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Post v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

Court of Appeals of New York

September 5, 1979, Argued ; October 18, 1979, Decided

No Number in Original

Opinion

 [*86]  [**359]  [***847]    OPINION OF THE COURT

The narrow issue presented by this appeal from a grant of summary judgment for the defendant is the efficacy of a private pension plan provision permitting the employer to forfeit pension benefits [****6]  earned by an employee who competes with the employer after being involuntarily discharged.

 [***848]  We begin with the premise that "powerful considerations of public policy * * * militate against sanctioning the loss of a man's livelihood" ( Purchasing Assoc. v Weitz, 13 NY2d 267, 272). So potent is this policy that ] covenants tending to restrain  [*87]  anyone from engaging in any lawful vocation are almost uniformly disfavored and are sustained only to the extent that they are reasonably necessary to protect the legitimate interests of the employer and not unduly harsh or burdensome to the one restrained. 1 ( Columbia Ribbon & Carbon Mfg. Co. v A-1-A Corp., 42 NY2d 496, 499; Reed, Roberts Assoc. v Strauman, 40 NY2d 303, 307; see, also, 6A Corbin, Contracts, § 1394, at p 100.)

 [****7]  Merrill Lynch employed Post and Maney as account executives at its Rochester offices beginning April 20, 1959 and May 15, 1961, respectively. Both men elected to be paid a salary and to participate in the firm's pension and profit-sharing plans rather than take a straight commission, which would have returned approximately twice the amount they earned in salary during the period in question.

The employment of both plaintiffs by Merrill Lynch terminated August 30, 1974. On September 4, 1974 both began working for Bache & Company, admittedly a competitor of Merrill Lynch, in Rochester. Merrill Lynch learned about their new employment in September, 1974.

Fifteen months after their termination, and following repeated inquiries by the plaintiffs into the status of their pensions, the plaintiffs were informed by Merrill Lynch that all of their rights in the company-funded pension plan had been forfeited pursuant to a provision of the plan which permitted forfeiture in the event that an employee directly or indirectly competed with the firm.

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48 N.Y.2d 84 *; 397 N.E.2d 358 **; 421 N.Y.S.2d 847 ***; 1979 N.Y. LEXIS 2314 ****

Jack E. Post et al., Appellants, v. Merrill Lynch, Pierce, Fenner & Smith, Inc., et al., Respondents

Prior History:  [****1]  Appeal from an order of the Appellate Division of the Supreme Court in the First Judicial Department, entered December 28, 1978, which modified, on the law, and, as modified, affirmed an order of the Supreme Court at Special Term (Hyman Korn, J.), entered in New York County, denying defendants' motion and plaintiffs' cross motion for summary judgment. The modification consisted of granting defendants' motion.

Plaintiffs were employed as account executives by defendant and elected to be paid a salary and to participate in the firm's pension and profit-sharing plans rather than take a straight commission. Plaintiffs both began working for a competitor of their former employer after their employment with defendant was terminated. They were thereafter informed that all of their rights in the company-funded pension plan had been forfeited pursuant to a provision of the plan which permitted forfeiture in the event that an employee directly or indirectly competed with the firm. Alleging that they had been discharged without cause, plaintiffs brought this action against defendant employer for conversion and breach of contract, to recover amounts allegedly owed them on account of [****2]  the pension plan and for punitive damages.

Special Term denied defendants' motion for summary judgment and plaintiffs' cross motion for the same relief, holding that the termination and forfeiture provisions of the plan are not unenforceable as a violation of plaintiffs' rights under the Employee Retirement Income Security Act of 1974 (ERISA) (US Code, tit 29, § 1001 et seq.) since the statute was enacted after plaintiffs' employment had been terminated and the forfeiture occurred prior to the effective date of the statute, and that various factual issues exist which necessitate a trial and preclude defendants' motion for summary relief. The Appellate Division, sustaining the validity of the forfeiture provision, reversed, granted defendants' motion and dismissed the complaint.

The Court of Appeals reversed, denied defendants' motion for summary judgment and reinstated the complaint, holding, in an opinion by Judge Wachtler, that where an employee is involuntarily discharged by his employer without cause and thereafter enters into competition with his former employer, and where the employer, based on such competition, would forfeit the pension benefits earned by his former [****3]  employee, such a forfeiture is unreasonable as a matter of law and cannot stand, and that the question concerning whether plaintiffs' termination was voluntary is not appropriate for resolution on a motion for summary judgment.

 Post v Merrill Lynch, Pierce, Fenner & Smith, 66 AD2d 743. Post v Merrill Lynch, Pierce, Fenner & Smith, 48 NY2d  .

Disposition: Order, insofar as appealed from, reversed, with costs, defendants' motion for summary judgment denied and the complaint reinstated.

CORE TERMS

forfeiture, termination, without cause, compete, pension, pension plan

Business & Corporate Compliance, Contracts Law, Types of Contracts, Covenants, Labor & Employment Law, Conditions & Terms, Trade Secrets & Unfair Competition, Noncompetition & Nondisclosure Agreements, ERISA, ERISA Pension Plan Qualification Requirements, Participation & Vesting