharge, the employer discovers evidence of
wrongdoing that, in any event, would have led to the employee's
termination on lawful and legitimate grounds.

															I

															For some 30 years, petitioner Christine McKennon worked for
respondent Nashville Banner Publishing Company. She was discharged,
the Banner claimed, as part of a work force reduction plan
necessitated by cost considerations. McKennon, who was 62 years old
when she lost her job, thought another reason explained her
dismissal: her age. She filed suit in the United States District
Court for the Middle District of Tennessee, alleging that her
discharge violated the Age Discrimination in Employment Act of 1967
(ADEA or Act), 81 Stat. 602, as amended, 29 U. S. C. § 621 et
seq. (1988 *Briefs of amici curiae urging reversal were filed for the
American Federation of Labor and Congress of Industrial
Organizations by Marsha Berzon and Laurence Gold; for the Lawyers'
Committee for Civil Rights Under Law et al. by William F. Sheehan,
Steven R. Shapiro, Helen Hershkoff, Michael A. Cooper, Norman
Redlich, Thomas J. Henderson, Richard T. Seymour, Sharon R.
Vinick, and Cathy Ventrell-Monsees; and for the Women's Legal
Defense Fund et al. by Judith L. Lichtman and Donna R. Lenhoff

															Briefs of amici curiae urging affirmance were filed for the
Chamber of Commerce of the United States by Zachary D. Fasman,
Charles A. Shanor, Kelly J. Koelker, Stephen A. Bokat, and
Robin S. Conrad; and for the Equal Employment Advisory Council et
al. by Douglas S. McDowell, Ann Elizabeth Reesman, Lee T. Paterson,
Dwight H. Vincent, John F. Sturm, Rene P. Milam, and Peter G.
Stone. Jeffrey Robert White, Nancy Erika Smith, and Neil
Mullin filed a brief for the National Employment Lawyers
Association et al. as amici curiae. 355 ed. and Supp. V). The ADEA makes it unlawful for any
employer: "to discharge any individual or otherwise discriminate against
any individual with respect to his compensation, terms, conditions,
or privileges of employment, because of such individual's age." 29
U. S. C. § 623(a)(1). McKennon sought a variety of legal and equitable remedies
available under the ADEA, including backpay. App. lOa-lla.

															In preparation of the case, the Banner took McKennon's
deposition. She testified that, during her final year of
employment, she had copied several confidential documents bearing
upon the company's financial condition. She had access to these
records as secretary to the Banner's comptroller. McKennon took the
copies home and showed them to her husband. Her motivation, she
averred, was an apprehension she was about to be fired because of
her age. When she became concerned about her job, she removed and
copied the documents for "insurance" and "protection." Deposition,
Dec. 18, 1991, Record, Docket Entry No. 39, Vol. 2, p. 241. A few
days after these deposition disclosures, the Banner sent McKennon a
letter declaring that removal and copying of the records was in
violation of her job responsibilities and advising her (again) that
she was terminated. The Banner's letter also recited that had it
known of McKennon's misconduct it would have discharged her at once
for that reason.

															For purposes of summary judgment, the Banner conceded its
discrimination against McKennon. The District Court granted summary
judgment for the Banner, holding that McKennon's misconduct was
grounds for her termination and that neither backpay nor any other
remedy was available to her under the ADEA. 797 F. Supp. 604 (MD
Tenn. 1992). The United States Court of Appeals for the Sixth
Circuit affirmed on the same rationale. 9 F.3d
539 (1993). We 356 356 McKENNON v. NASHVILLE BANNER PUBLISHING CO. granted certiorari, 511 U. S. 1106 (1994), to resolve
conflicting views among the Courts of Appeals on the question
whether all relief must be denied when an employee has been
discharged in violation of the ADEA and the employer later
discovers some wrongful conduct that would have led to discharge if
it had been discovered earlier. Compare Welch v. Liberty
Machine Works, Inc., 23 F.3d
1403 (CA8 1994); O'Driscoll v. Hercules Inc., 12 F.3d
176 (CAlO 1994); 9 F.3d
539 (CA6 1993) (case below); Washington v. Lake
County, 969 F.2d
250 (CA71992); Johnson v. Honeywell Information
Systems, Inc., 955 F.2d
409 (CA6 1992); Summers v. State Farm Mutual
Automobile Ins. Co., 864 F.2d
700 (CAlO 1988); Smallwood v. United Air Lines,
Inc., 728 F.2d
614 (CA4), cert. denied, 469 U. S. 832 (1984), with Mardell v. Harleysville Life Ins. Co., 31 F.3d
1221 (CA3 1994); Kristufek v. Hussman Foodservice
Co., Toastmaster Div., 985 F.2d
364 (CA7 1993); Wallace v. Dunn Construction Co., 968 F.2d
1174 (CAll 1992), vacated pending rehearing en banc, 32 F.3d
1489 (1994). We now reverse.

															II

															We shall assume, as summary judgment procedures require us to
assume, that the sole reason for McKennon's initial discharge was
her age, a discharge violative of the ADEA. Our further premise is
that the misconduct revealed by the deposition was so grave that
McKennon's immediate discharge would have followed its disclosure
in any event. The District Court and the Court of Appeals found no
basis for contesting that proposition, and for purposes of our
review we need not question it here. We do question the legal
conclusion reached by those courts that afteracquired evidence of
wrongdoing which would have resulted in discharge bars employees
from any relief under the ADEA. That ruling is incorrect.

															The Court of Appeals considered McKennon's misconduct, in
effect, to be supervening grounds for termination. That 357 may be so, but it does not follow, as the Court of Appeals said
in citing one of its own earlier cases, that the misconduct renders
it "'irrelevant whether or not [McKennon] was discriminated
against.'" 9 F. 3d, at 542, quoting MilliganJensen v. Michigan Technological Univ., 975 F.2d
302 , 305 (CA6 1992), cert. granted, 509 U. S. 943, cert.
dism'd, 509 U. S. 903 (1993). We conclude that a violation of the
ADEA cannot be so altogether disregarded.

															The ADEA, enacted in 1967 as part of an ongoing congressional
effort to eradicate discrimination in the workplace, reflects a
societal condemnation of invidious bias in employment decisions.
The ADEA is but part of a wider statutory scheme to protect
employees in the workplace nationwide. See Title VII of the Civil
Rights Act of 1964, 42 U. S. C. § 2000e et seq. (1988 ed.
and Supp. V) (race, color, sex, national origin, and religion); the
Americans with Disabilities Act of 1990, 42 U. S. C. § 12101 et
seq. (1988 ed., Supp. V) (disability); the National Labor
Relations Act, 29 U. S. C. § 158(a) (union activities); the Equal
Pay Act of 1963, 29 U. S. C. § 206(d) (sex). The ADEA incorporates
some features of both Title VII and the Fair Labor Standards Act of
1938, which has led us to describe it as "something of a hybrid." Lorillard v. Pons, 434 U. S. 575 , 578
(1978). The substantive, antidiscrimination provisions of the ADEA
are modeled upon the prohibitions of Title VII. See Trans World
Airlines, Inc. v. Thurston, 469 U. S. 111 , 121
(1985); Lorillard v. Pons, supra, at 584. Its
remedial provisions incorporate by reference the provisions of the
Fair Labor Standards Act of 1938. 29 U. S. C. § 626(b). When
confronted with a violation of the ADEA, a district court is
authorized to afford relief by means of reinstatement, backpay,
injunctive relief, declaratory judgment, and attorney's fees. Ibid.; see also Lorillard v. Pons, supra, at
584. In the case of a willful violation of the Act, the ADEA
authorizes an award of liquidated damages equal to the backpay
award. 29 U. S. C. § 626(b). The Act also gives federal courts
the 358 358 McKENNON v. NASHVILLE BANNER PUBLISHING CO. discretion to "grant such legal or equitable relief as may be
appropriate to effectuate the purposes of [the Act]." Ibid. The ADEA and Title VII share common substantive features and
also a common purpose: "the elimination of discrimination in the
workplace." Oscar Mayer & Co. v. Evans, 441 U. S. 750 ,
756 (1979). Congress designed the remedial measures in these
statutes to serve as a "spur or catalyst" to cause employers "to
self-examine and to selfevaluate their employment practices and to
endeavor to eliminate, so far as possible, the last vestiges" of
discrimination. Albemarle Paper Co. v. Moody, 422 U. S. 405 ,
417-418 (1975) (internal quotation marks and citation omitted); see
also Franks v. Bowman Transp. Co., 424 U. S. 747 , 763
(1976). Deterrence is one object of these statutes. Compensation
for injuries caused by the prohibited discrimination is another. Albemarle Paper Co. v. Moody, supra, at 418; Franks v. Bowman Transp. Co., supra, at 763-764. The
ADEA, in keeping with these purposes, contains a vital element
found in both Title VII and the Fair Labor Standards Act: It grants
an injured employee a right of action to obtain the authorized
relief. 29 U. S. C. § 626(c). The private litigant who seeks
redress for his or her injuries vindicates both the deterrence and
the compensation objectives of the ADEA. See Alexander v. Gardner-Denver Co., 415 U. S. 36 , 45 (1974)
("[T]he private litigant [in Title VII] not only redresses his own
injury but also vindicates the important congressional policy
against discriminatory employment practices"); see also Teamsters v. United States, 431 U. S. 324 , 364
(1977). It would not accord with this scheme if afteracquired
evidence of wrongdoing that would have resulted in termination
operates, in every instance, to bar all relief for an earlier
violation of the Act.

