Court Opinion

ID: 9731577
Source: CourtListenerOpinion
Date Created: 2023-08-26 15:50:19.831996+00
Date Added: 2024-06-11T18:26:19.605079
License: Public Domain

TAMILIA, Judge,
concurring and dissenting:
This is an appeal from the judgment entered after the trial court, sitting without a jury, entered an Order in favor *190of defendants/appellees, finding appellants had forfeited their pensions by taking employment with competing companies. Appellants, former employees of Auburn and Associates, Inc. (Auburn), now argue they are entitled to pension benefits under agreements entered with their prior employer. While I agree with the final result reached by the majority, I respectfully dissent to the holding that the forfeiture clause in this case violates public policy. My analysis, instead, focuses on the inequitable nature and harshness of the forfeiture provision when applied to the facts in this case. Those facts have been accurately summarized by the majority and will not be repeated.
As stated in the majority Opinion, appellants propose two issues for our review: (1) whether the non-competition clause in the IPG, which results in the forfeiture of vested pension benefits, violates the public policy of this Commonwealth and is therefore unenforceable; and (2) assuming arguendo the noncompete forfeiture clause is valid, whether the employment of appellants by existing companies which employ draftsmen and design engineers results in conduct which is inimical to the economic interests of their former employers. While the majority need not address the second issue having found the non-competition clause in this case to be void and unenforceable, I disagree with that holding and accordingly proceed to address both issues.
I believe the holdings of Rochester Corp. v. W.L. Rochester, Jr., 450 F.2d 118 (4th Cir.1971) and Garner v. Girard Trust Bank, 442 Pa. 166, 275 A.2d 359 (1971), which appellants attempt to distinguish from the present case, and upon which the trial court relied to support its decision, do support the validity and enforceability of the non-competition clause in the pension plan. I would hold that such provisions in a pension plan, which have been eliminated since 1976 pursuant to Federal Legislation, are not per se invalid. See ERISA, 29 U.S.C.A. § 1144.1 I believe, how*191ever, they cannot be interpreted in a vacuum. To do so is fundamentally unjust and creates a windfall and unjust enrichment either for the corporate directors, trustees, shareholders or remnants of employees who managed to survive a slow and persistent decline in the business, if not an actual withdrawal from competition.
A forfeiture clause retains vitality as a restriction against competition only so long as the firm remains in competition, the niceties of the distinction made in earlier cases between restraint on future competition contained in employment contracts, as opposed to restraint against joining a competitor if pension rights are to be preserved, notwithstanding. See Rochester Corp. and Garner, supra. In either instance, a restriction is for the purpose of retaining trained and skilled persons in order to remain competitive and to deny such skilled persons to a competitor or to prevent employees from becoming competitors to the ultimate harm of the parent company. Since most pension plans require financial and other input from the employer and probably continued viability of the company to maintain their integrity, even if the employee becomes vested, his termination to work for a competitor could conceivably work against the best interest of the pension plan. All of this presupposes the initial company to be a going concern and the employees to be provided the employment opportunities and compensation for which they bargained at the time they entered into the pension plan.
All of the cases relied upon by the majority deal with limitations on direct competition with the employer in terms of time, geographic distance or in the retaining and solicitation of customers of the original employer. Those cases *192have been construed to limit the influence such a clause can bring to bear upon the employee's future livelihood and, as such, are rather strictly construed. The clause at issue here might be broadly construed as a restriction on competition, but it does not effect the ability of the employee to seek and obtain immediate employment in the area in direct competition with the former employer. The restriction, rather, is to prevent such an employee from receiving benefits paid entirely by the first employer, conditioned on continued employment or, at the least, not engaging in employment which would compete with the employer. What has changed is the public and governmental perspective of such benefits as being vested, deferred compensation as opposed to an employer’s gratuitous but conditional benefit. As such, the majority’s discussion and reliance on cases and law relating to restrictive covenants on competition is totally misplaced and irrelevant to the issue here. In addition, I am aware of no Supreme Court case that has ruled such a clause to be violative of public policy and we, as an intermediate appellate court, may not make such a finding in the face of the continuing presence of Garner, supra.
Here, the facts make out a strong case of a corporation in gradual decline, and in later years moving toward self-extinction. The firm reduced employee numbers from 650 to 50 over ten or fifteen years, and froze and reduced wages thereby placing its employees in a position requiring them to seek employment elsewhere while it was available or facing likely termination of employment and restricted job opportunities. The employees were trapped in a total restructuring of the industrial and economic base of society, which was totally unanticipated by management or labor. Such were not the conditions upon which a forfeiture was intended to apply to employees who terminate to join businesses which are actively in competition with the parent firm. Pensions have been held to be deferred compensation and to vest after a reasonable time. Lowe v. Jones, 414 Pa. 466, 200 A.2d 880 (1964); Newport Twp. v. Margalis, 110 *193Pa.Commw, 611, 532 A.2d 1263 (1987). The employee parties to this action have from 10 to 19 years service and most terminated their employment within a year or two prior to the company’s dissolution. None entered into direct competition with their employer, although all joined competing firms. Most were low level employees whose role in the competing companies had no significant effect on the increase in competition from the other firm or decline in competition by the parent firm. Their employment with the competing firm was irrelevant to the appellee’s decline or the competitive edge maintained by the new employer. The result applied in this case is harsh and inequitable and is precisely that to which the law refers in asserting forfeitures are not favored. In re Estate of Fisher, 442 Pa. 421, 276 A.2d 516 (1971). The trial judge, while abiding by the case law, recognized the harshness of the provision as applied to this case and a need for appellate courts to reconsider the holdings of earlier cases, particularly in light of recent cases restricting the scope and severity of employment contract provisions against competition. Blackwood, Inc. v. Caputo, 290 Pa.Super. 140, 434 A.2d 169 (1981).
For these reasons, while I agree with the majority’s decision to reverse the judgment entered in the trial court as to all appellants except Kriseunas and direct that the pension rights of these 19 appellants be enforced against the pension plan, and as to appellant Kriseunas, to affirm the judgment, I disagree with the determination that the forfeiture clause in this case violates public policy of Pennsylvania.

. The federal legislation, however, recognizes a change in the manner in which government and society perceive pension programs and provides protection for the worker from withdrawal of vested pension *191rights. Very recently, in PBGC v. LTV Corp., 496 U.S. -, 110 S.Ct. 2668, 110 L.Ed.2d 579 (1990), the United States Supreme Court determined that in filing for bankruptcy, corporations may not arbitrarily terminate pension programs thereby divesting employees of their interest in pension funds requiring that Pension Benefit Guaranty Corporation assume responsibility for their payment. Pursuant to ERISA, such plans in the private sector are protected to permit retirees and terminated employees to obtain the benefits for which they bargained.