Case Name: Brenton T. MORSE, Jr., Plaintiff-Appellant-Relator, v. J. RAY McDERMOTT & CO., INC., et al., Defendants-Appellees-Respondents
Court: Louisiana Supreme Court
Jurisdiction: Louisiana
Decision Date: 1976-12-13
Citations: 344 So. 2d 1353
Docket Number: No. 57984
Parties: Brenton T. MORSE, Jr., Plaintiff-Appellant-Relator, v. J. RAY McDERMOTT & CO., INC., et al., Defendants-Appellees-Respondents.
Judges: SANDERS, C. J., dissents with written reasons.
Reporter: Southern Reporter, Second Series
Volume: 344
Pages: 1353–1372

Head Matter:
Brenton T. MORSE, Jr., Plaintiff-Appellant-Relator, v. J. RAY McDERMOTT & CO., INC., et al., Defendants-Appellees-Respondents.
No. 57984.
Supreme Court of Louisiana.
Dec. 13, 1976.
On Rehearing April 11, 1977.
Rehearing Denied May 13, 1977.
Joseph S. Russo, Jefferson, for plaintiff-applicant.
Herschel L. Abbott, Jr., Edward B. Poi-tevent, II, Jones, Walker, Waechter, Poitev-ent, Carrere & Denegre, New Orleans, for '■ defendants-respondents.
Charles I. Denechaud, Jr., Denechaud & Denechaud, M. Truman Woodward, Jr., Michael J. Molony, Jr., David Conroy, William C. Gambel, Charles A. Snyder, Hilton S. Bell, Milling, Benson, Woodward, Hillyer & Pierson, New Orleans, John C. Blackman, Hudson, Potts & Bernstein, Monroe, Richard P. Wolfe, Monroe & Lemann, Frederick S. Kullman, Clyde Hancock Jacob III, Kull-man, Lang, Inman & Bee, Max Nathan, Jr., New Orleans, William H. Cook, Jr., Shreveport, and Michael E. Guarisco, Sessions, Fishman, Rosenson, Snellings & Boisfon-taine, New Orleans, amici curiae.

Opinion:
TATE, Justice.
The plaintiff Morse, a former employee of J. Ray McDermott & Co., Inc. ("McDer-mott"), sues to recover amounts allegedly due under the company's supplemental compensation and retirement plans. Made defendants are the company and its retirement trust.
McDermott terminated Morse's employment due to an economic downturn in 1970. It is conceded that Morse was without fault. Due to termination of Morse's employment, certain clauses in the company's plans, if valid, require forfeiture (or, at least, prevent vesting) of all credits and contributions made to the plans on his behalf as a contractual benefit of his employment.
The issue presented by this litigation is whether the forfeiture or non-vesting clauses in question are enforceable as applied to the facts of the case. The trial court held that they are and the court of appeal affirmed, with two judges dissenting. 330 So.2d 411 (La.App. 4th Cir. 1976), certiorari granted 333 So.2d 240 (La.1976).
We reverse: The employee's discharge of the blameless employee prevented the latter from receiving any value or benefit whatsoever from prior payments or credits which, when made by the employer, were in the nature of deferred compensation for the employee's prior services. As applied to the present circumstances, for reasons described below, the forfeiture and non-vesting clauses are unenforceable as contrary to law and public policy (Civil Code Articles 11, 1892, 1894, 2031): specifically, the policy provided by La.R.S. 23:634 (prohibiting forfeiture of earned wage-benefits), in conjunction with the legal principle represented by Civil Code Article 2040 (insofar as preventing a party from benefiting from a contractual forfeiture or default which will result solely because he himself caused it).
I.
The plaintiff Morse worked on a salary for McDermott from 1958 to 1970, a total of HV2 years. This included 5 years in Nigeria and Venezuela, company-designated "hardship areas". His employment was terminated in 1970, not because of any fault of his, but because the company was experiencing an economic downturn.
Although not yet of retirement age at the time he was fired, Morse was a participant in the company's retirement plan. He also had received "supplemental compensation" awards the last four years of his employment. He sues to recover for all sums in these plans attributable to his employment with McDermott.