															The objectives of the ADEA are furthered when even a single
employee establishes that an employer has discriminated against him
or her. The disclosure through litigation of incidents or practices
that violate national policies re- 359 specting nondiscrimination in the work force is itself
important, for the occurrence of violations may disclose patterns
of noncompliance resulting from a misappreciation of the Act's
operation or entrenched resistance to its commands, either of which
can be of industry-wide significance. The efficacy of its
enforcement mechanisms becomes one measure of the success of the
Act.

															The Court of Appeals in this case relied upon two of its earlier
decisions, Johnson v. Honeywell Information Systems,
Inc., 955 F.2d
409 (CA6 1992); Milligan-Jensen v. Michigan
Technological Univ., 975 F.2d
302 (CA6 1992), and the opinion of the Court of Appeals for the
Tenth Circuit in Summers v. State Farm Mutual Automobile
Ins. Co., 864 F. 2d 700 (1988). Consulting those authorities,
it declared that it had "firmly endorsed the principle that
after-acquired evidence is a complete bar to any recovery by the
former employee where the employer can show it would have fired the
employee on the basis of the evidence." 9 F. 3d, at 542. Summers, in turn, relied upon our decision in Mt. Healthy
City Bd. of Ed. v. Doyle, 429 U. S. 274 (1977), but
that decision is inapplicable here.

															In Mt. Healthy we addressed a mixed-motives case, in
which two motives were said to be operative in the employer's
decision to fire an employee. One was lawful, the other (an alleged
constitutional violation) unlawful. We held that if the lawful
reason alone would have sufficed to justify the firing, the
employee could not prevail in a suit against the employer. The case
was controlled by the difficulty, and what we thought was the lack
of necessity, of disentangling the proper motive from the improper
one where both played a part in the termination and the former
motive would suffice to sustain the employer's action. Id., at 284-287.

															That is not the problem confronted here. As we have said, the
case comes to us on the express assumption that an unlawful motive
was the sole basis for the firing. McKennon's misconduct was not
discovered until after she had been 360 360 McKENNON v. NASHVILLE BANNER PUBLISHING CO. fired. The employer could not have been motivated by knowledge
it did not have and it cannot now claim that the employee was fired
for the nondiscriminatory reason. Mixed-motive cases are inapposite
here, except to the important extent they underscore the necessity
of determining the employer's motives in ordering the discharge, an
essential element in determining whether the employer violated the
federal antidiscrimination law. See Price Waterhouse v. Hopkins, 490
U. S. 228 , 252 (1989) (plurality opinion) (employer's
legitimate reason for discharge in mixed-motive case will not
suffice "if that reason did not motivate it at the time of the
decision"); id., at 260-261 (White, J., concurring in
judgment); id., at 261 (O'CONNOR, J., concurring in
judgment). As has been observed, "proving that the same decision
would have been justified ... is not the same as proving that the
same decision would have been made." Id., at 252 (plurality
opinion) (internal quotation marks and citations omitted); see also id., at 260-261 (White, J., concurring in judgment).

															Our inquiry is not at an end, however, for even though the
employer has violated the Act, we must consider how the
after-acquired evidence of the employee's wrongdoing bears on the
specific remedy to be ordered. Equity's maxim that a suitor who
engaged in his own reprehensible conduct in the course of the
transaction at issue must be denied equitable relief because of
unclean hands, a rule which in conventional formulation operated in limine to bar the suitor from invoking the aid of the
equity court, 2 S. Symons, Pomeroy's Equity Jurisprudence § 397,
pp. 90-92 (5th ed. 1941), has not been applied where Congress
authorizes broad equitable relief to serve important national
policies. We have rejected the unclean hands defense "where a
private suit serves important public purposes." Perma Life
Mufflers, Inc. v. International Parts Corp., 392 U. S. 134 , 138 (1968)
(Sherman and Clayton Antitrust Acts). That does not mean, however,
the employee's own misconduct is irrelevant to all the reme- 361 dies otherwise available under the statute. The statute
controlling this case provides that "the court shall have
jurisdiction to grant such legal or equitable relief as may be
appropriate to effectuate the purposes of this chapter, including
without limitation judgments compelling employment, reinstatement
or promotion, or enforcing the liability for [amounts owing to a
person as a result of a violation of this chapter]." 29 U. S. C. §
626(b); see also § 216(b). In giving effect to the ADEA, we must
recognize the duality between the legitimate interests of the
employer and the important claims of the employee who invokes the
national employment policy mandated by the Act. The employee's
wrongdoing must be taken into account, we conclude, lest the
employer's legitimate concerns be ignored. The ADEA, like Title
VII, is not a general regulation of the workplace but a law which
prohibits discrimination. The statute does not constrain employers
from exercising significant other prerogatives and discretions in
the course of the hiring, promoting, and discharging of their
employees. See Price Waterhouse v. Hopkins, supra, at
239 ("Title VII eliminates certain bases for distinguishing among
employees while otherwise preserving employers' freedom of
choice"). In determining appropriate remedial action, the
employee's wrongdoing becomes relevant not to punish the employee,
or out of concern "for the relative moral worth of the parties," Perma Life Mufflers, Inc. v. International Parts Corp.,
supra, at 139, but to take due account of the lawful
prerogatives of the employer in the usual course of its business
and the corresponding equities that it has arising from the
employee's wrongdoing.

															The proper boundaries of remedial relief in the general class of
cases where, after termination, it is discovered that the employee
has engaged in wrongdoing must be addressed by the judicial system
in the ordinary course of further decisions, for the factual
permutations and the equitable considerations they raise will vary
from case to case. We do conclude that here, and as a general rule
in cases of this type, 362 362 McKENNON v. NASHVILLE BANNER PUBLISHING CO. neither reinstatement nor front pay is an appropriate remedy. It
would be both inequitable and pointless to order the reinstatement
of someone the employer would have terminated, and will terminate,
in any event and upon lawful grounds.

															The proper measure of backpay presents a more difficult problem.
Resolution of this question must give proper recognition to the
fact that an ADEA violation has occurred which must be deterred and
compensated without undue infringement upon the employer's rights
and prerogatives. The object of compensation is to restore the
employee to the position he or she would have been in absent the
discrimination, Franks v. Bowman Transp. Co., 424 U.
S., at 764, but that principle is difficult to apply with precision
where there is after-acquired evidence of wrongdoing that would
have led to termination on legitimate grounds had the employer
known about it. Once an employer learns about employee wrongdoing
that would lead to a legitimate discharge, we cannot require the
employer to ignore the information, even if it is acquired during
the course of discovery in a suit against the employer and even if
the information might have gone undiscovered absent the suit. The
beginning point in the trial court's formulation of a remedy should
be calculation of backpay from the date of the unlawful discharge
to the date the new information was discovered. In determining the
appropriate order for relief, the court can consider taking into
further account extraordinary equitable circumstances that affect
the legitimate interests of either party. An absolute rule barring
any recovery of backpay, however, would undermine the ADEA's
objective of forcing employers to consider and examine their
motivations, and of penalizing them for employment decisions that
spring from age discrimination.

															Where an employer seeks to rely upon after-acquired evidence of
wrongdoing, it must first establish that the wrongdoing was of such
severity that the employee in fact would 363 have been terminated on those grounds alone if the employer had
known of it at the time of the discharge. The concern that
employers might as a routine matter undertake extensive discovery
into an employee's background or performance on the job to resist
claims under the Act is not an insubstantial one, but we think the
authority of the courts to award attorney's fees, mandated under
the statute, 29 U. S. C. §§ 216(b), 626(b), and to invoke the
appropriate provisions of the Federal Rules of Civil Procedure will
deter most abuses.

