Opinion
No. 6879.
March 16, 1976. Rehearing Denied April 13, 1976. Dissenting Opinion April 26, 1976. Writ Granted June 2, 1976.
APPEAL FROM CIVIL DISTRICT COURT, DIVISION "G", PARISH OF ORLEANS, STATE OF LOUISIANA, HONORABLE PAUL P. GAROFALO, J.
Joseph S. Russo, New Orleans, for plaintiff-appellant.
Jones, Walker, Waechter, Poitevent, Carrere Denegre, Herschel L. Abbott, Jr., New Orleans, for defendants-appellees.
Before REDMANN, LEMMON, BOUTALL, MORIAL and BEER, JJ.
Plaintiff, Brenton T. Morse, Jr. (hereafter, Morse) has appealed from a judgment denying his claim against his former employer, J. Ray McDermott, Inc. (hereafter, McDermott) for installment payments of several "supplemental compensation awards" made during the period of his employment and for recognition of his right to retirement benefits.
Morse was employed by McDermott from June 1, 1958 until April 7, 1970, at which time he was terminated because of an economic downturn. The termination was in no way related to any misconduct, incompetence or willful neglect on plaintiff's part. At the time there was no formal contract of employment between Morse and McDermott.
The "Supplemental Compensation Plan" was unilaterally adopted by McDermott in 1966 to reward, annually, certain managerial employees who contributed to the company's increased productivity and income during the year. The plan was entirely funded by McDermott. There was no fiscal contribution — in any form whatever — by the employees.
In 1966 and each year thereafter a committee administering the plan made awards (designated as "current awards") of a percentage of the company's income to certain employees, including Morse. The plan stipulated that the awards were payable on the following terms and conditions:
"(1) A Current Award is made payable in five equal installments, 20% of the award to be paid to the Eligible Employee within thirty (30) days of the Committee's determination of the amount awarded to him pursuant to paragraph (b) of this section, and an additional 20% thereof to be paid on July 15 of each of the four succeeding calendar year; provided that (i) said Employee has been in the continuous employ of the Company or any of its Subsidiaries up to each such July 15 date, or (ii) at the time his employment shall have terminated prior to the last of such July 15 dates, the Committee, in its discretion, shall have waived such requirement of continuous employment, or (iii) his employment has terminated before the last of such July 15 dates as a result of death, disability or retirement (other than early retirement) under the Retirement Plan. In the event that his employment terminates under any other circumstances prior to receipt of the total amount of his award, the Elibible [sic] Employee shall forfeit all unpaid portions of said award."
Thus it can be seen that the plan provided incentive to key employees by a sharing of increased income and further sought to induce these employees to remain with the company in order to continue reaping the benefits of the plan. Clearly, the requirement that employees who merited an award for a particular year remain with the company for an additional four years in order to receive the full amount awarded was an inducement to continued employment.
Morse contends that although the plan contemplated that an employee would forfeit unpaid installments if he voluntarily left the company or was terminated for cause, it should not be so interpreted in his case since he was involuntarily terminated; his non-willful failure to fulfill the plan's requirements should not result in forfeiture of the yet unpaid installments which were already "earned."
On the other hand, McDermott contends that since the employees neither paid any funds into the Supplemental Compensation Plan nor collectively bargained for any of the compensation payable under the plan, the payments under the plan were gratuities on its part, and employees whose services were terminated for any reason whatsoever were not entitled to unpaid installments. They point out that an essential condition for continued payment under the plan was that Morse remain in McDermott's employment. They essentially acknowledge that Morse was ready and willing to remain but was prevented from fulfilling the condition of continued employment by reason of the economic downturn which caused the reduction in force of McDermott employees including Morse.
Even if McDermott had discharged Morse without cause, the parties would be bound by the unequivocal terms of the plan. As noted by the able trial judge, the plan itself must be the law between the parties and, absent a need for judicial interpretation, must be followed as written.
Since the plan is clear with respect to the issue that now confronts us, we feel judicially restrained from reforming it — even though equitable considerations for doing so may exist. The claim for the unpaid installments of the Supplemental Compensation Awards must be denied.