Supplemental Compensation Plan
McDermott's supplemental compensation plan was adopted in 1966 to reward salaried managerial employees and to induce them to continue in their employment with the company. It was partly based upon a recognition that such employees worked many hours overtime and contributed to increased productivity of the company, although they received during the year preceding the award only their regular salaries as compensation for their service.
Under the plan, a fixed percentage of the company's profits is placed each fiscal year in a reserve. Supplemental compensation awards are made from this reserve by a committee on the basis of each employee's contribution to the success of the company during the year.
"Current awards" , such as that here involved, are made annually at the discretion of the committee to each deserving employee in a given amount. At the time of the current award, its amount is made payable in five equal installments. The first installment is paid when the award is made, and the others are to be paid on July 15 of eaeh of the four succeeding calendar years during which the employee remains in the company's employ.
The supplemental compensation plan provides, however, that if employment is terminated for reasons other than death, disability, or retirement, then all unpaid portions of prior current awards are forfeited.
Morse was awarded current awards totaling $9,731.00 from 1966 to 1969, the last four years of his employment. In accordance with the terms of the supplemental compensation plan, prior to his discharge he had received all four installments of the 1966 award, three installments of the 1967 award, two installments of the 1968 award, and only one installment of the 1969 award.
Since he was no longer in the company's employment on June 15, 1970, he did not receive the installments falling due on that date and thereafter. These "forfeited" installments amounting to $5,016.00 form the basis of Morse's supplemental compensation claim.
Retirement Plan
McDermott's retirement plan was first established in 1962 and was later revised in 1968. Contributions to the plan are made yearly by the employer. Employees with three or more years' service are included in the actuarial computation to determine the payment by the company into the plan each year.
However, no amount is credited to the individual account of an employee until after that person has been employed by the company for 15 years. Likewise, under the terms of the plan, benefits are not payable to anyone with less than 15 years of service except in cases of death or disability.
Generally, employees who have completed 15 years of service with the company may retire of right at age 65. The size of an employee's pension is based upon the number of years of service he has completed with the company.
Early retirement is possible as early as age 50, but the employer's consent is required unless the early retirement is due to credit earned for service in a contractually-defined "hardship area". Because pensions are based upon years of service, an early retiree loses credit for years he might have worked. In addition, the pensions of those retiring earlier than age 60 are reduced by an "early retirement reduction factor".
After he has reached age 45 and has completed 15 years of service, an employee whose service is terminated for any reason other than death, disability, or retirement is entitled to receive a pension upon reaching age 65 (or, if he has performed service in a hardship area, at an earlier age). The monthly pension is based upon the value, at the termination of employment, of the retirement benefit the terminated employee would have received if he had stayed with the company until the date pension payments are to commence.
The retirement plan expressly provides that an employee is not entitled to any benefit under the plan if his service is terminated for any reason other than death or disability prior to the date as of which he has both attained the age of 45 years and completed 15 years of service.
At the time his employment was terminated, Morse had IIV2 years of service with the company, five of which were performed in a hardship area.
Had he stayed with the company another 3V2 years, he would have been entitled to early retirement of right at age 55. Had his employment been terminated after the accumulation of 15 years of service and at a time after he had reached the age of 45 years, Morse would have been entitled to a monthly termination pension at age 60 for life.
However, at the termination of his employment, Morse had not been employed with the company for a full 15 years. Under the literal terms of the retirement plan, therefore, he is entitled to no benefits whatsoever.
II.
The defendants contend that the payments made to the retirement plan by the employer on the employee's behalf were gratuitous, as were the profit-sharing credits made as current awards to the employee under the supplemental payment plan.
