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The inquiry of whether a change in state law has operated as a substantial impairment of a contractual relationship has three components: whether there is a contractual relationship, whether a change in law impairs that contractual relationship, and whether the impairment is substantial.
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. 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.
Did the 1987 statute violate the contract clause by allegedly substantially impairing the obligation of employment contracts that were entered into after collective bargaining between the employers and employees?
The court held that the 1987 statute (1) did not violate the contract clause by allegedly substantially impairing the obligation of employment contracts that were entered into after collective bargaining between the employers and employees, because (a) there was no contractual agreement regarding the specific workers' compensation terms allegedly at issue, since the contracts, which made no express mention of workers' compensation benefits and were formed before the coordination statute was enacted, did not contain an implied term consisting of a promise to pay the amount of workers' compensation required by law for each payment period, which obligation was completed by making payments for any disability period, (b) the employers' alleged right to rely on past payment periods as closed was not a contractual term incorporated by law into employment contracts, regardless of the assent, express or implied, of the parties, (c) the 1987 statute did not change the legal enforceability of the contracts, and (d) reading every workplace regulation into the private contractual arrangements of employers and employees would prevent the contract clause from enabling individuals to order their personal and business affairs according to their particular needs and interests, would severely limit the ability of state legislatures to amend their regulatory legislation, and, taken to an extreme, would render the contract clause entirely dependent on state law; and (2) did not, as a result of the 1987 statute's retroactive payment provision, violate the due process clause, because the retroactive payment provision was a rational means of meeting the legitimate legislative purpose of correcting the state court decision, where the payment provision (a) preserved the delicate legislative compromise that had been struck with respect to workers' compensation benefit rates by the coordination statute and another earlier state statute, and (b) equalized the payments made by employers who had gambled on the state court decision with the payments made by employers who had not gambled on the decision.