Simmons v. Hitt

Decision Date27 February 1976
Citation546 S.W.2d 587
PartiesEarl SIMMONS et al., Plaintiffs-Appellees, v. Billy HITT et al., Defendants-Appellants.
CourtTennessee Court of Appeals

Charles W. Bone, Goodall & Bone, Gallattin, for plaintiffs-appellees.

F. Clay Bailey, Jr., Dearborn & Ewing, Nashville, for defendants-appellants.

OPINION

SHRIVER, Judge.

This suit involves a non-contributory profit sharing pension plan and the right of the plaintiffs to recover contributions made by the employer for their benefit and, particularly, a provision of such plan whereby it is provided that an employee leaving the employment of the employer and entering into direct competition with the employer forfeits his benefits under the plan.

The case came on for hearing on February 13, 1975 before Chancellor C. Allen High, without the intervention of a jury, on the pleadings, exhibits, testimony of witnesses in open court and the entire record and resulted in a Memorandum Opinion, implemented by a Final Decree in favor of the plaintiffs, awarding judgment for the plaintiff Earl Simmons in the amount of $6,323.05; a judgment in favor of Gene Pike for a total of $6,035.90; and a judgment in favor of plaintiff Joe Smith for a total of $3.759.68, from which judgment and decree the defendants have appealed and have assigned errors.

The Proceedings Below

The original complaint herein was filed on May 17, 1973 and, in pertinent part, alleges that plaintiff Earl Simmons became an employee of B. Hitt Electric Company in May 1958 and continued as such employee until June 1972, and was a participant in the profit sharing plan in question here. It is further averred that plaintiff Joe Smith became an employee of B. Hitt Electric Company in April 1956 and continued until 1961 when he left the employment for a brief three month period, returning at the request of defendant Billy Hitt and, after said return, Joe Smith continued as an employee until July 1972. He also was a participant in the profit sharing plan. It is further alleged that plaintiff Gene Pike became an employee of B. Hitt Electric Company and the Jim Hitt Electric Company on the 14th day of November, 1965, and continued as such employee until his retirement on the 2nd day of May, 1971, and was a participant in the profit sharing plan in question.

It is averred that Billy Hitt, James R. Hitt and Maxine C. Hitt are defendants in their capacity as Trustees of the B. Hitt Electric Company Profit Sharing Plan.

Certain provisions of the said profit sharing plan are alluded to and discussed in the bill of complaint and it is alleged that, by letter dated April 17, 1973, the individual plaintiffs were notified by defendant Billy Hitt, as Chairman of the Administrative Committee of the B. Hitt Electric Company Profit Sharing Plan, that their benefits which had previously accrued were being revoked because of a term in the profit sharing plan providing that the right to receive such benefits would be terminated if the participant entered the employment of a competitor.

(The Chancellor found that the foregoing allegations were sustained by the record and we concur.)

It is alleged that the foregoing provisions terminating the benefits of a participant who entered into a competitive business amounts to an unlawful and unjust restraint from engaging in a lawful profession, trade or business, and, therefore, plaintiffs seek the judicial declaration of the Court that said provisions violate public policy and are void.

Certain allegations as to mismanagement of the fund were made but are no longer insisted on.

It is further alleged that the terms and conditions of the profit sharing plan were never fully explained to the plaintiffs and that this was a violation of their rights and a violation of the duties of the Trustees of the fund.

The prayers of the bill are:

(1) For process;

(2) For a decree declaring that the attempted revocation of the benefits of plaintiffs in the plan is void as against public policy;

(3) For an accounting of the fund by the Trustees (4) That the profit sharing plan be abolished and the individual plaintiffs be allowed to receive immediately all of their accrued benefits under the plain, or, in the alternative, that the Court appoint independent and responsible Trustees or a receiver for said trust funds to manage same in accordance with the guidelines of the Court.

(5) For recovery of attorneys' fees and the costs of this cause.

