Morse v. J. Ray McDermott & Co., Inc.

• Decision Date: 13 December 1976
• Docket Number: No. 57984,57984
• Citation: Morse v. J. Ray McDermott & Co., Inc., 344 So.2d 1353 (La. 1976)
• Court: Louisiana Supreme Court
• Parties: Brenton T. MORSE, Jr., Plaintiff-Appellant-Relator, v. J. RAY McDERMOTT & CO., INC., et al., Defendants-Appellees-Respondents.

Page 1353

344 So.2d 1353

Brenton T. MORSE, Jr., Plaintiff-Appellant-Relator, v.J. RAY McDERMOTT & CO., INC., et al Defendants-Appellees-Respondents.

No. 57984.

Supreme Court of Louisiana.

Dec. 13, 1976.

On Rehearing April 11, 1977.

Rehearing Denied May 13, 1977.

Joseph S. Russo, Jefferson, for plaintiff-applicant.

Herschel L. Abbott, Jr., Edward B. Poitevent, II, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, for defendants-respondents.

Charles I. Denechaud, Jr., Denechaud & Denechaud, M. Truman Woodward, Jr., Michael J. Molony, Jr., David Conroy, William C. Gambel, Charles A. Snyder, Hilton S. Bell, Milling, Benson, Woodward, Hillyer & Pierson, New Orleans, John C. Blackman, Hudson, Potts & Bernstein, Monroe, Richard P. Wolfe, Monroe & Lemann, Frederick S. Kullman, Clyde Hancock Jacob III, Kullman, Lang, Inman & Bee, Max Nathan, Jr., New Orleans, William H. Cook, Jr., Shreveport, and Michael E. Guarisco, Sessions, Fishman, Rosenson, Snellings & Boisfontaine, New Orleans, amici curiae.

TATE, Justice.

The plaintiff Morse, a former employee of J.Ray McDermott & Co., Inc.('McDermott'), sues to recover amounts allegedly due under the company's supplemental compensation and retirement plans.Made defendants are the company and its retirement trust.

McDermott terminated Morse's employment due to an economic downturn in 1970.It is conceded that Morse was without fault.Due to termination of Morse's employment, certain clauses in the company's plans, if valid, require forfeiture (or, at least, prevent vesting) of all credits and contributions made to the plans on his behalf as a contractual benefit of his employment.

The issue presented by this litigation is whether the forfeiture or non-vesting clauses in question are enforceable as applied to the facts of the case.The trial court held that they are and the court of appeal affirmed. with two judges dissenting.330 So.2d 411(La.App.4th Cir.1976), certiorari granted333 So.2d 240(La.1976).

We reverse: The employee's discharge of the blameless employee prevented the latter from receiving any value or benefit whatsoever from prior payments or credits which, when made by the employer, were in the nature of deferred compensation for the employee's prior services.As applied to the present circumstances, for reasons described below, the forfeiture and non-vesting clauses are unenforceable as contrary to law and public policy (Civil Code Articles 11, 1892, 1894, 2031): specifically, the policy provided by La.R.S. 23:634(prohibiting forfeiture of earned wage-benefits), in conjunction with the legal principle represented by Civil Code Article 2040(insofar as preventing a party from benefiting from a contractual forfeiture or default which will result solely because he himself caused it).

I.

The plaintiff Morse worked on a salary for McDermott from 1958 to 1970, a total of 11 1/2 years.This included 5 years in Nigeria and Venezuela, company-designated 'hardship areas'.His employment was terminated in 1970, not because of any fault of his, but because the company was experiencing an economic downturn.

Although not yet of retirement age at the time he was fired, Morse was a participant in the company's retirement plan.He also had received 'supplemental compensation' awards the last four years of his employment.He sues to recover for all sums in these plans attributable to his employment with McDermott.

Supplemental Compensation Plan

McDermott's supplemental compensation plan was adopted in 1966 to reward salaried managerial employees and to induce them to continue in their employment with the company.It was partly based upon a recognition that such employees worked many hours overtime and contributed to increased productivity of the company, although they received during the year preceding the award only their regular salaries as compensation for their service.

Under the plan, a fixed percentage of the company's profits is placed each fiscal year in a reserve.Supplemental compensation awards are made from this reserve by a committee on the basis of each employee's contribution to the success of the company during the year.

