Chapin v. Fairchild Camera etc. Corp.

• Decision Date: 20 March 1973
• Citation: 31 Cal.App.3d 192,107 Cal.Rptr. 111
• Court: California Court of Appeals Court of Appeals
• Parties: , 1 IER Cases 37 Mary Ann CHAPIN et al., Plaintiffs and Appellants, v. FAIRCHILD CAMERA AND INSTRUMENT CORPORATION, Defendant and Respondent. Civ. 29866.

Page 111

107 Cal.Rptr. 111

31 Cal.App.3d 192, 1 IER Cases 37

Mary Ann CHAPIN et al., Plaintiffs and Appellants, v. FAIRCHILD CAMERA AND INSTRUMENT CORPORATION, Defendant and Respondent.

Civ. 29866.

Court of Appeal, First District, Division 2, California.

March 20, 1973.

Hearing Denied May 16, 1973.

Philip L. Grauman, and Schiller & Rose, San Francisco, for plaintiffs-appellants.

Michael Klynn, Danaher, Gunn & Klynn, Palo Alto, for defendant-respondent.

TAYLOR, Presiding Justice.

This appeal by certain former salaried and hourly employees (Employees) of the Memory Products Department (Memory Products) of respondent, Fairchild Camera and Instrument Corporation (Fairchild), from an adverse judgment after a court trial, presents a question of first impression in this state as to the nature of severance and in lieu of notice benefits ¹ in a contract of employment. For the reasons set forth below, we have concluded that the trial court erred in concluding that Fairchild's sale of Memory Products was not a termination of employment that would entitled the Employees to the benefits in issue.

The record reveals the following pertinent facts: Fairchild, the parent foreign corporation with several subsidiaries and 13 different divisions in 50 states, created Memory Products in November 1965, as a separate department to produce memory cores for small computers. Fairchild's Semiconductor Division (Semiconductor), under contract, performed personnel and payroll functions, as Semiconductor did for all Fairchild west coast personnel. The Employees were thus subject to the corporate standard practice instructions (SPIs) issued by Fairchild's home office and the divisional instructions locally issued by Semiconductor. The SPIs and divisional instructions were kept in loose leaf binders and available to all personnel who wanted to look at them; these binders were about two inches thick and contained several hundred pages.

Prior to May 1965, a time when about six of the Employees were employed by Semiconductor, Fairchild's SPI 706 (which applied only to salaried Employees), provided, so far as pertinent, that salaried personnel was entitled to 'separation allowances' of one week's pay for up to one year's service, and two weeks' pay for over one year to 10 years of service. ² 706 also provided that severance pay was 'intended to cover the readjustment period required by the employee to obtain another position.'

Semiconductor's divisional instructions 710 and 713, respectively, so far as pertinent, defined 'layoffs' as the involuntary termination of employment due to lack of work, and provided that on layoff: 1) hourly Employees were entitled to one week's notice or one week's pay in lieu thereof ('in lieu of notice pay'); and 2) salaried Employees were entitled to one week's severance pay, for service up to one year, and two weeks' severance pay for service of more than one year. While neither 706 nor 710 and 713 were concealed from the Employees, those who testified had no knowledge of 776, but had knowledge of 710 and 713.

In January 1968, Fairchild began negotiations with Core Memories, Inc. (Core) for the sale of Memory Products. At meetings held during the second week of February, the Employees were informed by a Fairchild executive, Dr. Noyce, that a sale was pending but were not told of the exact date. The Employees were also informed that Core wanted to purchase Memory Products as a continuing business and wanted to retain all personnel, in identical jobs with continuing seniority rights and similar but not identical fringe benefits. ³ The contract of sale was signed on Friday, March 1, 1968, at which time Core agreed to continue the same rate of pay and seniority rights of Memory Products' Employees and similar fringe benefits; the agreement did not contain any sum for severance pay. The contract was executed on Saturday, March 2, 1968, and on Monday, March 4, 1968, Core took over the operation of Memory Products. All but one of the Employees transferred to Core; in April of 1968, Core terminated 40 of the 187--191 Employees; within three months of the sale date, Core terminated another 50--55. Core paid severance or in lieu of notice pay to some of the discharged Employees. These payments, however, were not equal to the amounts that would have been payable to them pursuant to divisional instruction 713, and, in some instances, were made purely at the discretion of Core's management.

Employee, Mary Ann Chapin, filed a complaint with the Labor Commissioner and subsequently in the Small Claims Court for severance benefits under her contract of employment with Fairchild. By stipulation, Fairchild's appeal from the municipal court action was dropped on filing of the instant class action in the superior court.

