Post v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 48 N.Y.2d 84 (1979)
A forfeiture-for-competition clause in an employee pension plan is unenforceable as a matter of law where the employee’s termination was involuntary and without cause.
Summary
Post and Maney, former account executives at Merrill Lynch, were terminated and subsequently began working for a competitor, Bache & Company. Merrill Lynch then sought to forfeit their pension benefits based on a clause in the pension plan that allowed forfeiture if an employee competed with the firm. The New York Court of Appeals held that such a forfeiture is unreasonable and unenforceable when the termination is involuntary and without cause. The court emphasized the public policy against forfeiture of employee benefits and the importance of mutuality of obligation in employment contracts, especially in light of the growing importance of ERISA.
Facts
Post and Maney were employed as account executives by Merrill Lynch, choosing a salary and participation in pension/profit-sharing plans over a straight commission. Both were terminated on August 30, 1974, and began working for Bache & Company, a competitor, on September 4, 1974. Fifteen months after their termination, Merrill Lynch informed them that their pension benefits were forfeited due to the plan’s provision against competition. The plaintiffs claimed they were discharged without cause, a claim Merrill Lynch did not dispute for the purposes of the summary judgment motion.
Procedural History
Post and Maney sued Merrill Lynch for conversion and breach of contract, seeking recovery of pension amounts and punitive damages. The lower court granted Merrill Lynch’s motion for summary judgment, dismissing the complaint based on the precedent set in Kristt v. Whelan. The New York Court of Appeals reversed the lower court’s decision, denying the motion for summary judgment and reinstating the complaint.
Issue(s)
Whether a forfeiture-for-competition clause in an employee pension plan is enforceable when the employee’s termination was involuntary and without cause.
Holding
No, because where an employee is involuntarily discharged without cause and subsequently competes with their former employer, a forfeiture of earned pension benefits based on that competition is unreasonable as a matter of law and cannot be upheld.
Court’s Reasoning
The court distinguished this case from prior cases like Kristt v. Whelan, where the employee voluntarily left and competed with the former employer. The court emphasized the strong public policy against forfeiture of an employee’s livelihood, stating, “powerful considerations of public policy * * * militate against sanctioning the loss of a man’s livelihood.” The court also considered the policy implications of the Employee Retirement Income Security Act of 1974 (ERISA), highlighting the growing importance of safeguarding employee benefits. The court reasoned that the mutuality of obligation is destroyed when an employer terminates the employment relationship without cause. Allowing forfeiture in such cases would be unconscionable, permitting the employer to “economically cripple a former employee and simultaneously deny other potential employers his services.” The court noted that the specific pension plan provision was not explicitly drawn to address involuntary terminations. The court stated, “An employer should not be permitted to use offensively an anticompetition clause coupled with a forfeiture provision”. The court concluded that the question of whether the plaintiffs’ termination was voluntary could not be resolved on a motion for summary judgment, necessitating a trial on that issue.