															The judgment is reversed, and the case is remanded to the Court
of Appeals for the Sixth Circuit for further proceedings consistent
with this opinion.

															It is so ordered.

Summary: The Supreme Court ruled that an employee fired in violation of the Age Discrimination in Employment Act (ADEA) cannot be completely barred from legal relief if their employer later discovers evidence of wrongdoing that would have led to their termination anyway. While the employee's misconduct is relevant and must be considered in determining the appropriate remedy, it does not negate the initial ADEA violation. The Court suggested that reinstatement or front pay is generally not appropriate in such cases, but backpay may be considered from the date of unlawful discharge to the date the new information was discovered. The employer must establish that the employee's wrongdoing was severe enough to warrant termination on those grounds alone.


O'Connor v. Consolidated Coin Caterers Corp.

OCTOBER TERM, 1995

															Syllabus

															O'CONNOR v. CONSOLIDATED COIN CATERERS CORP.

															CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FOURTH
CIRCUIT No. 95-354. Argued February 27, 1996-Decided April 1, 1996 At age 56, petitioner was fired by respondent corporation and
replaced by a 40-year-old worker. He then filed this suit, alleging
that his discharge violated the Age Discrimination in Employment
Act of 1967 (ADEA). The District Court granted respondent's summary
judgment motion, and the Court of Appeals affirmed, holding that
petitioner failed to make out a prima facie case of age
discrimination under McDonnell Douglas Corp. v. Green, 411 U.
S. 792 , because he failed to show that he was replaced by
someone outside the age group protected by the ADEA. Held: Assuming that Title VII's McDonnell Douglas framework is applicable to ADEA cases, there must be at least a
logical connection between each element of the prima facie case and
the illegal discrimination. Replacement by someone under 40 fails
this requirement. Although the ADEA limits its protection to those
who are 40 or older, it prohibits discrimination against those
protected employees on the basis of age, not class membership. That
one member of the protected class lost out to another member is
irrelevant, so long as he lost out because of his age. The
latter is more reliably indicated by the fact that his replacement
was substantially younger than by the fact that his replacement was
not a member of the protected class. 56 F.3d
542 , reversed and remanded.

															SCALIA, J., delivered the opinion for a unanimous Court. George Daly argued the cause for petitioner. With him on
the briefs were Paul Alan Levy and Alan B.
Morrison. Paul R. Q. Wolfson argued the cause for the United States
et al. as amici curiae urging reversal. With him on the brief were
Solicitor General Days, Assistant Attorney General Patrick, Deputy
Solicitor General Bender, C. Gregory Stewart, Gwendolyn Young
Reams, Lorraine C. Davis, and Barbara L. Sloan. 309 James B. Spears, Jr., argued the cause for
respondent.

															With him on the brief were Jacob J. Modla and Robert JUSTICE SCALIA delivered the opinion of the Court.

															This case presents the question whether a plaintiff alleging
that he was discharged in violation of the Age Discrimination in
Employment Act of 1967 (ADEA), 81 Stat. 602, as amended, 29 U. S.
C. § 621 et seq., must show that he was replaced by someone
outside the age group protected by the ADEA to make out a prima
facie case under the framework established by McDonnell Douglas
Corp. v. Green, 411 U. S. 792 (1973).

															Petitioner James O'Connor was employed by respondent
Consolidated Coin Caterers Corporation from 1978 until August 10,
1990, when, at age 56, he was fired. Claiming that he had been
dismissed because of his age in violation of the ADEA, petitioner
brought suit in the United States District Court for the Western
District of North Carolina. After discovery, the District Court
granted respondent's motion for summary judgment, 829 F. Supp. 155
(1993), and peti- *Steven S. Zaleznick and Cathy
Ventrell-Monsees filed a brief for the American Association of
Retired Persons et al. as amici curiae urging reversal.

															Briefs of amici curiae urging affirmance were filed for
the State of Maryland et al. by J. Joseph Curran,
Jr., Attorney General of Maryland, and Tarra
DeShields-Minnis and Andrew H. Baida, Assistant
Attorneys General, and by the Attorneys General for their
respective States as follows: Winston Bryant of Arkansas, M. Jane Brady of Delaware, Frank J. Kelley of Michigan, Frankie Sue Del Papa of Nevada, Deborah T. Poritz of New Jersey, Mark Barnett of
South Dakota, and W A. Drew Edmondson of Oklahoma; for the
Chamber of Commerce of the United States by Marshall B. Babson,
Stanley R. Strauss, Sue J. Henry, Stephen A. Bokat,
Robin S. Conrad, and Mona C. Zeiberg; for
the Equal Employment Advisory Council by Douglas S. McDowell; and for the New England Legal Foundation by Steven S. Ostrach and Cynthia L. Amara. Jack L. Whitacre filed a brief for the National Retail
Federation as amicus curiae. 310 310 O'CONNOR v. CONSOLIDATED COIN CATERERS CORP.

															tioner appealed. The Court of Appeals for the Fourth Circuit
stated that petitioner could establish a prima facie case under McDonnell Douglas only if he could prove that (1) he was in
the age group protected by the ADEA; (2) he was discharged or
demoted; (3) at the time of his discharge or demotion, he was
performing his job at a level that met his employer's legitimate
expectations; and (4) following his discharge or demotion, he was
replaced by someone of comparable qualifications outside the
protected class. Since petitioner's replacement was 40 years old,
the Court of Appeals concluded that the last element of the prima
facie case had not been made out.1 56 F.3d
542 , 546 (1995). Finding that petitioner's claim could not
survive a motion for summary judgment without benefit of the McDonnell Douglas presumption (i. e., "under the
ordinary standards of proof used in civil cases," 56 F. 3d, at
548), the Court of Appeals affirmed the judgment of dismissal. We
granted O'Connor's petition for certiorari. 516 U. S. 973
(1995).

															In McDonnell Douglas, we "established an allocation of
the burden of production and an order for the presentation of proof
in Title VII discriminatory-treatment cases." St. Mary's
Honor Center v. Hicks, 509 U. S. 502 , 506
(1993). We held that a plaintiff alleging racial discrimination in
violation of Title VII of the Civil Rights Act of 1964, 42 U. S. C.
§ 2000e et seq., could establish a prima facie case by
showing "(i) that he belongs to a racial minority; (ii) that he
applied and was qualified for a job for which the employer was
seeking applicants; (iii) that, despite his qualifications, he was
rejected; and (iv) that, after his rejection, the position remained
open and the employer continued to seek applicants from persons of
[the] complainant's qualifications." McDonnell Douglas, 1 The court also concluded that even under a modified version of
the McDonnell Douglas prima facie standard which the Fourth
Circuit applies to reduction-in-force cases, see Mitchell v. Data General Corp., 12 F.3d
1310 , 1315 (1993), petitioner could not prevail. We limit our
review to the Fourth Circuit's treatment of this case as a
non-reduction-in-force case. 311 411 U. S., at 802. Once the plaintiff has met this initial
burden, the burden of production shifts to the employer "to
articulate some legitimate, nondiscriminatory reason for the
employee's rejection." Ibid. If the trier of fact finds that
the elements of the prima facie case are supported by a
preponderance of the evidence and the employer remains silent, the
court must enter judgment for the plaintiff. St. Mary's Honor
Center, supra, at 509-510, and n. 3; Texas Dept. of
Community Affairs v. Burdine, 450 U. S. 248 , 254
(1981).

															In assessing claims of age discrimination brought under the
ADEA, the Fourth Circuit, like others,2 has applied some variant of
the basic evidentiary framework set forth in Mc Donnell
Douglas. We have never had occasion to decide whether that
application of the Title VII rule to the ADEA context is correct,
but since the parties do not contest that point, we shall assume
it. Cf. St. Mary's Honor Center, supra, at 506, n. 1
(assuming that "the McDonnell Douglas framework is fully
applicable to racial-discrimination-inemployment claims under 42 U.
S. C. § 1983"). On that assumption, the question presented for our
determination is what elements must be shown in an ADEA case to
establish the prima facie case that triggers the employer's burden
of production.