However, "To be gratuitous, the object of a contract must be to benefit the person with whom it is made, without any profit or advantage, received or promised as a consideration for it." Civil Code Article 1773. To the contrary, the evidence indicates that the retirement and profit-sharing plans were not only designed to reward worthy employees for their services but also (for the employer's benefit) to induce them to continue in the company's service (so as to make further contributions to the company's successful operation). The nature— gratuitous payments versus delayed compensation — of employer contributions to similar retirement and profit-sharing plans was at issue in T. L. James & Co. v. Montgomery, 332 So.2d 834 (La.1976), although in a somewhat different context. We there stated, 332 So.2d 840-41:
"Only the employer contributes to the plans, but the contribution is not without reciprocal contribution on the part of the employee, although these are intangible and difficult to evaluate. It is a reward by the company to promote loyal and efficient service on the part of the employee. The plans are, moreover, an inducement to employees to remain in the service of the company to enjoy the benefits the plans promised. In short, the contribution of the employer is not a purely gratuitous act, but it is in the nature of additional remuneration to the employee who meets the conditions of the plan. The employer expects and receives something in return for his contribution, while the employee, in complying, earns the reward. The benefits to the employ ee are, therefore, earned income — property within legal contemplation."
A majority of American jurisdictions similarly reject the contention that retirement and profit-sharing benefits are merely gratuities payable at the will of the employer. They instead characterize an employer-financed retirement or profit-sharing plan as a contractual inducement by the employer for the employee to remain in the employer's service, the benefits from which are in the nature of delayed compensation for the employee's services on behalf of the employer.
See decisions of American jurisdictions summarized and discussed at: Annotation, "Rights and Liabilities as Between Employer and Employee With Respect to General Bonus or Profit-Sharing Plan," 81 ALR 2d 1066, Sections 3, 4 (1962), and Later Case Service; Annotation, "Rights and Liabilities as Between Employer and Employee With Respect to General Pension or Retirement Plan," 42 ALR 2d 461, Sections 3, 4, 5 (1955) and Later Case Service; 60 Am. Jur.2d "Pensions and Retirement Plans", Sections 73-75.
Accordingly, we conclude that the employer's contributions to the profit-sharing and retirement plans were in the nature of delayed compensation to the employee for his services during the period for which each contribution was made. The implicit bargain was that the benefits based upon this additional compensation would be payable to the employee if (in addition to his past services) he continued his employment with the company for a stipulated period. At least part of the cause or motive, Civil Code Article 1896, of the employing company for the contract was to induce the employee (for the benefit of the company) to continue in his employment with the company for at least a stipulated period.
III.
Nevertheless, our decision in T. L. James & Co. v. Montgomery, cited above, concerned only the disposition of benefits based upon delayed compensation similar to the present which, under the terms of the plans there in question, had actually become payable. It did not reach or consider the present issue:
Even if under the terms of a plan no interest of the employee has "vested" so as to become payable, are there ever circumstances where nevertheless the employee may recover such deferred compensation (or its value or benefits based thereupon) despite contractual clauses which require forfeiture or prevent vesting should the employment terminate prior to a vesting date?
The decisions of other jurisdictions almost uniformly hold that, by his voluntary resignation, the employee's own act may cause forfeiture or prevent vesting; the employee thus has not performed his portion of the bargain necessary to complete his entitlement to the delayed compensation. See decisions in above annotations, 42 ALR 2d 861, Section 8(a) and 81 ALR 2d 1066, Section 6. For somewhat similar reasons, the forfeiture and non-vesting provisions are likewise enforced if the employee is dis charged for cause before he had completed the stipulated service.
The enforceability of the forfeiture and non-vesting clauses, where the employee resigns or is discharged for cause, is justified in the light of the purposes and respective causes or motives (Civil Code Article 1896) of the parties in making a contract similar to the present. "All things that are not forbidden by law, may legally become the subject of, or the motive for contracts ." Civil Code Article 1764. "Agreements legally entered into have the effects of laws on those who have formed them. " Civil Code Article 1901.
Nevertheless, stipulations voluntarily entered into between the parties may be considered null if contrary to public policy established by laws enacted for the preservation of social order or if contrary to moral conduct (contra, bones mores). Civil Code Articles 11, 1892, 2031. See Planiol, Civil Law Treatise, Part I, Nos. 288-295 (La.State Law Institute translation, 1959). See, e. g.: Succession of Butler, 294 So.2d 512 (La.1974); Mid-Continent Refrigerator Company v. Williams, 285 So.2d 247, 251-52 (La.App. 3d Cir. 1973).
