Shepherd v. Pittsburgh Glass Works Llc

• Decision Date: 27 July 2011
• Citation: 32 IER Cases 1751,2011 PA Super 156,25 A.3d 1233
• Parties: James E. SHEPHERD, Appelleev.PITTSBURGH GLASS WORKS, LLC, Appellant.
• Court: Pennsylvania Superior Court

25 A.3d 1233

32 IER Cases 1751

2011 PA Super 156

James E. SHEPHERD, Appellee

v.PITTSBURGH GLASS WORKS, LLC, Appellant.

Superior Court of Pennsylvania.

Argued Feb. 15, 2011.Filed July 27, 2011.

Marguerite S. Walsh, Philadelphia, for appellant.Suzanne L. DeWalt, Pittsburgh, for appellee.BEFORE: BOWES, DONOHUE, and SHOGAN, JJ.OPINION BY BOWES, J.:

Pittsburgh Glass Works, LLC (“PGW”) appeals from the May 17, 2010 order enjoining it from enforcing a restrictive covenant and requiring Appellee, James Shepherd, to post bond in the amount of $2,000. We affirm.

On March 1, 2010, Appellee instituted this action and alleged the following in his complaint. In 1976, following his graduation from college, Appellee began working for PPG Industries, Inc. (“PPG”) as an accountant. From 1976 to 1995, he was promoted in the accounting, finance, and administration areas at PPG, and worked as director of managerial accounting of glass from 1989–1995. In 1995, Appellee was appointed director of the flat glass automotive products segment of PPG, and assumed responsibility for profit and loss for flat glass products sold to the automotive industry. In 2002, Appellee was promoted again and became general manager of PPG's OEM, which means original equipment manufacturer, glass business. In that job, Appellee was responsible for profit and loss of the business and participated in defining the overall strategic direction and operation of PPG's automotive OEM business segment. After twenty-five years of service, Appellee executed an agreement with PPG, a copy of which is attached to the complaint, that contained, inter alia, a restrictive covenant.

The covenant provided in pertinent part that Appellee could not accept employment with a competitor of PPG for two years after his service with PPG was terminated. The non-compete accord contained an arrangement whereby PPG could elect not to enforce its terms, but if it chose to do so, PPG agreed to pay Appellee his regular salary and bonus for the period of time that he was unable to work due to operation of the covenant not to compete. The parties have consistently referred to the payments mandated by the restrictive covenant as bench compensation. Appellee averred in the complaint that while he did receive a promotion and increase in salary around the time that the agreement was executed, he did not receive any other additional money for signing it.

Appellee also set forth the following. At the time the non-compete was signed, PPG had a standard severance policy applicable to employees with Appellee's level of responsibility. Pursuant to that severance policy, upon termination, Appellee was entitled to a lump-sum payment of two weeks of his base salary for every year of employment with PPG times eighty percent with a twelve-month cap. The severance package applied whether or not Appellee received bench compensation under the restrictive covenant.

In 2006, PPG's automotive glass and services business units had both manufacturing and service components. As a manufacturer, the unit was an original equipment manufacturer of windshields, sunroofs, side windows, and rear windows for the motor vehicle industry. It also supplied replacement glass. As a services provider, the unit oversaw a glass claims service called LYNX, and the unit also offered glass management and internet marketing services and provided e-business solutions to its customers.

In 2008, PPG decided to divest its automotive glass and services business to a new company formed by affiliates of Kohlberg & Co., LLC (“Kohlberg”). In that transaction, PPG retained an equity interest of approximately forty percent in the new company. In anticipation of the transaction, the automotive glass and services division was renamed PGW effective August 1, 2008. After the transaction in question, Kohlberg was to use that name for the division and Appellee's title was changed from General Manger of Automotive OEM to Vice President of Automotive OEM, but there was no appreciable change in his responsibilities.

Appellee set forth in his complaint that the written agreement governing the transaction with Kohlberg required PGW to maintain the severance package applicable to Appellee for twelve months from the effective date of the transaction, which was completed on or about September 30, 2008. On September 29, 2008, Appellee executed an agreement with PGW. In the September 29, 2008 document, Appellee agreed not to work for a competitor of PGW for two years after his termination with PGW. Consistent with the earlier accord, PGW could waive the non-compete clause and, if PGW did decide to enforce it, it agreed to pay Appellee's salary plus a bonus for up to twenty-three months if Appellee demonstrated he was unable to secure a position comparable to the last position that he held at PGW. However, unlike the previous contract, the compensation payable under the 2008 document was reduced by the amount of any severance or salary continuation plan of PGW.