															As the very name "prima facie case" suggests, there must be at
least a logical connection between each element of the prima facie
case and the illegal discrimination for which it

															2 See, e. g., Roper v. Peabody Coal Co., 47 F.3d
925 , 926-927 (CA7 1995); Rinehart v. Independence, 35 F.3d
1263 , 1265 (CA8 1994), cert. denied, 514 U. S. 1096
(1995); Seman v. Coplay Cement Co., 26 F.3d
428 , 432, n. 7 (CA3 1994); Roush v. KFC Nat.
Mgt. Co., 10 F.3d
392 , 396 (CA6 1993), cert. denied, 513 U. S. 808 (1994); Lindsey v. Prive Corp., 987 F.2d
324 , 326, n. 5 (CA5 1993); Goldstein v. Manhattan Industries, Inc., 758 F.2d
1435 , 1442 (CAll), cert. denied, 474 U. S. 1005 (1985); Haskell v. Kaman Corp., 743 F.2d
113 , 119, and n. 1 (CA2 1984); Cuddy v. Carmen, 694 F.2d
853 ,856-857 (CADC 1982); Douglas v. Anderson, 656 F.2d
528 , 531-532 (CA9 1981); Loeb v. Textron,
Inc., 600 F.2d
1003 , 1014-1016 (CA1 1979); Schwager v. Sun Oil Co.
of Pa., 591 F.2d
58 , 60-61 (CAW 1979). 312 312 O'CONNOR v. CONSOLIDATED COIN CATERERS CORP.

															establishes a "legally mandatory, rebuttable presumption," Burdine, supra, at 254, n. 7. The element of replacement by
someone under 40 fails this requirement. The discrimination
prohibited by the ADEA is discrimination "because of [an]
individual's age," 29 U. s. C. § 623(a)(1), though the prohibition
is "limited to individuals who are at least 40 years of age," §
631(a). This language does not ban discrimination against employees
because they are aged 40 or older; it bans discrimination against
employees because of their age, but limits the protected class to
those who are 40 or older. The fact that one person in the
protected class has lost out to another person in the protected
class is thus irrelevant, so long as he has lost out because of
his age. Or to put the point more concretely, there can be no
greater inference of age discrimination (as opposed to "40
or over" discrimination) when a 40-year-old is replaced by a
39-year-old than when a 56-year-old is replaced by a 40-year-old.
Because it lacks probative value, the fact that an ADEA plaintiff
was replaced by someone outside the protected class is not a proper
element of the McDonnell Douglas prima facie case.

															Perhaps some courts have been induced to adopt the principle
urged by respondent in order to avoid creating a prima facie case
on the basis of very thin evidence-for example, the replacement of
a 68-year-old by a 65-year-old. While the respondent's principle
theoretically permits such thin evidence (consider the example
above of a 40-year-old replaced by a 39-year-old), as a practical
matter it will rarely do so, since the vast majority of
age-discrimination claims come from older employees. In our view,
however, the proper solution to the problem lies not in making an
utterly irrelevant factor an element of the prima facie case, but
rather in recognizing that the prima facie case requires "evidence adequate to create an inference that an employment
decision was based on a[n] [illegal] discriminatory criterion ....
" Teamsters v. United States, 431 U. S. 324 , 358 (1977)
(empha- 313 sis added). In the age-discrimination context, such an inference
cannot be drawn from the replacement of one worker with another
worker insignificantly younger. Because the ADEA prohibits
discrimination on the basis of age and not class membership, the
fact that a replacement is substantially younger than the plaintiff
is a far more reliable indicator of age discrimination than is the
fact that the plaintiff was replaced by someone outside the
protected class.

															The judgment of the Fourth Circuit is reversed, and the case is
remanded for proceedings consistent with this opinion.

															It is so ordered.

Summary: The Supreme Court ruled that a plaintiff alleging they were fired due to age discrimination under the Age Discrimination in Employment Act (ADEA) does not need to prove they were replaced by someone outside the age group protected by the ADEA (under 40) to make a prima facie case. The Court held that the discrimination prohibited by the ADEA is based on an individual's age, not class membership, and that the replacement's age is irrelevant as long as the plaintiff can prove they were fired because of their age. The Court also stated that the inference of age discrimination is more reliably indicated by the replacement being substantially younger than by them being outside the protected class.


U.S. Supreme Court FMC Corp. v. Holliday, 498 U.S.
52 (1990) FMC Corporation v.
Holliday No. 89-1048 Argued Oct. 2, 1990 Decided Nov. 27, 1990 498 U.S.
52 CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE THIRD CIRCUIT Syllabus After petitioner FMC Corporation's self-funded health care plan
(Plan) paid a portion of respondent's medical expenses resulting
from an automobile accident, FMC informed respondent that it would
seek reimbursement under the Plan's subrogation provision from any
recovery she realized in her Pennsylvania negligence action against
the driver of the vehicle in which she was injured. Respondent
obtained a declaratory judgment in Federal District Court that §
1720 of Pennsylvania's Motor Vehicle Financial Responsibility Law
-- which precludes reimbursement from a claimant's tort recovery
for benefit payments by a program, group contract, or other
arrangement -- prohibits FMC's exercise of subrogation rights. The
Court of Appeals affirmed, holding that the Employee Retirement
Income Security Act of 1974 (ERISA), which applies to employee
welfare benefit plans such as FMC's, does not preempt § 1720. Held: ERISA preempts the application of § 1720 to FMC's
Plan.

															(a) ERISA's preemption clause broadly establishes as an area of
exclusive federal concern the subject of every state law that
"relate[s] to" a covered employee benefit plan. Although the
statute's saving clause returns to the States the power to enforce
those state laws that "regulat[e] insurance," the deemer clause
provides that a covered plan shall not be "deemed to be an
insurance company or other insurer . . . or to be engaged in the
business of insurance" for purposes of state laws "purporting to
regulate" insurance companies or insurance contracts. Pp. 498 U. S.
56 -58.

															(b) Section 1720 "relate[s] to" an employee benefit plan within
the meaning of ERISA's preemption provision, since it has both a
"connection with" and a "reference to" such a plan. See Shaw v.
Delta Air Lines, Inc., 463 U. S. 85 , 463 U. S. 96 -97.
Moreover, although there is no dispute that § 1720 "regulates
insurance," ERISA's deemer clause demonstrates Congress' clear
intent to exclude from the reach of the saving clause self-funded
ERISA plans by relieving them from state laws "purporting to
regulate insurance." Thus, such plans are exempt from state
regulation insofar as it "relates to" them. State laws directed
toward such plans are preempted because they relate to an employee
benefit plan but are not "saved" because they do not regulate
insurance. Page 498 U. S. 53 State laws that directly regulate insurance are "saved," but do
not reach self-funded plans because the plans may not be deemed to
be insurance companies, other insurers, or engaged in the business
of insurance for purposes of such laws. On the other hand, plans
that are insured are subject to indirect state insurance regulation
insofar as state laws "purporting to regulate insurance" apply to
the plans' insurers and the insurers' insurance contracts. This
reading of the deemer clause is consistent with Metropolitan
Life Ins. Co. v. Massachusetts, 471 U.
S. 724 , 471 U. S. 735 ,
n. 14, 471 U. S. 747 ,
and is respectful of the presumption that Congress does not intend
to preempt areas of traditional state regulation, see Jones v.
Rath Packing Co., 430 U. S. 519 , 430 U. S. 525 ,
including regulation of the "business of insurance," see
Metropolitan Life Ins. Co. v. Massachusetts, supra, 471 U.S.
at 471 U. S.
742 -744. Narrower readings of the deemer clause -- which
would interpret the clause to except from the saving clause only
state insurance regulations that are pretexts for impinging on core
ERISA concerns or to preclude States from deeming plans to be
insurers only for purposes of state laws that apply to insurance as
a business, such as laws relating to licensing and capitalization
requirements -- are unsupported by ERISA's language, and would be
fraught with administrative difficulties, necessitating definition
of core ERISA concerns and of what constitutes business activity
and thereby undermining Congress' expressed desire to avoid endless
litigation over the validity of state action and requiring plans to
expend funds in such litigation. Pp. 498 U. S.
58 -65.

															885 F.2d 79 (CA3 1989), vacated and remanded.

															O'CONNOR, J., delivered the opinion of the Court, in which
REHNQUIST, C.J., and WHITE, MARSHALL, BLACKMUN, SCALIA, and
KENNEDY, JJ., joined. STEVENS, J., filed a dissenting opinion, post, p. 498 U. S. 65 .
SOUTER, J., took no part in the consideration or decision of the
case. Page 498 U. S. 54 Justice O'CONNOR delivered the opinion of the Court.

