Jacoby v. Grays Harbor Chair & Mfg. Co., 39780

• Decision Date: 30 April 1970
• Docket Number: No. 39780,39780
• Citation: 468 P.2d 666,77 Wn.2d 911
• Court: Washington Supreme Court
• Parties: Walter JACOBY, John L. Haunreiter, Leonard Nocula, W. H. Schuh, C. W. Watkins, Eugene E. Yarrow, Harold D. Hall, Raymond Henry Lee, Otto Wieck, Matt Plesha and Clara Plesha, husband and wife; and William G. Walker and Mary Ann Walker, husband and wife; Respondents and Cross-Appellants, v. GRAYS HARBOR CHAIR & MFG. COMPANY, a corporation, and Continental Assurance Company, an insurance corporation, Appellants.

Page 911

77 Wn.2d 911

468 P.2d 666

Walter JACOBY, John L. Haunreiter, Leonard Nocula, W. H.

Schuh, C. W. Watkins, Eugene E. Yarrow, Harold D. Hall, Raymond Henry Lee, Otto Wieck, Matt Plesha and Clara Plesha, husband and wife; and William G. Walker and Mary Ann Walker, husband and wife; Respondents and Cross-Appellants, v. GRAYS HARBOR CHAIR & MFG. COMPANY, a corporation, and Continental Assurance Company, an insurance

corporation, Appellants.

No. 39780.

Supreme Court of Washington, En Banc.

April 30, 1970.

Martin, Shorts & Bever, A. R. Hart, Seattle, Burkey, Marsico, Rovai & McGoffin Stanley J. Burkey, Tacoma, for appellants.

McCormick, Hoffman, Rees & Arnold, Merrifield B. Rees, Tacoma, for respondents.

NEILL, Justice.

Plaintiffs bring suit against their former employer, Grays Harbor Chair & Mfg. Company, on a pension plan contract between their employer and Continental Assurance Company. The trial court awarded judgments against the employer and the insurance company in varying amounts based upon the present value of pensions payable at age 65. The employer and company appeal. Two of the plaintiffs did not recover and they cross-appeal. For convenience, Grays Harbor Chair & Mfg. Company will be referred to as the employer and Continental Assurance Company will be referred to as the company.

In 1957, the employer contracted with the company for payment of pensions to qualified salaried employees. These pensions were based upon salaries and length of service. The employer agreed to deposit periodically with the company the sums of money which the company determined were required to fund the payments. The company agreed to purchase annuities for employees' pensions as they became payable. The employer reserved the right, with the consent of the company, to modify or amend the contract without the consent of any employee, but the contract specifically provided that no such modification or amendment should deprive any employee of accrued benefits. The employer reserved the right to cease making deposits under the plan at any time. The employees did not participate in any negotiations between the employer and the company, nor were they parties to the contract. They did not contribute from their salaries to the fund.

In December, 1957, the employer wrote a letter to each salaried employee announcing establishment of this pension plan for those who continued their employment until age 65, with other benefits in case of death, disability or termination of employment. A booklet which outlined the benefits of the plan followed later. Thereafter, until 1962, the employer made regular deposits based upon the number of its employees, their ages, length of service, annual salary and life expectancy.

In 1962, control of the employer was transferred by sale of its capital stock. Thereafter a number of employees, including plaintiffs, were terminated from employment under circumstances tantamount to discharge other than for cause. No deposits have been made to the fund since 1962, but earlier deposits plus accumulated interest are sufficient to meet accrued obligations. At the time of the trial, there were about 10 employees still in the plan. Only one of them had then reached the normal retirement age of 65 and an annuity has since been purchased for him out of the fund.

Defendants' assignments of error raise two main issues. First, they claim that the trial court erred in finding the contract ambiguous and in resolving the ambiguity in favor of the discharged employees. Second, they claim the trial court erred in reducing the pensions to present value and awarding money judgments in those amounts.

An understanding of the issues requires us to examine the contract in more detail. Several terms have been defined by the parties as follows:

(c) Credited Service--The years of a Participant's employment, but not to include the first two years of service or any service prior to age 25 male and female, or service prior to age 30 for female Participants hired after December 1, 1957. Credited service shall be computed to the nearest one-twelfth (1/12th) of a year, subject to a maximum of 30 years.

(d) Participant--Any salaried Employee who meets the eligibility requirements set forth in this Contract.

Eligibility requirements are described in the following language:

6. ELIGIBILITY REQUIREMENTS:

On and after the Effective Date, each full-time salaried Employee of the Employer who was hired prior to his 50th birthday shall be considered a Participant upon completion of two years service and attainment of age 25, except that females hired subsequent to the Effective Date will become Participants only upon completion of two years service and attainment of age 30.