The trial court found that this was a valid class action pursuant to Code of Civil Procedure section 382, but that the Employees were not entitled to damages or benefits. The trial court based its conclusion on the following premises: Employees had the option at the time of sale of obtaining severance pay from Fairchild if they did not wish to become employed by Core. When the sale was consummated, Employees were in fact offered jobs by Core that resulted in their receiving full seniority rights and substantially equal fringe benefits from Core. The acceptance of employment with Core by Employees was done with full knowledge and intention, freely and willingly, and constituted an acceptance of Core's employment terms, a waiver of any rights pursuant to their employment agreement with Fairchild and further constituted a novation and substitution of Core's terms of employment for Fairchild. The transfer of employment from Fairchild to Core did not constitute a layoff within divisional instruction 713. A least two weeks prior to the sale of Memory Products, the Employees were told at a meeting by a vice president of Fairchild and a representative of Core about the intended sale and the opportunity to become employed by Core. This meeting constituted notice within divisional instruction 713 and gave the Employees a reasonable choice concerning their future employment.

At the outset, we note that the trial court's conclusion was based on a legal theory of novation that was neither pleaded, proved nor urged by either party, ⁴ and reversal would be required on this ground alone. Novation must be specifically pleaded (Alexander v. Angel, 37 Cal.2d 856, 236 P.2d 561). In addition, the findings that the February meetings constituted proper notice to the hourly Employees ⁵ and that SPI 706 became a part of the Employees' contract of employment ⁶ are not supported by the record.

While the interpretation of severance and in lieu of notice benefits ⁷ in a contract of employment has not previously been presented to an appellate tribunal of this state, there are numerous decisions in other jurisdictions (see 147 A.L.R. 151; 40 A.L.R.2d 1044). As Fairchild relies On the absence of a statutory requirement and/or a collective bargaining agreement, we are constrained to point out, preliminarily, that termination pay provisions are identically construed whether contained in formal written agreements, such as collective bargaining agreements (Adams v. Jersey Central Power & Light Company (1956) 21 N.J. 8, 120 A.2d 373), or a corporate personnel policy that becomes a part of the understood employment agreement (Willets v. Emhart Manufacturing Company, supra; Mace v. Conde Nast Publications, Inc. (1967) 155 Conn. 680, 237 A.2d 360), or pursuant to a statute (Bolta Products Div. v. Director of Div. of Emp. Sec. (1970) 356 Mass. 684, 255 N.E.2d 357).

The record here establishes: 1) the existence of an understanding of employment between the Employees and Fairchild prior to the sale of Memory Products; 2) pursuant to Fairchild's employment policies, salaried personnel were entitled to one or two weeks of severance pay, depending on length of service, and hourly personnel to one week's notice, or one week's pay in lieu thereof, as set forth in Semiconductor's divisional instruction 713; 3) the interpretation of separation allowances as unemployment compensation in original SPI 706 and the subsequent exclusion of separation allowances on the sale of a facility in revised SPI 706 were never communicated to any of the Employees; 4) the termination benefits provided by Core to the Employees were not equal to those previously available from Fairchild; and 5) Fairchild's agreement with Core for the sale of Memory Products as a going concern, including all personnel, did not contain a sum for the separation benefits here in issue.

Here, as in Willets v. Emhart Manufacturing Company, supra, the underlying question is whether the sale of Memory Products was a layoff for lack of work within the language of 713. There can be no question that here, as in Willets, the sale involved a permanent release of the Employees by Fairchild. By that sale, Fairchild made certain that it could no longer fulfill its part of the employment relationship (Matthews v. Minnesota Tribune Co. (1943) 215 Minn. 369, 10 N.W.2d 230, 147 A.L.R. 147). Nor can it be argued that this release is not a layoff because it is permanent and not temporary in duration. Divisional instruction 713 defines a layoff as involuntary termination due to lack of work, consistent with the dictionary and accepted definition of a layoff as a cessation of employment because of a slack in production and without prejudice. ⁸ The fact that a layoff is often temporary does not require that it must be (see International Ass'n of Machinists v. State (Fla.1943) 153 Fla. 672, 15 So.2d 485).

Certainly, Fairchild's sale of Memory Products was a permanent layoff of the Employees. Fairchild's admitted modification of 706 after the 1965 decision in Willets v. Emhart, supra, (discussed in fn. 2 above), indicates that its own interpretation of its own personnel policies prior to the 1965 amen...