															This case calls upon the Court to decide whether the Employee
Retirement Income Security Act of 1974 (ERISA), 88 Stat. 829, as amended, 29 U.S.C. § 1001 et seq., preempts a
Pennsylvania law precluding employee welfare benefit plans from
exercising subrogation rights on a claimant's tort recovery. I Petitioner, FMC Corporation (FMC), operates the FMC Salaried
Health Care Plan (Plan), an employee welfare benefit plan within
the meaning of ERISA, § 3(1), 29 U.S.C. § 1002(1), that provides
health benefits to FMC employees and their dependents. The Plan is
self-funded; it does not purchase an insurance policy from any
insurance company in order to satisfy its obligations to its
participants. Among its provisions is a subrogation clause under
which a Plan member agrees to reimburse the Plan for benefits paid
if the member recovers on a claim in a liability action against a
third party.

															Respondent, Cynthia Ann Holliday, is the daughter of FMC
employee and Plan member Gerald Holliday. In 1987, Page 498 U. S. 55 she was seriously injured in an automobile accident. The Plan
paid a portion of her medical expenses. Gerald Holliday brought a
negligence action on behalf of his daughter in Pennsylvania state
court against the driver of the automobile in which she was
injured. The parties settled the claim. While the action was
pending, FMC notified the Hollidays that it would seek
reimbursement for the amounts it had paid for respondent's medical
expenses. The Hollidays replied that they would not reimburse the
Plan, asserting that § 1720 of Pennsylvania's Motor Vehicle
Financial Responsibility Law, 75 Pa.Cons.Stat. § 1720 (1987),
precludes subrogation by FMC. Section 1720 states that

															"[i]n actions arising out of the maintenance or use of a motor
vehicle, there shall be no right of subrogation or reimbursement
from a claimant's tort recovery with respect to . . . benefits . .
. payable under section 1719. [ Footnote 1 ]"

															Section 1719 refers to benefit payments by "[a]ny program, group
contract or other arrangement." [ Footnote 2 ] Page 498 U. S. 56 Respondent, proceeding in diversity, then sought and received a
declaratory judgment in Federal District Court that § 1720
prohibits FMC's exercise of subrogation rights on Holliday's claim
against the driver. The United States Court of Appeals for the
Third Circuit affirmed. 885 F.2d 79 (1989). The court held that §
1720, unless preempted, bars FMC from enforcing its contractual
subrogation provision. According to the court, ERISA preempts §
1720 if ERISA's "deemer clause," § 514(b)(2)(B), 29 U.S.C. §
1144(b)(2)(B), exempts the Plan from state subrogation laws. The
Court of Appeals, citing Northern Group Services, Inc. v. Auto
Owners Ins. Co., 833 F.2d 85, 91-94 (CA6 1987), cert.
denied, 486 U.S. 1017 (1988), determined that "the deemer
clause [was] meant mainly to reach back-door attempts by states to
regulate core ERISA concerns in the guise of insurance regulation."
885 F.2d at 86. Pointing out that the parties had not suggested
that the Pennsylvania antisubrogation law addressed "a core type of
ERISA matter which Congress sought to protect by the preemption
provision," id. at 90, the court concluded that the
Pennsylvania law is not preempted. The Third Circuit's holding
conflicts with decisions of other Circuit Courts that have
construed ERISA's deemer clause to protect self-funded plans from
all state insurance regulation. See, e.g., Baxter v. Lynn, 886 F.2d 182, 186 (CA8 1989); Reilly v. Blue Cross and Blue
Shield United of Wisconsin, 846 F.2d 416, 425-426 (CA7), cert. denied, 488 U.S. 856 (1988). We granted certiorari
to resolve this conflict. 493 U.S. 1068 (1990), and now
reverse. II In determining whether federal law preempts a state statute, we
look to congressional intent.

															""Preemption may be either express or implied, and is
compelled whether Congress' Page 498 U. S.
57 command is explicitly stated in the statute's language or
implicitly contained in its structure and purpose." " Shaw v. Delta Air Lines, Inc., 463 U. S.
85 , 463 U. S. 95 (1983) (quoting Fidelity Federal Savings & Loan Assn. v. De
la Cuesta, 458 U. S. 141 , 458 U. S.
152 -153 (1982), in turn quoting Jones v. Rath
Packing Co., 430 U. S. 519 , 430 U. S. 525 (1977)); See also Chevron U.S.A. Inc. v.
Natural Resources Defense Council, Inc. , 467 U. S. 837 , 467 U. S.
842 -843 (1984) ("If the intent of Congress is clear,
that is the end of the matter; for the court . . . must give effect
to the unambiguously expressed intent of Congress" (footnote
omitted)). We

															"begin with the language employed by Congress and the assumption
that the ordinary meaning of that language accurately expresses the
legislative purpose." Park 'N Fly, Inc. v. Dollar Park and Fly, Inc., 469 U. S. 189 , 469 U. S. 194 (1985). Three provisions of ERISA speak expressly to the question
of preemption:

															"Except as provided in subsection (b) of this section [the
saving clause], the provisions of this subchapter and subchapter
III of this chapter shall supersede any and all State laws insofar
as they may now or hereafter relate to any employee benefit
plan."

															§ 514(a), as set forth in 29 U.S.C. § 1144(a) (preemption
clause).

															"Except as provided in subparagraph (B) [the deemer clause],
nothing in this subchapter shall be construed to exempt or relieve
any person from any law of any State which regulates insurance,
banking, or securities."

															§ 514(b)(2)(A), as set forth in 29 U.S.C. § 1144(b)(2)(A)
(saving clause).

															"Neither an employee benefit plan . . . nor any trust
established under such a plan, shall be deemed to be an insurance
company or other insurer, bank, trust company, or investment
company or to be engaged in the business of insurance or banking
for purposes of any law of any State purporting to regulate
insurance companies, insurance contracts, banks, trust companies,
or Page 498 U. S. 58 investment companies."

															§ 514(b)(2)(B), as set forth in 29 U.S.C. § 1144(b)(2)(B)
(deemer clause).

															We indicated in Metropolitan Life Ins. Co. v.
Massachusetts, 471 U. S. 724 (1985), that these provisions "are not a model of legislative
drafting." Id. at 471 U. S. 739 . Their operation is nevertheless
discernible. The preemption clause is conspicuous for its breadth.
It establishes as an area of exclusive federal concern the subject
of every state law that "relate[s] to" an employee benefit plan
governed by ERISA. The saving clause returns to the States the
power to enforce those state laws that "regulat[e] insurance,"
except as provided in the deemer clause. Under the deemer clause,
an employee benefit plan governed by ERISA shall not be "deemed" an
insurance company, an insurer, or engaged in the business of
insurance for purposes of state laws "purporting to regulate"
insurance companies or insurance contracts. III Pennsylvania's antisubrogation law "relate[s] to" an employee
benefit plan. We made clear in Shaw v. Delta Air Lines,
supra, that a law relates to an employee welfare plan if it
has "a connection with or reference to such a plan." Id., 463 U.S. at 463 U. S. 96 -97
(footnote omitted). We based our reading in part on the plain
language of the statute. Congress used the words " relate to' in
§ 514(a) [the preemption clause] in their broad sense." Id. at 463 U. S. 98 . It
did not mean to preempt only state laws specifically designed to
affect employee benefit plans. That interpretation would have made
it unnecessary for Congress to enact ERISA § 514(b)(4), 29 U.S.C. §
1144(b)(4), which exempts from preemption "generally" applicable
criminal laws of a State. We also emphasized that to interpret the
preemption clause to apply only to state laws dealing with the
subject matters covered by ERISA, such as reporting, disclosure,
and fiduciary duties, would be incompatible with the provision's
legislative history because the House and Senate versions of the
bill that became ERISA Page 498 U. S. 59 contained limited preemption clauses, applicable only to state
laws relating to specific subjects covered by ERISA. [ Footnote 3 ] These were rejected in favor of
the present language in the Act, "indicat[ing] that the section's
preemptive scope was as broad as its language." Shaw v. Delta
Air Lines, 463 U.S. at 463 U. S. 98 .
Pennsylvania's antisubrogation law has a "reference" to benefit
plans governed by ERISA. The statute states that

															"[i]n actions arising out of the maintenance or use of a motor
vehicle, there shall be no right of subrogation or reimbursement
from a claimant's tort recovery with respect to . . . benefits . .
. paid or payable under section 1719."

															75 Pa.Cons.Stat. § 1720 (1987). Section 1719 refers to "[a]ny
program, group contract or other arrangement for payment of
benefits." These terms

															"includ[e], but [are] not limited to, benefits payable
by a hospital plan corporation or a professional health service
corporation."

															§ 1719 (emphasis added).

