Armstrong v. Diamond Shamrock Corp.

• Decision Date: 12 October 1982
• Citation: 7 Ohio App.3d 296,455 N.E.2d 702
• Parties: , 100 Lab.Cas. P 55,445, 7 O.B.R. 379 ARMSTRONG et al., Appellants, v. DIAMOND SHAMROCK CORP., Appellee. *
• Court: Ohio Court of Appeals

Page 296

7 Ohio App.3d 296

455 N.E.2d 702, 100 Lab.Cas. P 55,445, 7 O.B.R. 379

ARMSTRONG et al., Appellants, v. DIAMOND SHAMROCK CORP., Appellee. ^*

Court of Appeals of Ohio, Eighth District, Cuyahoga County.

Oct. 12, 1982.

Syllabus by the Court

1. Employees of an acquired company division cannot recover alleged unpaid benefits from their previous employer, when the successor company contracted with the partially acquired company to supply all accrued but unpaid benefits for employees transferring to the successor company, the employees knew about that agreement when they accepted employment with the successor company, and the successor company has supplied these benefits.

2. A company's obligation to pay its employees separation compensation for "a permanent layoff due to lack of work" does not apply when the employees are given good faith options to transfer to another company division or to accept continuing employment on equally favorable terms with a successor company that is acquiring the division in which they have been employed.

Michael L. Thal, Cleveland, for appellants.

Owen Heggs, Cleveland, for appellee.

MARKUS, Judge.

Plaintiffs, who are former employees of the defendant company, appeal from a judgment denying their claims for vacation pay, severance pay, and attorney fees. We conclude that the trial court's findings after a non-jury trial are supported by the record, so we affirm.

All of the plaintiffs had worked for defendant for several years and were employed by defendant for the first half of 1977. On April 25, 1977, defendant entered into an agreement to sell the division employing plaintiffs to Arco Polymers, Inc. (hereinafter "ARCO"), with the transfer effective on June 1, 1977. As part of the sales agreement, ARCO agreed to offer defendant's personnel employed in that division equivalent or more favorable employment. Additionally, ARCO agreed to provide the same personnel benefits afforded by defendant for any employees who transferred their employment to ARCO.

Defendant had an established written company policy for vacation time with pay based upon the employees' years of employment. ¹ The April 25 sales agreement provided the following arrangements for employee vacation benefits:

"D. For all Transferred Employees, [defendant] shall pay for vacations taken prior to the date they become employees of [ARCO] or its subsidiary and [ARCO] or its subsidiary shall pay for vacations taken on and after such date."

At the time defendant made its agreement with ARCO, defendant gave notice of the sale to its employees. Plaintiffs then met with defendant's management representative to discuss their future employment. At that meeting, defendant's representative made statements that defendant would pay plaintiffs for their accrued but unused vacation, and that it was uncertain whether transferred employees would receive separation compensation. ²

Defendant's management advised some of the plaintiffs that they could retain employment with defendant by a lateral transfer to another position if they preferred to stay with defendant. None of the plaintiffs was told he would be terminated from defendant's employ if he chose not to accept positions at ARCO. All of the plaintiffs accepted employment with ARCO as of June 1, 1977, and each of them received a substantial pay raise. Plaintiffs received all their previously accrued but unused paid vacation time from ARCO, pursuant to the sales agreement.

At trial, plaintiffs contended that they were entitled to additional vacation pay and severance pay from defendant, claiming breach of contract and promissory estoppel. Additionally, plaintiffs claimed attorney fees and legal expenses for defendant's willful refusal to pay these benefits. The trial court rendered judgment for defendant.

I

Three of plaintiffs' assigned errors concern their claim for additional vacation pay:

"I. The trial court erred in its findings as to the year that the plaintiffs would receive a cash payment for accrued but unused vacation.

"II. The trial court erred in finding that the plaintiffs received the accrued but unused vacation for the year 1977 to which they would have been entitled as employees of Diamond Shamrock from ARCO.

"IV. The trial court erred in not granting plaintiffs' payment for vacation pay that accrued as of June 1, 1976 and was payable in 1977."

In his conclusions of law, the trial judge ruled that "[p]laintiffs incurred no loss of vacation benefits as a result of their voluntary transfer from [defendant] to ARCO." That conclusion is well supported by the record. In effect, plaintiffs have no "accrued but unused vacation," because they used all vacation accrued in defendant's employ after they transferred to ARCO's employ, pursuant to ARCO's contractual responsibility for defendant's vacation obligations to these employees. Indeed, they received greater compensation than the value of vacation time that was accrued but unused on the date they transferred employment, because they were paid their new higher salaries when they used that vacation time.