It is not necessary that the entire agreement containing the stipulation against public order or policy be declared null. As Planiol notes, with reference to a French code article identical to our own Civil Code Article 2031 (footnote 5), an immoral or illegal condition within a contract annuls the entire agreement only "to the extent to which the agreement depends on it. The judges are therefore always free to recognize, by interpretation of the will of the parties, that the condition inserted in the contract is only an accessory clause to which the contract was not subject for its existence; in which case, the illegal, immoral or impossible condition is effaced and the agreement subsists as to the rest." Planiol, Volume 2, Section 1269, p. 720.
IV.
. By reason of these code articles, the present forfeiture and non-vesting clauses are manifestly unjust, contrary to public order and public policy, and unenforceable, if sought to be applied in a circumstance where, by the unilateral act of the employer, the employee is prevented from performing his part of the bargain to complete vesting of deferred compensation benefits.
Our decision in this regard does not rest upon a direct expression of legislative will, but instead upon the public policy evident in the prohibition against wage forfeitures under our law, La.R.S. 23:634 , especially as interpreted in the light of the general principle that an obligor whose obligation is contingent upon fulfillment of a specified condition cannot defeat that obligation by preventing accomplishment of the condition, Civil Code Article 2040.
First enacted by Act 62 of 1914 (which provided criminal sanctions for its violation), La.R.S. 23:634 prevents an employer from exacting of an employee an agreement by which the employee's earned wages shall be forfeited if the employee is discharged or resigns before the contract is completed. See footnote 7 above. A companion provision, La.R.S. 23:640 (1966), provides that wages within the contemplation of this enactment shall include fringe benefits payable under collective bargaining contracts, including pensions.
The provisions together apply literally only to wages payable under written contracts of employment and to fringe benefits payable under collective bargaining agreements. Nevertheless, the public policy so expressed includes, within its prohibitory scope, forfeiture and non-vesting clauses such as the present, insofar as they permit an employer's unilateral act, see Civil Code Article 2040 (footnote 8), to cause forfeiture or to prevent vesting of deferred compensation credits otherwise earned by the employee.
As Planiol notes, laws of "public order" (see Article 11, footnote 5) include laws which, in the interest of the public, prohibit private persons from entering into certain contracts. Planiol, Civil Law Treatise, Vol. I, Section 292 (LSLI translation, 1959):
"The modern law-maker, considering that the two parties to a certain juridical act are not équally able to defend their interests, prohibits them from departing from certain rules which he has laid down for their protection. It is for this reason that almost all provisions relating to contracts of labor are of public order because the law-maker desires to protect the laborer or the employee against the master." Id. at p. 201.
Accordingly, the employee is entitled to recover the value of his deferred compensation attributable to his employment, as represented by supplemental-compensation (profit-sharing) credits and by employer contributions on his behalf to the retirement plan trust fund. As will be noted, he is entitled to recover them from the employer alone, without (by reason of the present terms of the retirement plan) contribution from the trustee of the retirement plan.
V.
The employee's recovery is to be calculated as follows:
Supplemental Compensation Plan
With regard to the supplemental compensation plan, Morse is entitled to recover the entire $5,016 paid balance of his awards. These awards, although payable in installments, were already fully earned on the dates they were awarded, except for performance of the condition made impossible of his performance by his employer's discharge.
These amounts became due and payable on April 6, 1970, the date of the employee's discharge. Legal interest would ordinarily be due from this time that the amount became due, Civil Code Article 1938, being then at the rate of five per cent per annum provided by Civil Code Article 2924 (before its amendment in 1970). However, since the plaintiff prayed for legal interest only from the date of judicial demand, the interest commences to run from that date instead. La. Civil Code art. 1938.
Retirement Plan
The same principles apply to the due date and legal interest on any lump-sum award made to the plaintiff-employee for the value of his deferred compensation owed him by the employer-caused non-vesting of his retirement plan rights.
Insofar as the award, however, the terms of the retirement plan bar the retirement committee and trustee from making any payments except as authorized by the retirement plan and trust agreements. In the absence of amendment of the trust and retirement plan so as to permit Morse to receive retirement benefits or a refund from the trust , the employer is liable for such amount (1) because his act deprived the employee of deferred compensation values otherwise earned by him and (2) because, by his unilateral discharge of Morse, the employer benefited by the forfeiture (see footnote 14) of the value of an interest in the retirement fund proceeds attributable to Morse's benefit.
