Source: https://www.executiveloyalty.org/vesting-and-forfeitures.html
Timestamp: 2019-04-20 06:18:34+00:00

Document:
2017.01.10 Top Hat Forfeiture Enforced for Executive's Refusal to Sign Non-Compete (WD Penn). As a general matter, employers win when they seek to enforce the unambiguous terms -- and forfeiture provisions - of their top hat and other executive-only ERISA plans. Good faith administration by the employer is ordinarily sufficient. Case in point: a Penn. district court upheld forfeiture of top hat benefits where an executive refused to sign a non-competition agreement that the underlying plan required as a condition for benefits. See Sikora v. UPMC (WD Penn, 1/10/2017) for a comprehensive discussion of federal decisions examining (1) the standard of review for litigation involving non-qualified plans, and (2) the circumstances under which courts will enforce forfeiture provisions under top hat plans. Also: see the court's 2015 decision for a review of case law relating to ERISA's top hat plan exemption, and the percentage of a workforce that may participate without destroying top hat status.
"Executive Pay and Loyalty: From Velvet Fist to Iron Glove" (Poerio, 2010.01).
2012.Jan.15 Stock Claims by Executives Fall to Straightforward Contract Terms. The 4th Circuit has affirmed dismissal of a former employee’s claim seeking recovery of unvested equity awards (Kunda v C.R. Bard, Inc.), with the court rejecting Kunda's arguments that Maryland law applied despite the stock plan's designation of New Jersey law as controlling.
2011.July.14 As the U.S. First Circuit's decision notes, "the plaintiffs' claims rehash unsuccessful claims brought by the plaintiffs in In re Citigroup, Inc. Capital Accumulation Plan Litigation, 535 F.3d 45 (2008). The notable difference between the two cases—namely, the applicable state law in the 2008 case was that of Florida and Georgia, while in this case it is the law of Colorado and Louisiana—does not change our view of the merits of those claims." See In re: Citigroup.
2017.01.10 Forfeiture Enforced for Refusal to Sign Noncompete (WD Penn). See Sikora v UPMC for extensive surveys of relevant top hat litigation issues (discussed above).
2015.Jul.14 Capital Accumulation Plan Held Subject to ERISA. Bloomberg reported on 7/15/2014 that "An administrative assistant seeking $27,000 under her company's wealth accumulation plan won her appeal by convincing the U.S. Court of Appeals for the Fifth Circuit that the plan was governed by federal benefits law (Tolbert v. RBC Capital Mkts. Corp., 2014 BL 194586, 5th Cir., No. 13-20213, 7/14/14)."
2014.Jan.10 5th Circuit Enforces SERP's Forfeiture for Competition Provision - see Wall v. Alcon Labs.
Stock Options Forfeitable due to Competition?
9th Circuit -- IBM v. Bajorek (191 F.3r 1033, 1999), denying application of California law and policy to protect an executive from forfeiting his stock options due to his violation of a non-competition agreement.
“IBM, in fact, is contrary to California law because it is contradicted by Muggill, supra, 62 Cal.2d 239, 42 Cal.Rptr. 107, 398 P.2d 147. In Muggill, the California Supreme Court held that an agreement requiring an employee to forfeit pension rights if he went to work for a competitor “restrains him from engaging in a lawful business and is therefore void.” (Id. at p. 243.) Muggill, therefore, represents the long-held California view that an agreement that financially penalizes an employee who goes to work for a competitor is unlawful under section 16600 and thus contradicts IBM."
2012.Jul.05 Executives Prevail re "Retirement" Ambiguity; Deference to Administrator. In disputes between employers and executives, the courts commonly enforce applicable contract or plan provisions according to their terms, but resolve ambiguities against the employers (as drafters of the documents). The 8th Circuit's decision in Schaffart v. ONEOK provides a healthy reminder because the plan was ambiguous about what constituted "retirement" (triggering the right to pro rata benefits).
2010.06.30 Stock Options Forfeited due to Expiration -- Bank of America succeeded in dismissing claims by which its former in-house attorney sought to exercise his stock options 15 months after they expired due to termination of his employment. Applying Delaware law, the court enforced the terms of the award agreements, and found that Bank of America had provided "ample notice of the express terms of all the stock option awards" and had not breached its duty of good faith and fair dealing by failing to provide the former employee with advance notice of the impending expiration of his stock options. Bank of America v Emert, S.D. NY.
2005.02.15 Deference to Administrator [Under Delaware law:] “when a stock option committee is vested with final binding and conclusive authority to determine a participant’s right to receive or retain benefits, that decision made in accordance with the provisions of the agreement will not be second guessed by the Court absent a showing of fraud or bad faith.” W.R. Berkley Corp. v. Hall, No. Civ. A 03C-12-146WCC, 2005 WL 406348, at *4 (Del. Super. Ct. Feb. 16, 2005) (unpublished).
Reasonableness of Non-Compete Required for Forfeiture of Cash Bonuses -- see Cheney v. Automatic Sprinkler, 377 Mass. 141, 385 NE2d 961 (1979) re forfeiture of unpaid bonuses if award recipient joins competitor. Held, enforceable if the noncompete is reasonable.