Although defendant's written vacation policy might well be interpreted differently (see fn. 1, supra ), plaintiffs contend that the time in service for each employee on June 1 each year established the duration of that employee's paid vacation benefit for the following calendar year. Thus, plaintiffs who had been employed by defendant for five to ten years on June 1, 1976, contend they were entitled to three weeks paid vacation during calendar year 1977. Those employed by defendant for ten to twenty years on June 1, 1976, contend they were entitled to four weeks paid vacation during 1977. Vacation benefits could not be carried forward to cumulate with later vacations; they had to be used in the calendar year applicable to the June 1 qualifying date or they were abandoned.

Plaintiffs did not choose to use all the vacation benefits for which they claim to have qualified on June 1, 1976, before they transferred to ARCO's employment on June 1, 1977. But they did use those vacation benefits in the remaining months of 1977. Presumably, they used the vacation benefits for which they claim to have qualified on June 1, 1977, some time during 1978. As ARCO had agreed in its purchase contract with defendant, ARCO treated plaintiffs as its own employees for the full time of their service with defendant and ARCO, in determining vacation benefits. Thus, plaintiffs lost no vacation benefits and no seniority benefits by reason of their transfer to ARCO.

Plaintiffs argue that their rights to additional duplicative vacation pay derive from the separation compensation provisions of the written company policy (see fn. 2, supra ), or from the statements made by defendant's management representative prior to their transfer to ARCO's employment. Accepting plaintiffs' contentions that one or both of these sources created enforceable promises that defendant would pay those benefits on or after plaintiffs' separation date, ³ those promises have been fully performed.

Defendant unquestionably made a third-party beneficiary contract with ARCO, under which ARCO agreed to satisfy defendant's vacation benefit obligations to these creditor-beneficiary employees. Cf. Visintine & Co. v. New York C & St. L RR. (1959), 169 Ohio St. 505 , 160 N.E.2d 311; Chitlik v. Allstate Ins. Co. (1973), 34 Ohio App.2d 193 , 299 N.E.2d 295; John E. Cooper Co. v. DeCapo Const., Inc. (Sept. 10, 1981), Cuyahoga App. No. 42293, unreported.

Since plaintiffs impliedly assented to the substitution of ARCO for defendant to provide the promised vacation benefits, there may well have been a novation which eliminated defendant's obligation to perform. Cf. Bacon v. Daniels (1881), 37 Ohio St. 279; Steed v. Baker Wood Preserving Co. (1933), 15 Ohio Law Abs. 644; Union Central Life Ins. Co. v. Hoyer (1902), 66 Ohio St. 344, 64 N.E. 435; General Electric Co. v. Lombardi (D.Md.1959), 173 F.Supp. 841. In an early related decision, this court approved a finding that an employee agreed to substitute a successor company for his original employer's obligations, when the employee continued with the successor after learning the terms applicable to his employment in the successor's acquisition contract. Jarmusch v. Otis Iron & Steel Co. (1901), 13 Ohio C.D. 122.

Whether plaintiffs are considered as creditor-beneficiaries who had rights against both defendant and ARCO, or parties to a novation who had rights against ARCO alone, their rights have been fully satisfied. There is no evidence in the record that anyone promised they would receive their accrued and unused vacations while employed by defendant and would also receive equivalent benefits from ARCO during their first seven months of employment by ARCO. There is nothing in the record to deny that they received three to five weeks' vacation during those first seven months with ARCO, solely because of ARCO's agreement in its contract with defendant that ARCO would satisfy defendant's vacation obligations for these employees.

The trial court properly ruled that plaintiffs' claims for additional vacation pay lack merit. Their first, second, and fourth assignments of error are overruled.

II

Four of plaintiffs' assigned errors concern their claim for "separation compensation" beyond accrued vacation benefits:

"III. The trial court erred in not awarding vacation and separation pay as Diamond Shamrock, by its actions, induced the plaintiffs to accept employment with ARCO.

"V. The trial court erred in holding that the plaintiffs were not terminated by Diamond Shamrock.

"VI. The trial court erred in holding that the plaintiffs were not entitled to separation compensation.

"IX. The trial court erred in determining that plaintiffs were told by Diamond Shamrock management personnel that they would continue to be employed by Diamond Shamrock in the event they did not wish to accept employment with ARCO."

Under the...