situation — where the employer is willing to keep the employee who
is entitled to certain benefits by virtue of his employment, but the
employee, by his or her own choice, elects to change employers and
thereby to forfeit entitlement to those benefits.
The few reported cases where the doctrine has been applied demonstrate
its limited scope. For example, in Kristt — the case in which the
doctrine was announced — a former employee of defendant Haire
Publishing Company who voluntarily sought employment with a competitor
corporation was found to have forfeited his right to income from a
corporate trust that was explicitly conditioned on non-competition.
Kristt, 4 A.D.2d 195, 198, 164 N.Y.S.2d 239. And in the aforementioned
Martson case, the plaintiff-employee forfeited the proceeds from the sale
of his stock awarded to him under the Plan by quitting his job at IBM and
immediately going to work for a direct competitor.*fn2 Neither of these
employees was fired by the employer imposing the restrictions; both would
have been welcome to remain in their jobs.
By contrast, when an employer has not been willing to retain an
employee, it has been held that the employer cannot force a forfeiture of
benefits when it would be unreasonable to enforce a covenant not to
compete. In Post itself, the court held that Merrill Lynch could not
invoke a forfeiture-for-competition provision in its pension plan where
the plaintiffs — two former brokers who had been fired — went
to work for Bache Securities, a direct competitor. Post, 48 N.Y.2d 84,
89, 421 N.Y.S.2d 847, 397 N.E.2d 358. And in Murphy v. Gutfreund,
583 F. Supp. 957 (S.D.N.Y. 1984) — which arose in the somewhat
different setting of a partnership rather than an employment relationship
— a former managing partner of Salomon Brothers raised a triable
issue as to the reasonableness of a non-competition clause precisely
because he had been "encouraged" by his partners to relocate to Merrill
Lynch (a Salomon competitor) — i.e., he had, in effect, been
involuntarily terminated. Murphy, 583 F. Supp. at 965, dismissed on other
grounds, 624 F. Supp. 44 (S.D.N.Y. 1985).
Here it would be inappropriate to award IBM judgment on the pleadings
dismissing Lucente's claims. I must, of course, construe the pleadings
most favorably to Lucente, and may not dismiss unless it is clear that he
could not recover on any new of the facts. F.R.C.P. 12(c). See 5A
Charles A. Wright & Arthur R. Miller, Fed. Practice and Proc. §
1367. There is nothing in the pleadings to suggest that IBM would have
reemployed Lucente in 1993, when he had the opportunity to leave Northern
Telecom and move to Digital. Moreover, one could fairly infer from some
of the information contained in the pleadings — the extremely
generous payment made to Lucente at the time of his separation, for
example, and fact that he was granted permission for him to work with an
IBM competitor despite the company's strong "golden handcuffs"
arrangements — that Lucente's "retirement," like plaintiffs in
Murphy, was a polite word for his "termination." Material outside the
pleadings offered by Lucente — which I am not inclined to ignore,
although I do not need to consider it in order to deny IBM's motion*fn3
— confirms this inference, and suggests even more directly that IBM
did in fact
fire plaintiff in 1991. Involuntary "retirement" would of course preclude
the application of the employee choice doctrine and trigger all of the
customary requirements that the two forfeiture for competition clauses be
reasonable in time, place and scope.*fn4
Thus, on this record, the applicability of the employee choice doctrine
— and with it IBM's ability to avoid examination of the
reasonableness of its perpetual forfeiture for competition clauses
— is very much up in the air. IBM's motion for judgment on the
pleadings dismissing Lucente's claims is denied.
3. Forfeiture of the Severance Payment
IBM's motion for judgment on the pleadings awarding it judgment on its
counterclaim for return of the $675,000 payment is denied for a very
simple reason: nowhere in the 1991 separation letter agreement is that
payment explicitly conditioned on Lucente's perpetual forbearance not to
compete (except as an employee of Northern Telecom). The letter does
quite clearly state, however, that the stock options and restricted stock
payable to him under the two executive compensation plans continue to be
subject to the forfeiture for competition provisions of those plans.
Thus, the lack of any language conditioning receipt and retention of the
severance payment on Lucente's forbearance from competition is all the
more striking. It is far from apparent to this Court that Lucente
received the $675,000 as consideration for a perpetual covenant not to
compete. Indeed, the two provisions (payment of the $675,000 and covenant
not to compete) appear in different paragraphs of the 1991 letter
agreement. The document's silence on this critical point bars entry of
judgment in IBM's favor at this point.
4. Money Due From Lucente Under the Tax Reconciliation Plan
At oral argument, Lucente's counsel conceded that his client owed IBM
slightly in excess of $40,000 under the tax reconciliation accounting
system applicable to employees stationed overseas. IBM shall have
judgment on its counterclaim in the amount of $40,790.14, plus interest
from the date the amount should have been paid (which date is not
apparent from the record).
5. Scheduling Order
The parties are directed to proceed with discovery in accordance with
the attached civil case management order.
This constitutes the decision and order of the Court.