By way of deferred compensation, annually the employer made contributions to the retirement fund based on the employment of each employee with more than three years' service. They were made on the basis of an actuarial formula involving the age, salary, and other factors relating to each such employee.
In accord with the principles previously enunciated, the employee is entitled to recover from McDermott the value of his deferred compensation attributable to his employment, which McDermott's discharge prevented him from receiving. This should be in a sum at least equal to the percentage of each year's contribution attributable to Morse. For reasons of administrative convenience, this amount may be calculated instead on the basis of the credit to be received by the employer against his subsequent annual contributions by reason of the forfeiture of Morse's interest in the retirement funds , providing this amount is shown to be reasonably equivalent to the monetary amount of the employer's annual contributions attributable to Morse's service during his employment.
However, the factual record before us does not afford a basis upon which to calculate an award due to the employee based on the value of his deferred compensation attributable to the retirement fund contributions. The case must therefore be remanded to the district court for introduction of further evidence and for its determination of the amount of such award.
Furthermore, the retirement plan and trust may possibly be amended (see footnote 12) so as to grant Morse a termination pension similar to those payable under the retirement plan to persons with 15 years of service, but reasonably decreased to adjust for Morse's fewer years of service. We accordingly reserve to the defendants the right to so satisfy the employer's retirement plan liability to Morse rather than by the monetary award provided above. (In this latter event, of course, any legal interest will not become due except from the date of nonpayment of any payment of a termination pension so awarded.)
Decree
For the foregoing reasons, the judgments of the previous courts are set aside.
As to the claim for supplemental compensation benefits, we order, adjudge, and decree judgment in favor of the plaintiff, Brenton T. Morse, Jr., and against the defendant, J. Ray McDermott & Co., Inc., in the sum of Five Thousand and Sixteen ($5,016) Dollars, together with legal interest from date of judicial demand.
As to the claim for an award based upon the forfeiture of the employee's deferred compensation attributable to contributions made to the retirement plan, we remand this case for further proceedings in the district court consistent with the views previously expressed by us.
REVERSED; JUDGMENT AWARDED IN PART; REMANDED IN PART.
SANDERS, C. J., dissents with written reasons.
SUMMERS and MARCUS, JJ., dissent for reasons assigned by SANDERS, C. J.
. The plan also provides for "deferred awards". These vest gradually over several years. They are payable in installments after an employee's service with the company is terminated. No "deferred awards" are at issue here.
. On rehearing, we reiterated this holding, 332 So.2d 851:
"The contribution of the employer into these plans is not a purely gratuitous act, but it is in the nature of additional remuneration to the employee who meets the conditions of the plan. The employer expects and receives something in return for his contribution, while the employee, in complying, earns the reward. The credits to these plans, when made, are in the nature of compensation (although deferred until contractually, payable)."
. The defendants rely upon several cases from other jurisdictions representing the minority view that profit-sharing and pension benefits are unenforceable gratuities: Borden, et al., v. Skinner Chuck Co., 21 Conn.Sup. 184, 150 A.2d 607 (1958); Parrish v. General Motors Corp., 137 So.2d 255 (Fla.App.1962); Montgomery Ward & Co. Inc. v. Guigen, 112 Ind.App. 661, 45 N.E.2d 337 (1942); Friedman v. Romaine, 77 Misc. 2d 134, 352 N.Y.S.2d 351 (1974) and Judd v. Wasie, 211 F.2d 826 (8th Cir. 1954).
. Nevertheless, at least some decisions of other jurisdictions indicate that non-vesting or forfeiture of an employee's rights may not be caused by the employer's arbitrary discharge of him before the vesting age or date. Wilson v. Rudolph Wurlitzer Co., 48 Ohio App. 450, 194 N.E. 441 (1934); Freund v. Laendenbank Wien Aktiengesellschaft, 111 N.Y.S.2d 178 (Sup.Ct., Trial term, 1949), affirmed 277 App.Div. 770, 97 N.Y.S.2d 549 (1950). See also: Conner v. Phoenix Steel Corp., 249 A.2d 866 (Del.1969).