															The Pennsylvania statute also has a "connection" to ERISA
benefit plans. In the past, we have not hesitated to apply ERISA's
preemption clause to state laws that risk subjecting plan
administrators to conflicting state regulations. See, e.g.,
Shaw v. Delta Air Lines, supra, at 463 U. S. 95 -100
(state laws making unlawful plan provisions that discriminate on
the basis of pregnancy and requiring plans to provide specific
benefits "relate to" benefit plans); Alessi v.
Raybestos-Manhattan, Page 498 U. S.
60 Inc., 451 U. S. 504 , 451 U. S.
523 -526 (1981) (state law prohibiting plans from
reducing benefits by amount of workers' compensation awards
"relate[s] to" employee benefit plan). To require plan providers to
design their programs in an environment of differing State
regulations would complicate the administration of nationwide
plans, producing inefficiencies that employers might offset with
decreased benefits. See Fort Halifax Packing Co. v. Coyne, 482 U. S. 1 , 482 U. S. 10 (1987). Thus, where a "patchwork scheme of regulation would
introduce considerable inefficiencies in benefit program
operation," we have applied the preemption clause to ensure that
benefit plans will be governed by only a single set of regulations. Id. at 482 U. S. 11 .

															Pennsylvania's antisubrogation law prohibits plans from being
structured in a manner requiring reimbursement in the event of.
recovery from a third party. It requires plan providers to
calculate benefit levels in Pennsylvania based on expected
liability conditions that differ from those in States that have not
enacted similar antisubrogation legislation. Application of
differing state subrogation laws to plans would therefore frustrate
plan administrators' continuing obligation to calculate uniform
benefit levels nationwide. Accord, Alessi v.
Raybestos-Manhattan, Inc., supra, (state statute prohibiting
offsetting worker compensation payments against pension benefits
preempted, since statute would force employer either to structure
all benefit payments in accordance with state statute or adopt
different payment formulae for employers inside and outside State).
As we stated in Fort Halifax, "[t]he most efficient way to meet these [administrative]
responsibilities is to establish a uniform administrative scheme
which provides a set of standard procedures to guide processing of
claims and disbursement of benefits." Fort Halifax Packing Co. v. Coyne, supra, at 482 U. S. 9 .

															There is no dispute that the Pennsylvania law falls within
ERISA's insurance saving clause, which provides,

															" [e]xcept as provided in [the deemer clause], nothing
in this subchapter Page 498 U. S. 61 shall be construed to exempt or relieve any person from any law
of any State which regulates insurance,"

															§ 514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A) (emphasis added).
Section 1720 directly controls the terms of insurance contracts by
invalidating any subrogation provisions that they contain. See
Metropolitan Life, 471 U.S. at 471 U. S.
740 -741. It does not merely have an impact on the
insurance industry; it is aimed at it. See Pilot Life Ins. Co.
v. Dedeaux, 481 U. S. 41 , 481 U. S. 50 (1987). This returns the matter of subrogation to state law. Unless
the statute is excluded from the reach of the saving clause by
virtue of the deemer clause, therefore, it is not preempted.

															We read the deemer clause to exempt self-funded ERISA plans from
state laws that "regulat[e] insurance" within the meaning of the
saving clause. By forbidding States to deem employee benefit plans
"to be an insurance company or other insurer . . . or to be engaged
in the business of insurance," the deemer clause relieves plans
from state laws "purporting to regulate insurance." As a result,
self-funded ERISA plans are exempt from state regulation insofar as
that regulation "relate[s] to" the plans. State laws directed
toward the plans are preempted because they relate to an employee
benefit plan but are not "saved" because they do not regulate
insurance. State laws that directly regulate insurance are "saved"
but do not reach self-funded employee benefit plans because the
plans may not be deemed to be insurance companies, other insurers,
or engaged in the business of insurance for purposes of such state
laws. On the other hand, employee benefit plans that are insured
are subject to indirect state insurance regulation. An insurance
company that insures a plan remains an insurer for purposes of
state laws "purporting to regulate insurance" after application of
the deemer clause. The insurance company is therefore not relieved
from state insurance regulation. The ERISA plan is consequently
bound by state insurance regulations insofar as they apply to the
plan's insurer. Page 498 U. S. 62 Our reading of the deemer clause is consistent with Metropolitan Life Ins. Co. v. Massachusetts, supra. That
case involved a Massachusetts statute requiring certain self-funded
benefit plans and insurers issuing group health policies to plans
to provide minimum mental health benefits. Id. 471 U.S. at 471 U. S. 734 .
In pointing out that Massachusetts had never tried to enforce the
portion of the statute pertaining directly to benefit plans, we
stated

															"[i]n light of ERISA's 'deemer clause,' which states that a
benefit plan shall not 'be deemed an insurance company' for
purposes of the insurance saving clause, Massachusetts has never
tried to enforce [the statute] as applied to benefit plans
directly, effectively conceding that such an application of [the
statute] would be preempted by ERISA's preemption clause." Id. at 471 U. S. 735 ,
n. 14 (citations omitted). We concluded that the statute, as
applied to insurers of plans, was not preempted because it
regulated insurance and was therefore saved. Our decision, we
acknowledged,

															"results in a distinction between insured and uninsured plans,
leaving the former open to indirect regulation while the latter are
not." Id. at 471 U. S.
747 .

															"By so doing, we merely give life to a distinction created by
Congress in the 'deemer clause,' a distinction Congress is aware
of, and one it has chosen not to alter." Ibid. (footnote omitted).

															Our construction of the deemer clause is also respectful of the
presumption that Congress does not intend to preempt areas of
traditional state regulation. See Jones v. Rath Packing
Co., 430 U.S. at 430 U. S. 625 .
In the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq., Congress provided that the

															"business of insurance, and every person engaged therein, shall
be subject to the laws of the several States which relate to the
regulation or taxation of such business."

															15 U.S.C. § 1012(a). We have identified laws governing the
"business of insurance" in the Act to include not only direct
regulation of the insurer but also regulation of the substantive
terms of insurance contracts. Metropolitan Life Ins. Co. v.
Massachusetts, supra, 471 U.S. at 471 U. S.
742 -744. Page 498 U. S. 63 By recognizing a distinction between insurers of plans and the
contracts of those insurers, which are subject to direct state
regulation, and self-insured employee benefit plans governed by
ERISA, which are not, we observe Congress' presumed desire to
reserve to the States the regulation of the "business of
insurance."

															Respondent resists our reading of the deemer clause, and would
attach to it narrower significance. According to the deemer
clause,

															"[n]either an employee benefit plan . . . nor any trust
established under such a plan, shall be deemed to be an insurance
company or other insurer, bank, trust company, or investment
company or to be engaged in the business of insurance or banking
for purposes of any law of any State purporting to
regulate insurance companies [or] insurance contracts."

															§ 514(b)(2)(B), 29 U.S.C. § 1144(b)(2)(B) (emphasis added). Like
the Court of Appeals, respondent would interpret the deemer clause
to except from the saving clause only state insurance regulations
that are pretexts for impinging upon core ERISA concerns. The
National Conference of State Legislatures et al. as amici curiae in support of respondent, offer an
alternative interpretation of the deemer clause. In their view, the
deemer clause precludes States from deeming plans to be insurers
only for purposes of state laws that apply to insurance as a
business, such as laws relating to licensing and capitalization
requirements.

															These views are unsupported by ERISA's language. Laws that purportedly regulate insurance companies or insurance
contracts are laws having the "appearance of" regulating or
"intending" to regulate insurance companies or contracts. Black's
Law Dictionary 1236 (6th ed.1990). Congress' use of the word does
not indicate that it directed the deemer clause solely at deceit
that it feared state legislatures would practice. Indeed, the
Conference Report, in describing the deemer clause, omits the word
"purporting," stating,

															"an employee benefit plan is not to be considered as an
insurance company, bank, trust company, or investment Page 498 U. S. 64 company (and is not to be considered as engaged in the business
of insurance or banking) for purposes of any State law that
regulates insurance companies, insurance contracts, banks, trust
companies, or investment companies."

															H.R.Conf.Rep. No. 93-1280, p. 383 (1974), U.S.Code Cong. &
Admin.News 1974, pp. 4639, 5162.

															Nor, in our view, is the deemer clause directed solely at laws
governing the business of insurance. It is plainly directed at

															"any law of any State purporting to regulate insurance
companies, insurance contracts, banks, trust companies, or
investment companies."