Counsel for the appellants state that the parties have agreed and that the allegation of mismanagement of the fund is not an issue and have stipulated the respective financial interests of the plaintiffs in the plan at the time they left the employment of the Electric Company.

Defendants in their Answer deny that the forfeiture provisions of the plan are invalid or in restraint of trade and violative of public policy, saying that the plaintiffs made no contribution to the plan and that each plaintiff contacted customers of the defendants immediately prior to leaving defendants' employment and that plaintiffs, upon leaving, immediately commenced doing work for these customers, hence, that the plaintiffs were in direct violation of the provisions of the agreement against entering into direct competition with the defendant employers, the penalty for such conduct being the loss of benefits under the plan.

Chancellor's Memorandum

The Chancellor in his Memorandum Opinion found:

That the Profit Sharing Plan was established December 31, 1958; employees to begin receiving benefits thereunder when they reached age fifty; if discharged for dishonesty or disloyalty he forfeited the entire amount in his account; that at the end of each year Participants would have a vested non-profitable interest in five percent of the amount in his account; that the Plan provided that no amendment '(c) shall reduce the interest of a Participant in the trust property as of the time of his right to enjoy such interest without written consent of the Participant.'; that on December 28th the Plan was rewritten changing the forfeiture provisions; that by letter of April 17, 1973 plaintiffs were notified that the Plan was being abolished as of the end of 1973 and all benefits revoked as per Section 10.07 of the Plan; that all three plaintiffs were Participants in the Profit Sharing Plan; that all three left their employment with defendants and went into direct competition with their former employer in violation of the forfeiture clause, Section 10.07 of the Amended Plan.

We concur in the foregoing findings of fact by the Chancellor.

Chancellor's Conclusions of Law

'1. A non-contributory pension and profit sharing plan is not a gratuity, but is an offer of additional deferred compensation and the offer is accepted by the employee remaining in the employment of the employer, which is sufficient consideration to support the employer's promise to pay the benefits, and is, therefore, a contract enforceable by the employee.

2. The forfeiture clause added by the 1962 amendment does not apply to any benefits accruing to the plaintiffs under the plan prior to the effective date of the amendment.

3. Forfeitures not being favored those claiming them have the burden of establishing the forfeiture. Therefore, the Court holds that the plaintiffs are entitled to all benefits that accrued prior to the plaintiffs' specific knowledge of the amendment adding the forfeiture clause.'

Subsequent to the filing of the foregoing Memorandum and Findings of Fact by the Chancellor, the parties entered into a Stipulation entitled 'Stipulation in Lieu of Reference to the Master.' Said Stipulation is to the effect that:

Plaintiff Earl Simmons had total benefits accrued in the B. Hitt Electric Company Profit Sharing Plan on December 20, 1969 of $8,087.59, with fifty percent vested, and is entitled to a judgment in the amount of $4,043.80, and had a further balance of $4,558.49, same being fifty percent vested, for a total judgment of $6,323.05 That plaintiff Gene Pike had benefits in the Profit Sharing Plan which entitled him to a judgment of $6,035.90;

That plaintiff Joe Smith is entitled to a judgment of.$3,759.68.

The assignments of error do not question the above stipulated amounts.

Assignments of Error

There are three assignments of error which are as follows

'I. The Chancellor erred in holding that the forfeiture provision of the B. Hitt Profit Sharing Plan was applicable to the plaintiffs, former employees, only upon their having specific knowledge thereof, where they had knowledge of the Plan, which they were told was at all times available for them to read and they failed to do so.

II. The Chancellor erred in holding that a profit sharing plan was an implied compensation...

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    ...Hunley v. Hunley, App. No. 88-206-II, slip op. at 7, 13 T.A.M. 52-4, 3 T.F.L.L. 3-20, (Tenn.Ct.App. Nov. 23, 1988); Simmons v. Hitt, 546 S.W.2d 587, 592 (Tenn.Ct.App.1976). Accordingly, an overwhelming majority of state courts now treat pension rights as marital property. Grace G. Blumberg,......
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