Opinion
No. 73-449
Decided January 28, 1975.
Ex-employee brought action to recover certain payments allegedly due him under ex-employer's profit sharing plan. From dismissal of his complaint, plaintiff appealed.
Affirmed
1. PENSIONS — Profit Sharing Plan — Forfeiture — Former Employee — Engage — — Competitive Employment — Valid and Enforceable. Where provision of profit sharing plan provided that former employee could be required to forfeit his rights to further payments under the plan should he engage in competitive employment, and where the employee made no contribution to the profit sharing plan which was established voluntarily on the part of the employer, the forfeiture provisions of the plan are valid and enforceable, even though unrestricted in time or geography.
Appeal from the District Court of the City and County of Denver, Honorable Merle R. Knous, Judge.
Graber Graber, George M. Graber, for plaintiff-appellant.
Ireland, Stapleton, Pryor Holmes, P.C., Kenneth L. Starr, for defendants-appellees.
Plaintiff appeals the dismissal of his complaint in an action to recover payments in a profit sharing plan. We affirm.
From April 1958 through part of 1969, plaintiff Collister was employed by defendant McGee Company as a salesman of rubber and equipment used in recapping tires. When Collister signed his employment contract, it contained a covenant not to compete for two years after termination of employment. In 1959, McGee Company instituted a deferred profit sharing plan. Part of the plan provided for termination of benefits if the employee later engaged in a competitive line of work.
Two and a half years after Collister ended his employment with McGee Company, he started working for AMF Voit Company. In 1972, the Board of Trustees of the profit sharing plan determined that Collister's employment was in direct competition with McGee Company and notified him that he would receive no further benefits beyond the two or three annual payments he had already received. Collister brought suit to recover the $12,000 remaining in his account. At trial, the court found that Collister had voluntarily violated the terms of the plan by accepting employment in competition with McGee Company, and was therefore not entitled to further benefits.
The facts of this case as to Collister's employment with McGee Company and AMF Voit, his participation in the profit sharing plan, and the action taken by the board are not in dispute. The pertinent part of the articles of the profit sharing plan reads:
"ARTICLE XI. Benefits Upon Termination by Resignation or Discharge
. . . .
"However, in the event of termination of employment of the participant, either by resignation or discharge, then the participant shall be entitled to receive a percentage of the value of his interest in the Trust, including his pro rata share for that portion of the Plan year in which such resignation or discharge may occur, as follows:
. . . .
10 years and more 100"
" . . . The Committee, in its sole discretion, may determine that the amount due to the participant by reason of resignation or discharge shall be paid in a lump sum or in yearly installments, and as nearly equal as possible, plus the allocations of Trust earnings and evaluation adjustments for the preceding Plan year, in which case the entire interest of the participant shall be paid within ten (10) years after the last day of the year of such termination . . . . "
"In the event, however, that participant accepts employment in any capacity with an individual, partnership or corporation in competition with the Company, or engages in business in competition with the Company at any time prior to payment in full of amount due to the participant by reason of resignation or discharge, then, the unpaid portion shall be deemed immediately forfeited . . . . A business in competition with the Company, for purposes of this paragraph, shall mean the sale of tires, tire recapping and maintenance, supplies and equipment and related lines or the installation of specially engineered tire equipment within the territory served by the Company. A determination by the Advisory Committee that such participant has accepted employment with a competitor of the Company or is engaged in business in competition with the Company shall be final."
[1] Pension plans and profit sharing plans can be considered comparable in considering the present issue because they both deal with funds payable in the future according to employee's past service. In discussing a provision of a pension plan similar to that at issue here, the court in Rochester Corp. v. Rochester, 450 F.2d 118 (4th Cir.) stated:
"The strong weight of authority holds that forfeitures for engaging in subsequent competitive employment, included in pension retirement plans, are valid, even though unrestricted in time or geography. The reasoning behind this conclusion is that the forfeiture, unlike the restraint included in the employment contract, is not a prohibition on the employee's engaging in competitive work but is merely a denial of the right to participate in the retirement plan if he does so engage."
Collister made no contribution to the profit sharing plan which was established voluntarily on the part of McGee Company. As stated in Van Pelt v. Berefco, Inc., 60 Ill App. 2d 415, 208 N.E.2d 858:
"The conditional retirement plan provision in the instant case was designed by the employer to protect against competition by former employees who may retire and obtain post-retirement benefits from [the plan] while [they] at the same time engage in competitive employment. The employer, as part of a non-contributory plan may provide for such contingencies."
The jurisdictions invalidating such forfeitures do so because of statutory restrictions. See Lavey v. Edwards, 264 Ore. 331, 505 P.2d 342; Muggill v. Reuben H. Donnelley Corp., 62 Cal. 2d 239, 398 P.2d 147, 18 A.L.R.3d 1241. There are no such statutes in Colorado.
Judgment affirmed.
JUDGE SMITH and JUDGE RULAND concur.