Thus, the September 2008 agreement reduced the amount of bench compensation payable for enforcement of the restrictive covenant from the earlier agreement by eliminating one month's salary and by reducing the amount PGW had to pay to enforce the agreement by the amount of any severance payments received by Appellee from PGW.

After the transaction involving Kohlberg was completed, Appellee had the same office and essentially the same responsibilities. Appellee did not receive a promotion, lump sum payment, or additional compensation for his entry into the September 29, 2008 agreement. On April 30, 2009, Appellee was terminated from employment with PGW without explanation by the chairperson and chief executive officer of PGW, James Wiggins. Appellee remained as a consultant with PGW through July 31, 2009 to ensure the orderly transition of his replacement.

The averments in the complaint continued as follows. Kevin Cooney, vice-president of human resources, gave Appellee a separation agreement and release, which Appellant executed, that provided Appellee with salary and medical benefits for eight months. Mr. Cooney allegedly told Appellee that he was not entitled to any severance pay and would not receive any severance if he did not execute that document. This representation purportedly was false because, unbeknownst to Appellee at the time, under the documents governing the transaction involving Kohlberg, Appellee was entitled to the severance package that he had with PPG, which exceeded the severance package provided under the separation agreement and release with PGW. In addition, under the original PPG restrictive covenant, the amount of bench compensation was not reduced by any severance payments made to Appellee. In this separation agreement, Appellee released PGW from any obligations under any employment agreements.

After Appellee searched for a job for six months, he was offered a position as executive vice president of Central Glass American (“CGA”), the North American subsidiary of Central Glass Co., Ltd. (“Central Glass”), a Japanese corporation. Appellee averred in the complaint that even though CGA had an OEM glass unit, it was not a direct competitor of PGW and had no common customers with PGW. He further averred that he did not possess any confidential knowledge or information about PGW. After receiving the job offer, on November 5, 2009, Appellee sent an electronic mail to PGW describing his job responsibilities at CGA and asking for confirmation that the job would not trigger the September 29, 2008 restrictive covenant. On November 23, 2009, PGW informed Appellee that it intended to enforce the two-year restrictive covenant in the September 29, 2008 accord. In return, Appellee asked for the bench compensation payments and also substantiated his inability to locate comparable employment.

On January 24, 2010, Appellee attempted to again convince PGW that the job at CGA did not trigger the restrictive covenant, but PGW declined to change its position. PGW also refused to tender the bench compensation payments required by the September 29, 2008 contract and informed Appellee that due to the separation agreement and release, that it was not obligated to make any payments despite its decision to enforce the September 29, 2008 restrictive covenant.

In the complaint, Appellee sought damages, a declaratory judgment that the September 29, 2008 restrictive covenant was unenforceable, and an injunction preventing its enforcement. A hearing on the injunction request was held on April 22, 2010. Appellee testified as follows. He joined PPG Industries in 1976, after graduating from college with a degree in accounting. In 2002, he became general manager of PPG's OEM glass business. OEM is an industry designation for when a supplier provides a product or component directly to the motor vehicle manufacturer, and when Appellee assumed that position, he retained his previous responsibility over the segment of PPG involved in flat glass automotive products and also assumed OEM general management. As noted in the complaint, in connection with that advancement, Appellee executed the August 12, 2002 employment agreement, which contained a non-disclosure agreement and the non-compete provision, which was enforced through the payment of bench compensation. The business unit in question produced and sold primarily glass products for the automotive industry, including windshields, sunroofs, and rear and side windows.

In 2008, due to prevailing economic conditions, there was a significant reduction in the demand for automobiles. PPG decided to leave the automotive glass business, and Kohlberg, a private equity firm, was the successful buyer. In September 2008, PGW was created, and PGW was owned approximately forty percent by PPG and sixty percent by entities owned by Kohlberg. In connection with the Kohlberg transaction, Appellee executed the September 29, 2008 employee agreement. Appellee...