'Current awards'¹, such as that here involved, are made annually at the discretion of the committee to each deserving employee in a given amount.At the time of the current award, its amount is made payable in five equal installments.The first installment is paid when the award is made, and the others are to be paid on July 15 of each of the four succeeding calendar years during which the employee remains in the company's employ.

The supplemental compensation plan provides, however, that if employment is terminated for reasons other than death, disability, or retirement, then all unpaid portions of prior current awards are forfeited.

Morse was awarded current awards totaling $9,731.00 from 1966 to 1969, the last four years of his employment.In accordance with the terms of the supplemental compensation plan, prior to his discharge he had received all four installments of the 1966 award, three installments of the 1967 award, two installments of the 1968 award, and only one installment of the 1969 award.

Since he was no longer in the company's employment on June 15, 1970, he did not receive the installments falling due on that date and thereafter.These 'forfeited' installments amounting to $5,016.00 form the basis of Morse's supplemental compensation claim.

Retirement Plan

McDermott's retirement plan was first established in 1962 and was later revised in 1968.Contributions to the plan are made yearly by the employer.Employees with three or more years' service are included in the actuarial computation to determine the payment by the company into the plan each year.

However, no amount is credited to the individual account of an employee until after that person has been employed by the company for 15 years.Likewise, under the terms of the plan, benefits are not payable to anyone with less than 15 years of service except in cases of death or disability.

Generally, employees who have completed 15 years of service with the company may retire of right at age 65.The size of an employee's pension is based upon the number of years of service he has completed with the company.

Early retirement is possible as early as age 50, but the employer's consent is required unless the early retirement is due to credit earned for service in a contractually-defined 'hardship area'.Because pensions are based upon years of service, an early retiree loses credit for years he might have worked.In addition, the pensions of those retiring earlier than age 60 are reduced by an 'early retirement reduction factor'.

After he has reached age 45 and has completed 15 years of service, an employee whose service is terminated for any reason other than death, disability, or retirement is entitled to receive a pension upon reaching age 65 (or, if he has performed service in a hardship area, at an earlier age).The monthly pension is based upon the value, at the termination of employment, of the retirement benefit the terminated employee would have received if he had stayed with the company until the date pension payments are to commence.

The retirement plan expressly provides that an employee is not entitled to any benefit under the plan if his service is terminated for any reason other than death or disability prior to the date as of which he has both attained the age of 45 years and completed 15 years of service.

At the time his employment was terminated, Morse had 11 1/2 years of service with the company, five of which were performed in a hardship area.

Had he stayed with the company another 3 1/2 years, he would have been entitled to early retirement of right at age 55.Had his employment been terminated after the accumulation of 15 years of service and at a time after he had reached the age of 45 years, Morse would have been entitled to a monthly termination pension at age 60 for life.

However, at the termination of his employment, Morse had not been employed with the company for a full 15 years.Under the literal terms of the retirement plan, therefore, he is entitled to no benefits whatsoever.

II.

The defendants contend that the payments made to the retirement plan by the employer on the employee's behalf were gratuitous, as were the profit-sharing credits made as current awards to the employee under the supplemental payment plan.

However, 'To be gratuitous, the object of a contract must be to benefit the person with whom it is made, Without any profit or advantage, received or promised as a consideration for it.'Civil Code Article 1773.To the contrary, the evidence indicates that the retirement and profit-sharing plans were not only designed to reward worthy employees for their services but also (for the employer's benefit) to induce them to continue in the company's service (so as to make further contributions to the company's successful operation).The nature--gratuitous payments versus delayed compensation--of employer contributions to similar retirement and profit-sharing plans was at issue in T. L. James & Co. v. Montgomery, 332 So.2d 834(La.1976), although in a somewhat different context.We there stated, 332 So.2d 840--41:

'Only the employer contributes to the plans, but the contribution is not without reciprocal contribution on the part of the employee, although these are intangible and difficult to evaluate.It is a reward by the company to promote loyal and efficient service on the part of the employee.The plans are, moreover, an inducement to employees to remain in the service of the company to enjoy the benefits the plans promised.In short, the contribution of the employer is not a purely gratuitous act, but it is in the nature of additional remuneration to the employee who meets the conditions of the plan.The employer expects and receives something in return for his contribution, while the...