During his employment plaintiff was covered by a non-contributory retirement plan, which provided in pertinent part:
"`Early Retirement Date' means the first day of the month coincident with or next following the date of retirement of a Participant who retires under the provisions of Section 2.2 hereof prior to his Normal Retirement Date and on or subsequent to the date as of which he has both:
"(a) completed 15 years of Credited Service; and
"(b) attained the age of:
"(i) 55 years for a Participant who has not completed at least 60 months of Service in a Hardship area and who is not an aircraft pilot; or
"(ii) 50 years for an aircraft pilot; or
"(iii) the age one month in advance of age 55 years for each month of Service which is in excess of 60 which was completed in a Hardship Area for a Participant who is not an aircraft pilot and who has completed at least 60 months of Service in a Hardship Area; provided, however, such age shall not be less than 50 years."
Morse contends that he is entitled to early retirement benefits, by computing "eleven and one-half of (11 1/2) years of regular employment plus 60 1/2 months for employment in hardship areas, for which period his regular employment time is increased, making his total employment for purpose of the retirement plan 16 1/2 years." But this is not within the provisions of the plan.
The plan clearly required both that the employee complete 15 years of service and that he attain a certain age in order to be eligible for early retirement benefits. The age requirement could be reduced on account of service in hardship areas but inasmuch as Morse did not complete 15 years of service he was not eligible, at any event, for early retirement benefits.
The plan also provided (Section 2.5) for benefits on termination of service at an earlier age, but that provision also required 15 years of service. Furthermore, Section 2.5 specifically provided (with exceptions as to disability or death) that:
". . . the Participant whose service is terminated prior to the date as of which he has both attained the age of 45 years and completed 15 years of Credited Service shall not be entitled to any benefit under the Plan whatever."
Finally, Morse contends that McDermott could not offer to pay vested retirement benefits if he completed 15 years of service and then effectively revoke that offer by terminating him after he had completed almost 12 years of performance in response to the offer.
However, McDermott had no obligation to Morse to continue his employment beyond the date of his termination and the terms of the retirement plan clearly provided that Morse had absolutely no vested right to retirement benefits until he completed 15 years of service.
Since the plan is, again, clear with respect to this issue we must, again, exercise judicial restraint in reforming it — even though equitable considerations for doing so may exist.
Accordingly, the judgment of the trial court is affirmed. Plaintiff-appellant must bear the cost of this appeal.
AFFIRMED.
REDMANN, J., dissents.
LEMMON, J., dissents with reasons.
I disagree with the majority as to both of plaintiff's demands for relief.
Supplemental Compensation Plan
The Supplemental Compensation Plan was not a gratuity, as McDermott contends, but rather was a contract from which the employee expected to receive stipulated monetary benefits, while the employer expected to receive the benefits derived from having more loyal and diligent employees, principally an increase in productivity and a reduction in labor turnover. Laffitte v. Laffitte, 232 So.2d 92 (La.App.)
I view this particular contract as follows: McDermott extended an offer, on an annual basis, to each of certain employees that if the company income in that year exceeded an amount calculated with reference to the amount of capital investment, McDermott agreed to place supplemental compensation for each of these employees in a reserve fund, from which part of the supplemental compensation was payable immediately and part was payable on the condition that the employee remain in company service for prescribed additional periods. The employees, although they made no promise and were not obliged to work for that year or for any specified period of time, accepted McDermott's unilateral offer by completing performance of services during that entire year in an effort to increase company income for the year. McDermott's resulting contractual obligation to pay supplemental compensation was supported by the same consideration given for its promise to pay wages.
Thus, when the employees' services were fully rendered, McDermott became contractually obligated to make both immediate and installment payments as compensation for past performance, the obligation to make the installment payments being conditioned upon continued employment.
Unpaid portions of awards forfeited under the plan were required to be credited to the reserve fund.
The condition was one imposed on the employee by the employer. If the employee fulfilled the condition, the employer was obligated to pay the installment payments; conversely, if the employee failed to fulfill the condition, the employer's obligation was discharged.
The committee had the right to waive the requirement of continued service.
Under such circumstances an obligor whose obligation is contingent upon fulfillment of a specified condition cannot defeat that obligation by preventing accomplishment of the condition.
George W. Garig Transfer v. Harris, 226 La. 117, 75 So.2d 28 (1954).
Because of plaintiff's past performance, McDermott was obligated to pay installments to plaintiff each year until the total awards were paid. The only condition to McDermott's obligation was that plaintiff remain in McDermott's employment. Plaintiff was ready and willing to do so, but McDermott (the party bound to perform the obligation) prevented plaintiff from fulfilling the condition. Under these circumstances the condition is considered as fulfilled. C.C. art. 2040. Stated otherwise, the forfeiture provision of the plan, although clear and unambiguous in its language, is unenforceable under the circumstances of this case, where forfeiture resulted from nonperformance of a condition which the faultless plaintiff was deprived of any opportunity to perform.
