Grebing v. First Nat. Bank of Cape Girardeau, 41496

• Decision Date: 10 February 1981
• Docket Number: No. 41496,41496
• Citation: 613 S.W.2d 872
• Parties: Robert R. GREBING, Plaintiff-Appellant, v. FIRST NATIONAL BANK OF CAPE GIRARDEAU, Missouri, a National Banking Corporation and, St. Louis Union Trust Company, a Corporation, and C. A. Juden, Richard Swaim, Gilbert Logel, Robert Ludwig, Elaine Helen Eagle, Patsy Donaldson, and Joan Jones, and their successors as members of the Administrative Committee of the Profit Sharing Plan of the First National Bank of Cape Girardeau, Mo., Defendants-Respondents.
• Court: Missouri Court of Appeals

Page 872

613 S.W.2d 872

Robert R. GREBING, Plaintiff-Appellant, v. FIRST NATIONAL BANK OF CAPE GIRARDEAU, Missouri, a National Banking Corporation and, St. Louis Union Trust Company, a Corporation, and C. A. Juden, Richard Swaim, Gilbert Logel Robert Ludwig, Elaine Helen Eagle, Patsy Donaldson, and Joan Jones, and their successors as members of the Administrative Committee of the Profit Sharing Plan of the First National Bank of Cape Girardeau, Mo., Defendants-Respondents.

No. 41496.

Missouri Court of Appeals, Eastern District, Division Four.

Feb. 10, 1981.

Motion for Rehearing and/or Transfer to Supreme Court Denied

March 13, 1981.

Application to Transfer Denied May 11, 1981.

Kenneth L. Waldron, Jackson, for plaintiff-appellant.

Richard G. Steele, Finch, Bradshaw, Strom & Steele, Cape Girardeau, for defendants-respondents.

SATZ, Judge.

This is an action for declaratory judgment. Plaintiff Robert Grebing, had been an employee of the defendant First National Bank of Cape Girardeau (Bank). During his tenure at the Bank, plaintiff had accrued an interest in the Bank's noncontributory profit sharing pension plan. Plaintiff went to work for a competitor of the Bank, which triggered a forfeiture provision in the plan. Plaintiff filed suit against the defendant Bank, against defendant St. Louis Union Trust Company as the Trustee managing the assets of the plan and against the other named defendants as members of the Administrative Committee implementing the plan. Plaintiff sought a declaration that the forfeiture provision in the plan was an unreasonable restraint of trade, or, in the alternative, that the defendants waived the right to enforce the forfeiture provision and that he was owed $9,136.47 plus interest as his distributive share under the plan. After trial to the Court, judgment was entered in favor of defendants. Plaintiff appeals. We affirm.

In this court-tried case, we review the record under the well known principles of Murphy v. Carron, 536 S.W.2d 30 (Mo.banc 1976).

Plaintiff was employed by the Bank from August, 1959, to March 26, 1971. He was given on-the-job training and sent to several seminars, schools and meetings to improve his skills. At the time he left the Bank, he was Vice President and Loan Officer.

On October 24, 1960, the Bank established a noncontributory profit sharing plan for its employees "to promote in them the strongest interest in the successful operation of the business and increased efficiency in their work, to assure them that they will share in the prosperity of the business and to provide an opportunity for an accumulation of funds for their retirement". The plan provided that an employee's share would be fully vested after 10 years of employment. Plaintiff's rights became fully vested in August of 1969, subject to a forfeiture provision in the plan. The forfeiture provision, Article X, "Limitation of Benefits", provided:

"In the event a participant is guilty of embezzlement or accepts employment with a competitor of the Employer, such participant shall forfeit all rights and benefits accrued and payable under this plan."

Plaintiff left his employment at the Bank in March, 1971. A day and a half later, he began working as Vice President and Trust Officer at Jackson Exchange Bank in Jackson, Missouri. The parties stipulated that the Jackson Bank was a competitor of the defendant Bank. Because plaintiff had accepted employment with a competitor, the Administrative Committee relied on Article X, the forfeiture provision, to deny plaintiff his distributive share under the plan. ¹

Plaintiff first contends the forfeiture provision has the same effect as a covenant not to compete and should be subject to the same limitations. Since the forfeiture provision is unrestricted as to time and geographic area, plaintiff reasons, the provision, like an unrestricted covenant not to compete, is an unreasonable restraint of trade and, therefore, is void. We disagree.