. These code articles provide:
Art. 11. "Individuals can not by their conventions, derogate from the force of laws made for the preservation of public order or good morals.
"But in all cases in which it is not expressly or impliedly prohibited, they can renounce what the law has established in their favor, when the renunciation does not affect the rights of others, and is not contrary to the public good."
Art. 1892. "That is considered as morally impossible, which is forbidden by law, or contrary to morals. All contracts having such an object are void."
Art. 1895. "The cause is unlawful, when it is forbidden by law, when it is contra bonos mores (contrary to moral conduct) or to public order."
Art. 2031. "Every condition of a thing impossible, or contra bonos mores (repugnant to moral conduct) or prohibited by law, is null, and renders void the agreement which depends on it."
See also:
Art. 12. "Whatever is done in contravention of a prohibitory law, is void, although the nullity be not formally directed."
Art. 19. "When to prevent fraud, or from any other motives of public good, the law declares certain acts void, its provisions are not to be dispensed with on the ground that the particular act in question has been proved not to be fraudulent, or not to be contrary to the public good."
.We should note that the recently enacted federal Employee Retirement Income Security Act is in part an attempt to deal legislatively with the inequities of pension forfeitures. The Act recognizes the pension problem presented for long-time employees by job termination and provides a partial solution by means of minimum vesting standards. See 29 U.S.C.S § 1001, 1053 (1974). The Act, however, was not adopted until four years after the instant plaintiff's employment was terminated after IIV2 years of service.
. La.R.S. 23:634 provides:
"No person, acting either for himself or as agent or otherwise, shall require any of his employees to sign contracts by which the employees shall forfeit their wages if discharged before the contract is completed
. Article 2040 provides: "The condition is considered as fulfilled, when the fulfillment of it has been prevented by the party bound to perform it." As noted by George W. Garig Transfer v. Harris, 226 La. 117, 75 So.2d 28, 32 (1954), the meaning of the clause is "that the condition is considered as accomplished, when the debtor, bound under that condition, prevents the accomplishment of it."
. As earlier stated, however, under the instant clauses the employee does not earn his deferred compensation if, in violation of the purpose of the agreement, he resigns before completion of the term contractually required for vesting of the delayed compensation.
.The courts of this state have noted that forfeitures of wages are not favored under our law. See Knight v. Oden, 16 La.App. 605, 282 So.2d 612 (La.App. 1st Cir. 1973); United Shoe Stores Co. Inc. v. Dryer, 135 So. 50 (2nd Cir. 1931). We do not believe adoption in 1966 of Act 536 (LSA-R.S. 23:640) expressly including pensions and other fringe benefits payable under collective bargaining agreements was intended to have the effect of excluding other fringe benefits from the definition of "wages." Passage of the act is indicative merely of the legislature's responsiveness to the concerns of labor interests that fringe benefits might not be considered "wages." If anything, it indicates that the legislature does consider fringe benefits wages within the meaning of La.R.S. 23:634.
. Since this is an action for the payment of wage benefits, presumably the one-year prescription provided by Civil Code Article 3534 applies. However, since no prescription is pleaded in this case, it is not necessary to pass upon this issue.
. The retirement plan and trust agreement do seem to permit liberal amendment, Sections 1.1, 4.3, and liberal interpretation by the retirement committee, Section 5.5, to effectuate its provisions. No such amendment or interpretation has yet been made, however, which would permit the award of benefits to the present employee or the return of a cash value measured by employer-payments made to the fund insofar as attributable to the employee's employment.
. As stated in the dissenting opinion in the court of appeal, 330 So.2d 416:
"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. [43 Del.Ch. 168], 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., 227 F.Supp. 388 (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."
. When forfeiture of an employee's potential right to share in the retirement funds occurs because of termination of the individual's employment, these forfeitures are not used to increase the benefits of the remaining employees but, rather, to reduce the cost to the employer of his subsequent annual contributions. Section 2.12.