I distinguish on the facts the questionable decision of this court in Alco-Columbia Paper Service, Inc. v. Nash, 273 So.2d 630 (La.App. 4th Cir. 1973), which involved a profit sharing plan with a forefeiture provision based on a condition of non-competition. In that case the application for certiorari was dismissed on joint motion.
In my opinion plaintiff is entitled to the unpaid portions of the total awards which McDermott had obligated itself to pay.
Retirement Plan.
The typical retirement plan provides that the employee becomes eligible for membership after a stated period of time in the employer's service (three years in this case). When the employee enters the plan, the employer begins making contributions into a fund on behalf of that particular employee in an amount determined by the employee's salary, age, length of service and other factors. In some plans (not this one) the employee also makes contributions on a predetermined basis, and the employee's contributions normally are recoverable whenever he terminates employment. However, the employer's contributions and the benefits of the program are not payable until vesting occurs, at which time certain rights of the employee become nonforfeitable. In many plans vesting occurs in stages, with a larger percentage of the benefits vesting as length of service increases.
The United States Congress recently studied the problem presented when employees' jobs are terminated after many years of service and the employees are denied benefits that have been placed for them in a fund for retirement purposes. Recognizing that the employer's contributions on behalf of the employee were often in lieu of additional wages or other benefits, the Congressional committee observed that complete forfeiture of pension rights was often inequitable, particularly after a substantial period of service. 3 U.S.Cong. Adm.News '74-41, p. 4719. Congress eventually adopted Pub.L. 93-406 ( 29 U.S.C. § 1053).
Although plaintiff's termination occurred prior to adoption of this law, the fact remains in this case that this employer as part of the employment relationship made significant contributions to a retirement plan on behalf of this employee, contributions that the employee presumably would otherwise have received in wages or other benefits. Retirement benefits are essentially deferred compensation which is earned in increments during the course of employment. The employer's contributions (minus portions attributable to administrative and other expenses) form part of the compensation for the employee's labor.
See Inland Steel Co. v. NLRB, 170 F.2d 247 (7th Cir. 1948), cert. den. 336 U.S. 960, 69 S.Ct. 887, 93 L.Ed. 1112, in which the court concluded that pension costs are part of employment costs which are frequently substituted for direct cash.
This particular employee worked for a substantial period of time for this employer, induced at least to some extent by the promise of retirement benefits if he performed satisfactorily and refrained from leaving the company. He was then prevented from realizing this compensation for past performance by the unilateral action of the employer.
Admittedly, McDermott owned no obligation to plaintiff to continue his employment. Furthermore, the terms of the retirement plan clearly provided that plaintiff had no vested right to retirement benefits until he completed 15 years of service. Nevertheless, plaintiff, having worked satisfactorily for this substantial period of time in partial reliance on this promise and desiring to remain in the company's employ, is entitled in my opinion to some portion of the benefits for which his employer made particular contributions in consideration for fully performed services.
Complete forfeiture of plaintiff's pension rights because of involuntary termination without cause is contrary to contract law and to notions of basic fairness and justice. A retirement plan is a continuing offer by the employer to induce employees to remain in service, and the offer may be accepted by the employee's continuing in service. 1A Corbin, Contracts § 153 (1963); Delaware Trust Co. v. Delaware Trust Co., 222 A.2d 320 (Del.Ch.) (1966). From the point of view of the employee, the forfeiture of his rights by early termination without fault on his part is the equivalent of loss of compensation for services already performed. On the other hand, when a longtime employee's rights are forfeited, the employer (who has already received these services as partial consideration for retirement plan contributions) also receives (and is unjustly enriched to that extent) a reduction in future premium liability for the remaining covered employees. See Lucas v. Seagrave Corp., 277 F. Supp. 338 (D.Minn. 1967); see also 15 Vill.L.Rev. 527, 556 (1970). Thus, the employer receives employee services, but in fact gets back the retirement contributions made as consideration for those services already performed.
Internal Revenue regulations governing qualified plans prohibit the employer from receiving a return of forfeited contributions in cash. However, since money is a fungible item, the employer who receives credit against future premium liability enjoys the equivalent benefit of a cash refund.
I agree with the majority that the contractual language is clear and unambiguous. I simply disagree that courts should always and under all circumstances enforce contractual provisions, no matter how plain, without regard to the circumstances of the particular case. When courts begin to merely call balls and strikes, the age of computer justice has arrived.