By definition, covenants by employees not to compete with their employers after termination of their employment restrain trade in a free market. Therefore, in our society, these covenants may be against public policy, and, thus, are enforceable only if their imposed restraint is reasonable. Orchard Container Corp. v. Orchard, 601 S.W.2d 299, 303 (Mo.App.1980); Reed, Roberts Assn., Inc. v. Barlenson, 537 S.W.2d 238, 241 (Mo.App.1976). The determination of reasonableness depends upon the competing needs of the parties as well as the needs of the public. These needs are: (1) the employer's need to protect legitimate business interests, such as trade secrets and customer lists, (2) the employee's need to earn a living, and (3) the public's need to secure the employee's presence in the labor pool, see Renwood Food Products v. Schaeffer, 240 Mo.App. 939, 223 S.W.2d 144, 150-151 (1949). Obviously, in the present case, we are not confronted with a covenant not to compete. We do not have an employee's express promise not to compete after termination of employment. Rather, we have a penalty, a forfeiture of benefits, imposed on the employee if he does compete after termination of employment. Thus, we must first determine whether this distinction removes the forfeiture provision from the restraint of trade category and, so eliminates the need to determine whether the provision is reasonable.

In Missouri, we have not decided whether the forfeiture provision like the one in issue is in effect a covenant not to compete. However, other jurisdictions have, and two views have developed. According to the majority view, a forfeiture provision like the one in issue is not a restraint of trade and, thus, the provision does not require the scrutiny of the Court to determine whether it is reasonable. See Rochester Corp. v. Rochester, 450 F.2d 118 (4th Cir. 1971); Dollgener v. Robertson Fleet Services, Inc., 527 S.W.2d 277 (Tex.Civ.App.1975) and cases cited therein; Hudson v. North Carolina Farm Bureau Mut. Ins. Co., Inc., 23 N.C.App. 501, 209 S.E.2d 416 (1974); Van Pelt v. Berefco, Inc., 60 Ill.App.2d 415, 208 N.E.2d 858 (1965); Annot., 18 A.L.R.3d 1246 (1968). These Courts reason that the forfeiture, unlike the restraint included in an employment contract, does not prohibit the employee from engaging in competitive work but merely denies him the right to participate in the profit sharing plan if he does so engage. Rochester Corp. v. Rochester, supra at 123. Thus, the employee is not necessarily prohibited from earning a living in his chosen vocation or trade nor is the public necessarily deprived of the employee's skills and services.

A significant minority of jurisdictions have adopted a different position. They hold that the threat of economic loss to an employee should he engage in business competition is a restraint of trade. See Food Fair Stores, Inc. v. Greeley, 264 Md. 105, 285 A.2d 632 (1972); Almers v. South Carolina Nat'l. Bank of Charleston, 265 S.C. 48, 217 S.E.2d 135 (1975); Holsen v. Marshall and Ilsley Bank, 52 Wis.2d 281, 190 N.W.2d 189 (1971). These courts reason that "... '(a)lthough the agreement is not expressed as a restriction against competition by the employee, its undoubted object and effect is that of a powerful deterrent to the employee's exercise of the right to compete, particularly where ... the penalty involved is a substantial sum of money' ". Holsen v. Marshall and Ilsley Bank, supra 190 N.W.2d at 191.

As noted, neither view has been expressly adopted in Missouri. However, our Supreme Court, in dictum, has indicated its approval of the majority view. In Alldredge v. City National Bank and Trust Co. of Kansas City, 468 S.W.2d 1, 4 (Mo.1971), the plaintiff, like the plaintiff here, had accrued an interest in a corporate noncontributory profit sharing plan, subject to forfeiture if he left the corporation and entered into competition with it. A summary judgment was entered in favor of the defendant successor corporation whose defense against payment was the forfeiture provision. In reversing the summary judgment because of the existence of a genuine issue of fact, the Court stated: L.C. 4

"Except where by statute noncompetition agreements such as that involved in this case are invalidated, (citations omitted), ² it is the general rule that the employer may provide as a part of a noncontributory profit sharing plan that a former employe's interest may be declared forfeited in the event of competitive activities. Such a...