Hepple v. Roberts & Dybdahl, Inc.

• Decision Date: 03 June 1980
• Docket Number: No. 79-2052,79-2052
• Citation: 622 F.2d 962
• Parties: , 2 Employee Benefits Ca 2529 David C. HEPPLE, Appellant, v. ROBERTS & DYBDAHL, INC., Restated Employee Profit-Sharing Plan, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 962

622 F.2d 962

57 A.L.R.Fed. 653, 2 Employee Benefits Ca 2529

David C. HEPPLE, Appellant, v. ROBERTS & DYBDAHL, INC., Restated Employee Profit-Sharing

Plan, Appellee.

No. 79-2052.

United States Court of Appeals,

Eighth Circuit.

Submitted April 17, 1980.

Decided June 3, 1980.

W. Don Brittin, Jr., Nyemaster, Goode, McLaughlin, Emery & O'Brien, Des Moines, Iowa (argued), and F. L. Burnette, II, Des Moines, Iowa, on brief, for appellant.

Donald B. Strater, Des Moines, Iowa (argued), E. Eugene Davis, Lorraine J. May, Des Moines, Iowa, and Gene N. Fuller, of Larkin, Hoffman, Daly & Lindgren, Minneapolis, Minn., on brief, for appellee.

Before HEANEY and ARNOLD, Circuit Judges, and WRIGHT, ^* District Judge.

ARNOLD, Circuit Judge.

David C. Hepple brought this action to recover benefits allegedly due under his former employer's Employee Profit Sharing Plan and Trust. The company had denied Hepple any benefits because of his violation of a non-competition clause contained in the Plan. On cross-motions for summary judgment the District Court (the Honorable Harold D. Vietor, United States District Judge for the Southern District of Iowa) held that the clause did not violate the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C § 1001 et seq., and granted summary judgment for defendant. We affirm.

Plaintiff was employed by Roberts & Dybdahl, Inc., for less than five years and had acquired six years of covered service under the Plan. After voluntarily leaving Roberts & Dybdahl, he immediately went to work for a competing company. Because of this competition with Roberts & Dybdahl the balance in his Employer Contribution Account was declared forfeited, and his request for payment was refused.

The question presented is whether pension plan benefits in excess of the minimum vesting requirements of ERISA may be forfeited for violation of a non-competition clause. Put another way, the question is whether Paragraph 7.2 of the Plan, which provides for forfeiture of employer contributions for the benefit of employees with less than ten years of service who later compete with the employer, is void as a prohibited forfeiture of vested rights in violation of 29 U.S.C. § 1053(a). That statute sets out the minimum vesting requirements for employee benefits under ERISA. It provides, in part:

(a) Each pension plan shall provide that an employee's right to his normal retirement benefit is nonforfeitable upon the attainment of normal retirement age and in addition shall satisfy the requirements of paragraphs (1) and (2) of this subsection.

(1) A plan satisfies the requirements of this paragraph if an employee's rights in his accrued benefit derived from his own contribution are nonforfeitable.

(2) A plan satisfies the requirements of this paragraph if it satisfies the requirements of subparagraph (A), (B), or (C).

(A) A plan satisfies the requirements of this subparagraph if an employee who has at least 10 years of service has a nonforfeitable right to 100 percent of his accrued benefit derived from employer contributions.

It is undisputed that the Plan involved in this action meets these minimum requirements. It provides that an employee's right to his normal retirement benefit is nonforfeitable upon the attainment of normal retirement age, that an employee's own contributions are nonforfeitable, and that an employee with at least ten years of service has a nonforfeitable right to 100 percent of benefits from employer contributions.

The problem presented here involves an employee's rights to accrued employer benefits under § 1053(a)(2)(A) when his employment is terminated with less than ten years of covered service. Under Article 7 of the Plan an employee becomes entitled to accrued employer benefits upon the happening of an "event of maturity." If that event of maturity is normal retirement, disability, death, or plan termination, Section 7.2 provides that the employee's Employer Contribution Account is fully vested and nonforfeitable regardless of the number of years of covered service. If the account matures because of termination of employment, as in Hepple's case, the following provision applies:

Years of Covered Percentage of

Service Interest Vested

---------------- ---------------

Less than 2 years 0%

2 years, but less than 3 20%

3 years, but less than 4 30%

4 years, but less than 5 40%

5 years, but less than 6 50%

6 years, but less than 7 60%

7 years, but less than 8 70%

8 years, but less than 9 80%

9 years, but less than 10 90%

10 years, and over 100%

This section is qualified by the following exception found in Section 7.2:

Notwithstanding anything herein to the contrary, any Employee who is discharged because of admitted or judicially proven fraud or dishonesty toward the Employer, or any Employee employed as a buyer or in an executive, supervisory or selling capacity who voluntarily ceases to be an Employee prior to his Normal Retirement Date and within one (1) year of such Termination of Employment accepts employment with a competitor in direct competition with the Employer within the state of his principal place of employment with the Employer or within states geographically bordering the principal place of his employment with the Employer or enters into such direct competition on his own behalf shall forfeit all benefits otherwise payable to him under this Plan to the extent said benefits are derived from Employer Contributions. Provided, however, that forfeiture for cause hereunder will occur only if the employee has completed less than ten (10) years of Covered Service with the Employer.

Read together, Sections 7.2 and 7.3 give an employee whose employment with the company is terminated before he completes ten years of covered service a gradually increasing accrued interest in his Employer Contribution Account. This interest, however, is contingent on the conditions that he not commit fraud against the company or compete with the company within one year. Plaintiff contends that such a condition works an impermissible forfeiture under ERISA. In order to prevail, plaintiff has to show that he has been deprived of a benefit that ERISA makes nonforfeitable.

A primary purpose of ERISA is to protect participants in private pension plans by requiring such plans "to vest the accrued benefits of employees with significant periods of service." 29 U.S.C. § 1001(c). In order to facilitate this purpose, Congress enacted 29 U.S.C. § 1053, which sets out the minimum vesting requirements of the Act. Under the kind of plan involved in this case, which provides for 100% vesting of employer's contributions after ten years of covered service, there is no requirement in the statute for vesting of any lesser percentage of benefits before the required ten years of service.

(A) A plan satisfies the requirements of this subparagraph if an employee who has at least 10 years of service has a nonforfeitable right to 100 percent of his accrued benefit derived from employer contributions.

29 U.S.C. § 1053(a)(2)(A). ¹ To require that a certain percentage of accrued benefits be nonforfeitable at any date prior to ten years of service would be to read something into the Act that is simply not there.

What is not allowed is the use of any condition to defeat an employee's rights to the benefits guaranteed by the minimum vesting standards of the Act. In the present case, the Plan's non-competition clause would be void under the Act if it affected the rights of employees with ten or more years of service. This it does not do. ² We can find nothing in the Act which would prohibit a plan's providing for forfeiture of benefits when the affected benefits are in excess of the minimum vesting requirements of 29 U.S.C. § 1053. In the case of the Roberts & Dybdahl plan, employees are given a conditional interest in their Employer Contribution Accounts until they have completed ten years of covered service. At that time the interest becomes vested and nonforfeitable for any reason other than those enumerated in 29 U.S.C. § 1053(a)(3). ³

Plaintiff relies on a statement which appears in varying form in Congressional committee reports on the bills that became ERISA. After discussing the permissible forfeitures found in 29 U.S.C. § 1053(a)(3), the report of the House Committee on Ways and Means continues:

With the limited exceptions noted above, no rights, once they are required to be vested, may be lost by the employee under any circumstances . . . For example, a vested benefit is not to be forfeited because the employee later went to work for a competitor, or in some other way was considered "disloyal" to the employer.

H.R.Rep.No.93-807, 93d Cong., 2d Sess., reprinted in (1974) U.S.Code Cong. & Admin.News, pp. 4639, 4725-26 (emphasis added). On the other hand, the Conference Report on the bill that finally became law states the following:

Under the conference substitute, except as outlined below, an employee's rights, once vested, are not to be forfeitable for any reason. An employee's rights to benefits attributable to his own contributions may never be forfeited.

H.R.Conf.Rep.No.93-1280, 93d Cong., 2d Sess., reprinted in (1974) U.S.Code Cong. & Admin.News, p. 5052 (emphasis added). Plaintiff argues that these reports, including especially the omission of the phrase "required to be vested" in the Conference Report, indicate Congressional intent to prohibit all non-competition clauses in private pension plans. We are not persuaded that such a thin reed is a sufficiently strong basis on which to override the apparently plain meaning of the statute.

Throughout the committee reports run the countervailing concepts...