McClendon v. Ingersoll-Rand Co.

• Decision Date: 18 October 1989
• Docket Number: No. C-7973,INGERSOLL-RAND,C-7973
• Citation: 779 S.W.2d 69
• Parties: , 113 Lab.Cas. P 56,126, 4 IER Cases 1515, 11 Employee Benefits Cas. 1912 Perry McCLENDON, Petitioner, v.COMPANY, d/b/a Ingersoll-Rand Company Construction Equipment Group, Respondent.
• Court: Texas Supreme Court

Page 69

779 S.W.2d 69

58 USLW 2268, 113 Lab.Cas. P 56,126,

4 IER Cases 1515,

11 Employee Benefits Cas. 1912

Perry McCLENDON, Petitioner, v. INGERSOLL-RAND COMPANY, d/b/a Ingersoll-Rand Company Construction Equipment Group, Respondent.

No. C-7973.

Supreme Court of Texas.

Oct. 18, 1989.

Rehearing Denied Nov. 15, 1989.

Michael Y. Saunders, John W. Tavormina, Houston, for petitioner.

William T. Little, Houston, for respondent.

SPEARS, Justice.

This is a suit for wrongful discharge. Perry McClendon sued his former employer, Ingersoll-Rand Company. McClendon alleged that he was discharged from his employment so that Ingersoll-Rand could escape its obligation to contribute to his pension fund. The trial court rendered summary judgment in favor of Ingersoll-Rand. The court of appeals affirmed. 757 S.W.2d 816 (1988). We reverse the judgment of the court of appeals and remand the cause to the trial court.

In August 1972, McClendon began employment with Ingersoll-Rand as a salesperson and distributor of construction equipment. He was paid on a commission basis in accordance with the terms of a "Compensation Arrangement" that was to remain in effect through December 1982; however, this "compensation arrangement" did not specifically dictate the term of McClendon's employment.

In late 1979, Ingersoll-Rand transferred McClendon from San Antonio to Dallas so that he could develop a potentially lucrative market there. McClendon secured a substantial amount of business in Dallas, and McClendon's supervisor later testified that he was satisfied with McClendon's job performance. Nevertheless, Ingersoll-Rand fired McClendon on November 19, 1982. Ingersoll-Rand justified McClendon's termination by claiming that external economic factors mandated a work force reduction of one salesperson.

McClendon's termination from employment occurred after he had accumulated nine years and eight months of service to Ingersoll-Rand. Further, the termination occurred exactly four months prior to the vesting of McClendon's retirement and pension benefits, at which time Ingersoll-Rand would have been required to contribute to McClendon's pension fund.

In filing suit, McClendon alleged that Ingersoll-Rand breached its employment contract with him and breached its duty of good faith and fair dealing in connection with the employment relationship. ¹ In addition, McClendon asserted a cause of action for wrongful discharge and alleged that Ingersoll-Rand had terminated him to escape its obligation to contribute to his pension fund ² and to avoid paying him the commission from a particular sale.

At issue is whether McClendon's allegations state a cause of action under Texas law. Texas courts have traditionally followed the employment-at-will doctrine which allows that employment for an indefinite term may be ended at will and without cause. East Line & R.R.R. Co. v. Scott, 72 Tex. 70, 10 S.W. 99 (1888); Molder v. Southwestern Bell Tel. Co., 665 S.W.2d 175 (Tex.App.--Houston [1st Dist.] 1983, writ ref'd n.r.e.).

Although this doctrine has been widely accepted, numerous exceptions and limitations have been placed on its application. For example, federal law prohibits the discharge of an employee because of age, race, religion, sex, color or national origin. Age Discrimination in Employment Act of 1967, 29 U.S.C. § 623(d) (1982 & Supp. III 1985); Title VII, Civil Rights Act of 1964, 42 U.S.C. § 2000e-2(a) (1977). Federal law also prohibits a private employer from discharging an employee who exercises his rights under the Fair Labor Standards Act to minimum wage and overtime. 29 U.S.C. § 215(a)(3) (1977 & Supp.1982). Similarly, Texas has enacted various statutes that restrict an employer's discretion to terminate the employment relationship. See, e.g., TEX.REV.CIV.STAT. art. 5207a (discharge based on union membership); TEX.CIV.PRAC. & REM.CODE § 122.001 (discharge because of jury service); TEX.REV.CIV.STAT. art. 8307c (discharge for filing a worker's compensation claim); TEX.GOV'T CODE § 431.006 (discharge because of active duty in the state military forces); TEX.REV.CIV.STAT. art. 5221k, § 5.01 (discharge based on race, color, handicap, religion, sex, national origin or age).