															§ 514(b)(2)(B), 29 U.S.C. § 1144(b)(2)(B). Moreover, it is
difficult to understand why Congress would have included insurance contracts in the preemption clause if it meant
only to preempt state laws relating to the operation of insurance
as a business. To be sure, the saving and deemer clauses employ
differing language to achieve their ends -- the former saving,
except as provided in the deemer clause, "any law of any State
which regulates insurance" and the latter referring to "any law of
any State purporting to regulate insurance companies [or] insurance
contracts." We view the language of the deemer clause, however, to
be either coextensive with or broader, not narrower, than that of
the saving clause. Our rejection of a restricted reading of the
deemer clause does not lead to the deemer clause's engulfing the
saving clause. As we have pointed out, supra at ___, the
saving clause retains the independent effect of protecting state
insurance regulation of insurance contracts purchased by employee
benefit plans.

															Congress intended by ERISA to "establish pension plan regulation
as exclusively a federal concern." Alessi v.
Raybestos-Manhattan, Inc., 451 U.S. at 451 U. S. 523 (footnote omitted). Our interpretation of the deemer clause makes
clear that, if a plan is insured, a State may regulate it
indirectly through regulation of its insurer and its insurer's
insurance contracts; if the plan is uninsured, the State may not
regulate it. As a result, employers will not face " conflicting
or inconsistent State and local regulation of employee benefit
plans.'" Page 498 U. S.
65 Shaw v. Delta Air Lines, Inc., 463 U.S. at 463 U. S. 99 (quoting remarks of Sen. Williams). A construction of the deemer
clause that exempts employee benefit plans from only those state
regulations that encroach upon core ERISA concerns or that apply to
insurance as a business would be fraught with administrative
difficulties, necessitating definition of core ERISA concerns and
of what constitutes business activity. It would therefore undermine
Congress' desire to avoid "endless litigation over the validity of
State action," see 120 Cong.Rec. 29942 (1974) (remarks of
Sen. Javits), and instead lead to employee benefit plans'
expenditure of funds in such litigation. In view of Congress' clear intent to exempt from direct state
insurance regulation ERISA employee benefit plans, we hold that
ERISA preempts the application of § 1720 of Pennsylvania's Motor
Vehicle Financial Responsibility Law to the FMC Salaried Health
Care Plan. We therefore vacate the judgment of the United States
Court of Appeals for the Third Circuit, and remand the case for
further proceedings consistent with this opinion. It is so ordered. Justice SOUTER took no part in the consideration or decision of
this case.

															[ Footnote 1 ]

															Section 1720 of Pennsylvania's Motor Vehicle Financial
Responsibility Law is entitled "[s]ubrogation" and provides:

															"In actions arising out of the maintenance or use of a motor
vehicle, there shall be no right of subrogation or reimbursement
from a claimant's tort recovery with respect to workers'
compensation benefits, benefits available under section 1711
(relating to required benefits), 1712 (relating to availability of
benefits) or 1715 (relating to availability of adequate limits) or
benefits in lieu thereof paid or payable under section 1719
(relating to coordination of benefits)."

															[ Footnote 2 ]

															Section 1719, entitled "[c]oordination of benefits," reads:

															"(a) General rule. -- Except for workers' compensation, a policy
of insurance issued or delivered pursuant to this subchapter shall
be primary. Any program, group contract or other arrangement for
payment of benefits such as described in section 1711 (relating to
required benefits), 1712(1) and (2) (relating to availability of
benefits) or 1715 (relating to availability of adequate limits)
shall be construed to contain a provision that all benefits
provided therein shall be in excess of and not in duplication of
any valid and collectible first party benefits provided in section
1711, 1712 or 1715 or workers' compensation."

															"(b) Definition. -- As used in this section the term 'program,
group contract or other arrangement' includes, but is not limited
to, benefits payable by a hospital plan corporation or a
professional health service corporation subject to 40 Pa.C.S. Ch.
61 (relating to hospital plan corporations) or 63 (relating to
professional health services plan corporations)."

															[ Footnote 3 ]

															The bill introduced in the Senate and reported out of the
Committee on Labor and Public Welfare would have preempted

															"any and all laws of the States and of political subdivisions
thereof insofar as they may now or hereafter relate to the subject
matters regulated by this Act."

															S. 4, 93d Cong., 1st Sess., § 609(a) (1973). As introduced in
the House, the bill that became ERISA would have superseded

															"any and all laws of the States and of the political
subdivisions thereof insofar as they may now or hereafter relate to
the fiduciary, reporting, and disclosure responsibilities of
persons acting on behalf of employee benefit plans."

															H.R. 2, 93d Cong., 1st Sess., § 114 (1973). The bill was
approved by the Committee on Education and Labor in a slightly
modified form. See H.R. 2, 93d Cong., 1st Sess., § 514(a)
(1973).

															Justice STEVENS, dissenting.

															The Court's construction of the statute draws a broad and
illogical distinction between benefit plans that are funded by the
employer (self-insured plans) and those that are insured by
regulated insurance companies (insured plans). Had Congress
intended this result, it could have stated simply that "all State
laws are preempted insofar as they relate to any self-insured
employee plan." There would then have been no need for the "saving
clause" to exempt state insurance laws from the preemption clause,
or the "deemer clause," which the Court today reads as merely
reinjecting Page 498 U. S. 66 into the scope of ERISA's preemption clause those same exempted
state laws insofar as they relate to self-insured plans.

															From the standpoint of the beneficiaries of ERISA plans -- who
after all are the primary beneficiaries of the entire statutory
program -- there is no apparent reason for treating self-insured
plans differently from insured plans. Why should a self-insured
plan have a right to enforce a subrogation clause against an
injured employee, while an insured plan may not? The notion that
this disparate treatment of similarly situated beneficiaries is
somehow supported by an interest in uniformity is singularly
unpersuasive. If Congress had intended such an irrational result,
surely it would have expressed it in straightforward English. At
least one would expect that the reasons for drawing such an
apparently irrational distinction would be discernible in the
legislative history, or in the literature discussing the
legislation.

															The Court's anomalous result would be avoided by a correct and
narrower reading of either the basic preemption clause or the
deemer clause. I The Court has endorsed an unnecessarily broad reading of the
words "relate to any employee benefit plan" as they are used in the
basic preemption clause of § 514(a). I acknowledge that this
reading is supported by language in some of our prior opinions. It
is not, however, dictated by any prior holding, and I am persuaded
that Congress did not intend this clause to cut nearly so broad a
swath in the field of state laws as the Court's expansive
construction will create.

															The clause surely does not preempt a host of general rules of
tort, contract, and procedural law that relate to benefit plans as
well as to other persons and entities. It does not, for example,
preempt general state garnishment rules insofar as they relate to
ERISA plans. Mackey v. Lanier Collection Agency & Service,
Inc., 486 U. S. 825 (1988). Moreover, the legislative history of the provision
indicates that, Page 498 U. S. 67 throughout most of its consideration of preemption, Congress was
primarily concerned about areas of possible overlap between federal
and state requirements. Thus, the bill that was introduced in the
Senate would have preempted state laws insofar as they "relate to
the subject matters regulated by this Act," [ Footnote 2/1 ] and the House bill more specifically
identified state laws relating "to the fiduciary, reporting, and
disclosure responsibilities of persons acting on behalf of employee
benefit plans." [ Footnote 2/2 ]
Although the compromise that produced the statutory language
"relate to any employee benefit plan" is not discussed in the
legislative history, the final version is perhaps best explained as
an editorial amalgam of the two bills, rather than as a major
expansion of the section's coverage.

															When there is ambiguity in a statutory provision preempting
state law, we should apply a strong presumption against the
invalidation of well-settled, generally applicable state rules. In
my opinion, this presumption played an important role in our
decisions in Fort Halifax Packing Co. v. Coyne, 482 U. S. 1 (1987),
and Mackey v. Lanier Collection Agency & Service, Inc.,
supra. Application of that presumption leads me to the
conclusion that the preemption clause should apply only to those
state laws that purport to regulate subjects regulated by ERISA or
that are inconsistent with ERISA's central purposes. I do not think
Congress intended to foreclose Pennsylvania from enforcing the
antisubrogation provisions of its state Motor Vehicle Financial
Responsibility Act against ERISA plans -- most certainly, it did
not intend to preempt enforcement of that statute against
self-insured plans while preserving enforcement against insured
plans. Page 498 U. S. 68 II Even if the "relate to" language in the basic preemption clause
is read broadly, a proper interpretation of the carefully drafted
text of the deemer clause would caution against finding preemption
in this case. Before identifying the key words in that text, it is
useful to comment on the history surrounding enactment of the
deemer clause.

