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2 

UNITED STATES v. QUALITY STORES, INC. 

Opinion of the Court 

payments  do  fall  within  the  broad  definition  of  the  term 
wages.  Section 3402(o) was enacted in response to a nar-
row,  specific  problem  regarding  income-tax  withholding.
In  addition,  were  the  Court  to  rule  that  the  severance 
payments  made  here  are  exempt  from  FICA  taxation  but 
not  from  withholding  under  §3402  for  income-tax  pur-
poses,  it  would  contravene  the  holding  in  Rowan  Cos.  v. 
United  States,  452  U.  S.  247  (1981),  which  held  there
should be congruence in the rules for FICA and income-tax
withholding. 

I 

Quality  Stores,  Inc.,  an  agricultural-specialty  retailer, 
entered  bankruptcy  proceedings  in  2001.  Before  and 
following  the  filing  of  an  involuntary  Chapter  11  bank-
ruptcy  petition,  respondents  Quality  Stores  and  affiliated 
companies,  all  referred  to  here  as  Quality  Stores,  termi-
nated  thousands  of  employees.  The  employees  received 
severance  payments,  which  all  parties  to  this  case  stipu-
late were the result of a reduction in work force or discon-
tinuance  of  a  plant  or  operation.  The  payments  were
made  pursuant  to  one  of  two  different  termination  plans.
(For reasons later to be explained, it should be noted that 
neither  termination  plan  tied  severance  payments  to  the
receipt of state unemployment compensation.)

Under  the  first  plan,  terminated  employees  received
severance  pay  based  on  job  grade  and  management  level. 
The  president  and  chief  executive  officer  received  18
months  of  severance  pay,  senior  managers  received  12 
months  of  severance  pay,  and  other  employees  received 
one week of severance pay for each year of service. 

The  second  plan  was  designed  to  facilitate  Quality
Stores’  postbankruptcy  operations  and  encourage  employ-
ees to put off their job searches.  To receive severance pay,
employees  had  to  complete  their  last  day  of  service  as 
determined by the employer.  Officers received between 6