In addition to state and federal legislation, courts have developed various common-law restraints on the doctrine of employment-at-will. In Sabine Pilot Service, Inc. v. Hauck, 687 S.W.2d 733 (Tex.1985), this court recognized a cause of action for a plaintiff alleging that he was discharged for refusing to perform an illegal act. In creating this exception to the employment-at-will doctrine, we considered the changes in American society and in the employer/employee relationship over the course of the past century, and we held that public policy, as expressed in both state and federal law, required such an exception. See also Petermann v. International Brotherhood of Teamsters, Local 396, 174 Cal.App.2d 184, 344 P.2d 25 (1959) (recognizing public policy exception to employment-at-will doctrine in case of employee alleging that he was wrongfully discharged for refusing to perjure himself before a legislative investigative committee).

Numerous other states have accepted the principle that public policy can limit an employer's power to discharge at-will employees. See Kelsay v. Motorola, Inc., 74 Ill.2d 172, 23 Ill.Dec. 559, 384 N.E.2d 353 (1978); Frampton v. Central Indiana Gas Co., 260 Ind. 249, 297 N.E.2d 425 (1973); Fortune v. National Cash Register Co., 373 Mass. 96, 364 N.E.2d 1251 (1977); Monge v. Beebe Rubber Co., 114 N.H. 130, 316 A.2d 549 (1974); Nees v. Hocks, 272 Or. 210, 536 P.2d 512 (1975); Harless v. First Nat'l Bank, 162 W.Va. 116, 246 S.E.2d 270 (1978). More specifically, the Eastern District of New York has recognized a cause of action for wrongful discharge when an employee alleges that he was terminated to deprive him of pension benefits. Hovey v. Lutheran Medical Center, 516 F.Supp. 554 (E.D.N.Y.1981). The court expressly recognized the public policy associated with the preservation of pension plans for both governmental and private employees. Id. at 558; see also Savodnik v. Korvettes, Inc., 488 F.Supp. 822, 826 (E.D.N.Y.1980) (recognizing strong public policy "favoring the protection of integrity in pension plans" and allowing wrongful discharge cause of action for plaintiff who alleged that employer fired him to avoid paying pension benefits).

In determining whether McClendon has stated a cause of action under Texas law, we recognize that the state has an interest in protecting employees' interests in pension plans. Cf. TEX.REV.CIV.STAT., Title 110B (Vernon 1988) (reflecting state's interest in preserving pension plans for public employees). Also, the Employee Retirement Income Security Act (ERISA) makes it unlawful for any person to discharge, fine, suspend or discriminate against any employee for the purpose of interfering with that employee's potential rights under a pension plan. 29 U.S.C. § 1140. The very passage of ERISA demonstrates the great significance attached to income security for retirement purposes.

We hold that public policy favors the protection of integrity in pension plans and requires in this case an exception to the employment-at-will doctrine. This exception allows recovery when the plaintiff proves that the principal reason for his termination was the employer's desire to avoid contributing to or paying benefits under the employee's pension fund. ³

We reverse the judgment of the court of appeals and remand this cause to the trial court for trial.

COOK, J., files a dissenting opinion in which PHILLIPS, C.J., and HECHT, J., join.

GONZALEZ, J., files a dissenting opinion.

COOK, Justice, dissenting.

I dissent. The central issue in this case, as argued and briefed by the parties, concerns whether the duty or implied covenant of good faith and fair dealing exists in the context of an employment-at-will relationship. The majority opinion not only fails to address this issue, but also creates a state cause of action based on conduct already prohibited by federal statute. Given the adverse impact that the majority opinion will have upon our court systems, I would affirm the judgment of the court of appeals.

I. ERISA

The court reminds us that § 510 of the Employee Retirement Income Security Act (ERISA) makes it unlawful for any person to interfere intentionally with impending pension eligibility. 29 U.S.C. § 1140 (1985). According to the court, ERISA demonstrates the great significance attached to income security for retirement.

I agree. ERISA's § 510 is indeed significant, so significant that it confers upon employees a federal version of the cause of action created by this court, confines litigation of the federal cause of action to the federal courts, and preempts the state cause of action.

Section 510 of ERISA expressly states that it is "unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan." Id. The case law has interpreted § 510 to delineate a cause of action that applies in precisely the same situations as the one considered today. See, e.g., Gavalik v. Continental Can Co., 812 F.2d 834 (3d Cir.), cert. denied, 484 U.S. 979, 108 S.Ct. 495, 98 L.Ed.2d 492 (1987).

Congress provided for the enforcement of § 510 in § 502, which comprises the statute's civil enforcement provisions. 29 U.S.C. at § 1132. Section 502(e)(1) confines litigation of certain claims to federal court. Id. at § 1132(a)(3). One of those claims is the § 510 action. Id.; 29 U.S.C. at § 1140. Consequently, an ERISA claimant who sues for termination resulting from intent to avoid pension responsibility may sue only in federal court.

The provisions of § 510 do not initially appear to affect the law set out today. It is, after all, possible for state and federal law to address the...