															The number of self-insured employee benefit plans grew
dramatically in the 1960's and early 1970's. [ Footnote 2/3 ] The question whether such plans were, or
should be, subject to state regulation remained unresolved when
ERISA was enacted. It was, however, well recognized as early as
1967 that requiring self-insured plans to comply with the
regulatory requirements in state insurance codes would stifle their
growth:

															"Application of state insurance laws to uninsured plans would
make direct payment of benefits pointless, and in most cases not
feasible. This is because a welfare plan would have to be operated
as an insurance company in order to comply with the detailed
regulatory requirements of state insurance codes designed with the
typical operations of insurance companies in mind. It presumably
would be necessary to form a captive insurance company with
prescribed capital and surplus, capable of obtaining a certificate
of authority from the insurance department of all states in which
the plan was 'doing business,' establish premium rates subject to
approval by the insurance department, issue policies in the form
approved by the insurance department, pay commissions and premium
taxes required by the insurance law, hold and deposit reserves
established by the insurance department, make investments permitted
under the law, and comply with all filing and examination
requirements of the insurance department. The result would be to
reintroduce Page 498 U. S. 69 an insurance company, which the direct payment plan was designed
to dispense with. Thus it can be seen that the real issue is not
whether uninsured plans are to be regulated under state
insurance laws, but whether they are to be permitted. "

															Goetz, Regulation of Uninsured Employee Welfare Plans Under
State Insurance Laws, 1967 Wis.L.Rev. 319, 320-321 (emphasis in
original).

															In 1974, while ERISA was being considered in Congress, the first
state court to consider the applicability of state insurance laws
to self-insured plans held that a self-insured plan could not pay
out benefits until it had satisfied the licensing requirements
governing insurance companies in Missouri, and thereby had
subjected itself to the regulations contained in the Missouri
insurance code. Missouri v. Monsanto Co., Cause No. 259774
(St. Louis Cty.Cir. Ct., Jan. 4, 1973), rev'd, 517 S.W.2d
129 (Mo.1974). Although it is true that the legislative history
of ERISA or the deemer clause makes no reference to the Missouri
case, or to this problem -- indeed, it contains no explanation
whatsoever of the reason for enacting the deemer clause -- the text
of the clause itself plainly reveals that it was designed to
protect pension plans from being subjected to the detailed
regulatory provisions that typically apply to all state-regulated
insurance companies -- laws that purport to regulate insurance
companies and insurance contracts.

															The key words in the text of the deemer clause are "deemed,"
"insurance company," and "purporting." [ Footnote 2/4 ] It provides Page 498 U. S. 70 that an employee welfare plan shall not be deemed to be
an insurance company or to be engaged in the business of
insurance for the purpose of determining whether it is an entity
that is regulated by any state law purporting to regulate insurance companies and insurance contracts.

															Pennsylvania's insurance code purports, in so many words, to
regulate insurance companies and insurance contracts. It governs
the certification of insurance companies, Pa.Stat.Ann., Tit. 40, §
400 (Purdon 1971), their minimum capital stock and financial
requirements to do business, § 386 (Purdon 1971 and Supp.199-1991),
their rates, e.g., § 532.9 (Purdon 1971) (authorizing
Insurance Commissioner to regulate minimum premiums charged by life
insurance companies), and the terms that insurance policies must,
or may, include, e.g., § 510 (Purdon 1971 and
Supp.199-1991) (life insurance policies), § 753 (Purdon 1971)
(health and accident insurance policies). The deemer clause
prevents a State from enforcing such laws purporting to regulate
insurance companies and insurance contracts against ERISA plans
merely by deeming ERISA plans to be insurance companies. But the
fact that an ERISA plan is not deemed to be an insurance company
for the purpose of deciding whether it must comply with a statute
that purports to regulate "insurance contracts" or entities that
are defined as "insurance companies" simply does not speak to the
question whether it must nevertheless comply with a statute that
expressly regulates subject matters other than insurance.

															There are many state laws that apply to insurance companies as
well as to other entities. Such laws may regulate some aspects of
the insurance business, but do not require one to be an insurance
company in order to be subject to their terms. Pennsylvania's Motor
Vehicle Financial Responsibility Act is such a law. The fact that
petitioner's plan is not deemed to be an insurance company or an
insurance contract does not have any bearing on the question
whether petitioner, Page 498 U. S. 71 like all other persons, must nevertheless comply with the Motor
Vehicle Financial Responsibility Act.

															If one accepts the Court's broad reading of the "relate to"
language in the basic preemption clause, the answer to the question
whether petitioner must comply with state laws regulating entities
including, but not limited to, insurance companies depends on the
scope of the saving clause. [ Footnote
2/5 ] In this case, I am prepared to accept the Court's broad
reading of that clause, but it is of critical importance to me that
the category of state laws described in the saving clause is
broader than the category described in the deemer clause. A state
law "which regulates insurance," and is therefore exempted from
ERISA's preemption provision by operation of the saving clause,
does not necessarily have as its purported subject of regulation an
"insurance company" or an activity that is engaged in by persons
who are insurance companies. Rather, such a law may aim to regulate
another matter altogether, but also have the effect of regulating
insurance. The deemer clause, by contrast, reinjects into the scope
of ERISA preemption only those state laws that "purport to"
regulate insurance companies or contracts -- laws such as those
which set forth the licensing and capitalization requirements for
insurance companies or the minimum required provisions in insurance
contracts. While the saving clause thus exempts from the preemption
clause all state laws that have the broad effect of regulating
insurance, the deemer clause simply allows preemption of those
state laws that expressly regulate insurance and that would
therefore be applicable to ERISA plans only if States were allowed
to deem such plans to be insurance companies. Page 498 U. S. 72 Pennsylvania's Motor Vehicle Financial Responsibility Act fits
into the broader category of state laws that fall within the saving
clause only. The Act regulates persons in addition to insurance
companies, and affects subrogation and indemnity agreements that
are not necessarily insurance contracts. Yet because it most
assuredly is not a law "purporting" to regulate any of the entities
described in the deemer clause -- "insurance companies, insurance
contracts, banks, trust companies, or investment companies," the
deemer clause does not, by its plain language, apply to this state
law. Thus, although the Pennsylvania law is exempted from ERISA's
preemption provision by the broad saving clause because it
"regulates insurance," it is not brought back within the scope of
ERISA preemption by operation of the narrower deemer clause. I
therefore would conclude that petitioner is subject to
Pennsylvania's Motor Vehicle Financial Responsibility Act.

															I respectfully dissent.

															[ Footnote 2/1 ]

															S. 4, 93d Cong., 1st Sess., § 609(a) (1973), reprinted at 1
Legislative History of the Employee Retirement Income Security Act
of 1974 (Committee Print compiled by the Subcommittee on Labor of
the Senate Committee on Labor and Public Welfare) 93, 186 (1976)
(Leg.Hist.).

															[ Footnote 2/2 ]

															H.R. 2, 93d Cong., 1st Sess., § 114 (1973), 1 Leg.Hist. 51.

															[ Footnote 2/3 ] See Comment, State Regulation of Noninsured Employee
Welfare Benefit Plans, 62 Geo.L.J. 339, 340 (1973).

															[ Footnote 2/4 ]

															Section 514(b)(2)(B), as set forth in 29 U.S.C. § 1144(b)(2)(B),
provides:

															"Neither an employee benefit plan . . . nor any trust
established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company,
or investment company or to be engaged in the business of insurance
or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts,
banks, trust companies, or investment companies."

															(Emphasis added).

															[ Footnote 2/5 ]

															Section 514(b)(2)(A) of ERISA as set forth in 29 U.S.C. §
1144(b)(2)(A), provides:

															"Except as provided in subparagraph (B), nothing in this
subchapter shall be construed to exempt or relieve any person from
any law of any State which regulates insurance, banking, or
securities."

Summary:
In FMC Corp. v. Holliday (1990), the U.S. Supreme Court ruled that ERISA (Employee Retirement Income Security Act of 1974) preempts state laws that "relate to" employee benefit plans, even if those state laws also "regulate insurance."

The case centered around FMC Corporation's self-funded health care plan and its attempt to exercise subrogation rights to recover medical expenses paid on behalf of an employee injured in an automobile accident. The employee argued that a Pennsylvania state law, § 1720 of the Motor Vehicle Financial Responsibility Law, prohibited FMC's recovery.

The Court held that while § 1720 does "relate to" an employee benefit plan and regulates insurance, ERISA's deemer clause exempts self-funded ERISA plans from state laws that expressly regulate insurance. Therefore, FMC's plan was exempt from § 1720, and ERISA preemption applied.