Any Employee not actively at work on the date he would otherwise become eligible will be made eligible from the Anniversary Date nearest his return to active work.

The provision which causes our principal concern follows:

3. BENEFITS ON TERMINATION OF EMPLOYMENT:

All rights to all benefits under the Contract will cease upon a Participant's termination of employment with the Employer prior to retirement except for the following benefits.

If the employment of a Participant is terminated prior to retirement but after he has attained the age of 46 and has completed At least 10 years as a Participant under the Plan he shall be entitled to receive a Normal Annuity, commencing at age 65, or upon receipt of application if later, provided that application therefor is made to the Employer by written request signed subsequent to his attainment of age 64 1/2 and prior to age 70. Said Normal Annuity shall be computed as a percentage of his Normal Retirement Benefit, based on credited years of service to the date of termination of employment, as follows:

Notwithstanding the foregoing provision if any Participant's termination of employment is the result of a dismissal because of proven dishonesty, proven disloyalty, or a crime involving moral turpitude, no benefits will be payable under the Contract, provided, however, that determinations pursuant to this paragraph shall be made by the Employer on a uniform, equitable and non-discriminatory basis.

(Italics ours.)

Plaintiffs claim they would be entitled to pensions by virtue of this latter section. The employer and the company contend that as the plan became effective December 31, 1957, and these employees terminated in 1962 and 1963, it is impossible for them to have completed 'at least 10 years as a Participant under the Plan' and they are not entitled to pensions.

The plaintiffs contend that the contract is ambiguous and that the parties intended to confer benefits upon any employee meeting other requirements and having 10 years of employment. The trial court agreed and concluded that an employee acquired a vested right to a pension, not when the plan had been effective for 10 years, but 10 years after employment commenced and other eligibility requirements were met.

We have held that a pension granted to a public employee is not a gratuity, but is deferred compensation for services rendered and that the obligation of a public employer to pay a pension when the employee has fulfilled the prescribed conditions is contractual in nature. Bakenhus v. Seattle, 48 Wash.2d 695, 296 P.2d 536 (1956). This principle has been extended to private pension plans established by collective bargaining agreements. Dorward v. ILWU-PMA Pension Plan, 75 Wash.Dec.2d 492, 452 P.2d 258 (1969). We here recognize the application of this principle to voluntary, noncontributory (employer financed) pension plans.

The cases now generally hold that where an employer has a pension plan and the employees know of it, continued employment constitutes consideration for the promise to pay the pension. See Annot., 42 A.L.R.2d 461 (1955), and cases cited. Also see 56 C.J.S. Master and Servant § 169, at 828 (1948). A retirement pension is pay withheld to induce continued faithful service. It amounts to delayed compensation for services rendered. David v. Veitscher Magnesitwerke Actien Gesellschaft, 348 Pa. 335, 35 A.2d 346, 349 (1944); Ball v. Victor Adding Mach. Co., 236 F.2d 170, 174 (5th Cir. 1956); Siegel v. First Pennsylvania Banking & Trust Co., 201 F.Supp. 664 (E.D.Pa.1961); Parsley v. Wyoming Automotive Co., 395 P.2d 291 (Wyo.1964). As the court said in Ball, 236 F.2d at 173.

And the idea that a Pension Trust expressly approved, as was this one, by the Internal Revenue Service as a plan qualified under Section 165, 1939 Code, 26 U.S.C.A. § 165; 1954 Code, § 401, 26 U.S.C.A. §§ 401, 402, is a mere gratuity or charitable enterprise beyond even the barest scrutiny by its sole beneficiaries (the employees) is completely out of keeping with the philosophy and purpose of such plans as the means of paying Additional compensation to the covered employees in a way to afford substantial and immediate tax advantages to the Employer and substantial tax and monetary benefits to the employees.

And again in Cantor v. Berkshire Life Ins. Co., 171 Ohio St. 405, 410, 171 N.E.2d 518, 522, (1960), the court said:

A retirement program has become a basic part of an employee's remuneration even as his wages are a part thereof, and a consideration flows to the employer as well as to the employee through such a program.

Clearly, under our present economic system, an employer cannot offer a retirement system as an inducement to employment and, after an employee has accepted employment under such circumstances, withdraw of terminate the program after an employee has complied with all the conditions entitling him to retirement rights thereunder.

Therefore, whether a retirement plan is contributory or noncontributory and even though the employer has reserved the right to amend or terminate the plan, once an employee, who has accepted employment under such plan, has complied with all the conditions entitling him to participate in such plan, his rights become vested...