2014.Jun.10 Allegis Group v. Jordan: A Maryland district court enforced non-competition and non-solicitation provisions supported by incentive awards. The former employee collected $1.45 million, which appears to be at risk.
Forfeiture of Unvested Shares -- see "NJ" below re Kunda v C.R. Bard, Inc., holding that the Maryland Wage Payment and Collection Law (“MWPCL”) "contains no express language of legislative intent that that law is a fundamental Maryland public policy. Furthermore, the MWPCL contains no language indicating that any contractual terms contrary to its provisions are void and unenforceable, or that any provision of the MWPCL may not be waived by agreement. Thus, we find that the MWPCL is not a fundamental Maryland public policy." The 4th Circuit court decision went on to hold that even if Maryland law did apply, the unvested shares were not wages under the MWPCL, and therefore were never owed to the former employee.
Forfeitures of Restricted Stock - Upheld Again. As the U.S. First Circuit's decision notes, "the plaintiffs' claims rehash unsuccessful claims brought by the plaintiffs in In re Citigroup, Inc. Capital Accumulation Plan Litigation, 535 F.3d 45 (2008). The notable difference between the two cases—namely, the applicable state law in the 2008 case was that of Florida and Georgia, while in this case it is the law of Colorado and Louisiana—does not change our view of the merits of those claims." See In re: Citigroup and, generally, Exec Comp Litigation by Executives.
The U.S. District Court for the District of Massachusetts has held that Citigroup's Capital Accumulation Plan did not violate Michigan or Nebraska state laws by requiring employees who resigned from the company to forfeit stock compensation that had not vested (Weems v. Citigroup Inc., D. Mass., No. 1:00-cv-11912-NG, 3/31/11). The court reasoned that participating stockbrokers voluntarily elected to participate in the plan, which clearly warned options would be forfeited if they were not vested at the time the stockbrokers left the company. The court also declined to find that the plan violated public policy.
See also Schachter v. Citigroup, Inc., 47 Cal.4th 610 (Cal. 2009), in which the California Supreme Court ... joined the courts of numerous other jurisdictions that had concluded the Citigroup Capital Accumulation Plan complied with each state’s respective wage payment laws. See Weems v. Citigroup, Inc., 900 N.E.2d 89 (Mass. 2009) (under Massachusetts law);Gilmore v. Citigroup Inc. (In re Citigroup Inc. Capital Accumulation Plan), 535 F.3d 45 (1st Cir. 2008) (under Florida and Georgia law); Mewhinney v. Citigroup Inc. (In re Citigroup Inc. Capital Accumulation Plan Litigation, 2008 WL 3982065 (D. Mass. 2008) (under Texas law); Weems v. Citigroup, Inc., 961 A.2d 349 (Conn. 2008) (under Connecticut law); Rosen v. Smith Barney, Inc., 925 A.2d 32 (N.J. Super. 2007) (under New Jersey law); Kim v. Citigroup, Inc., 856 N.E.2d 639 (Ill. App. 1st 2006) (under Illinois law). The foregoing is quoted from Martindale article.
Forfeiture-for-Competition assessed under Contract Law Principles -- See Eastern Carolina Internal Medicine v.Faidas, 149 NCApp 940, 564 SE2d53 (2002), indicating an "employee choice" analysis for enforcement of contract terms.
Forfeiture of Unvested Shares -- See Kunda v C.R. Bard, Inc., in which the Fourth Circuit affirmed dismissal, under Federal Rule of Civil Procedure 12(b)(6), of a former employee’s claim seeking recovery of unvested equity awards. The court rejected Kunda's arguments that Maryland law applied despite the plan's designation of New Jersey law as controlling, and concluded that "We cannot hold, as Kunda advocates, that her unvested Premium Units are converted into wages in the limited situation where an employee is terminated without cause.Thus, we affirm the district court’s grant of Bard’s motion to dismiss." See MD above for more on the MD law aspects of the decision.
Lucente v. IBM, 2d Cir. 2002.
Former Employees Lose Bonus Claims (TARP Involved). Employees who resigned rather than consent to the Treasury Department's TARP requirements did not establish an involuntary or constructive termination, nor a breach of their employer's covenant of good faith and fair dealing when "Hartford acted in compliance with the terms of the Plan in denying ... further compensation or payments after they resigned." Twin City vs. Arch Insurance (PDF available on request), NY Sup. Ct, NY County, 7/12/2011.
Reasonableness of Non-Compete Required - see Lavey v. Edwards, 264 OR 331, 505 P2d 342 (1973), holding that noncompete must be reasonable in order for its violation to trigger a forfeiture of employer's profit-sharing contributions.
Independent Contractor Forfeits Deferred Comp - Fraser v. Nationwide Mutual Insurance Co., E.D. Pa, 2009 ("interest in earning a living, an essential component to the Hess balancing test, is only tangentially implicated by the forfeiture-for-competition provision. The forfeiture-for-competition provision in Fraser's Agreement was more akin to an incentive program than a non-compete clause").
Supreme Court Upholds Non-compete Tied to Stock Options. Marsh USA prevails in part due to holding that the executive's "exercise of the stock options to purchase MMC stock at a discounted price provided a reasonable nexus between the noncompete and the company s interest in protecting its goodwill." See Texas Law.

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