Petition for Writ of Certiorari — Wright v. AMF Corp.

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Supreme Court, U.S.

ot ks es

94 289 AUG - 9 1994

OFFICE OF THE CLERK

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, i993

DONALD W. WRIGHT, JACK W. BELL, KENNETH A.

BRAUN, HILDEGARDE E. CUTTS, J. E. DUNN,

and RALPH STROHMAIER, Petitioners,

Vv.

‘AMF CORPORATION and AMF VOIT, INC.,

Respondents.

PETITION FOR WRIT OF CERTIORARI

TO THE SUPREME COURT

OF THE STATE OF CALIFORNIA

PETITION FOR WRIT OF CERTIORARI

FRED J. KNEZ

Counsel of Record

8308 Magnolia Avenue

Riverside, CA 92804

909/343-1787

QUESTIONS PRESENTED FOR REVIEW

1. In distinguishing severance pay

from vacation pay in Massachusetts v.

Morash, 490 U.S. 107 (1989), did this

Honorable Court determine that every

promise by every employer to pay severance

benefits upon termination of employment

constituted a welfare benefit plan under

the Employee Retirement Income Security

Act of 1974 (29 U.S.C. Section 1 Sec.)

("ERISA"}?

2. Is a severance pay policy of a

California employer a welfare benefit plan

under ERISA if it provides for a one-time

lump sum payment triggered by a single

event which requires no administrative

scheme, is payable on a regular basis from

the general assets of the employer and is

calculated on the basis of longevity of

employment?

3. If an employer maintains a

written severance policy in which the

employer promises to pay 4 termination

allowance based on longevity of employment

upon separation at company convenience and

that policy is later determined to be a

welfare benefit plan under ERISA, can the

employer defeat performance of its

severance pay promise by claiming a right

under ERISA to modify the “plan” at any

time, even at the time performance is due?

4. If an employer maintains a

severance pay policy providing severance

pay upon separation at company convenience

and the policy constitutes a welfare

benefit plan under ERISA, is the employer

obligated to pay severance pay to

employees who are offered employment by

the company purchasing the assets of the

employer if the purchaser has no severance

pay policy, has not assumed the obligation

to pay under the policy upon subsequent

termination and, after the acquisition,

relocates its facilities out of California

and terminates the employees?

iii

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW ....i-iii

TABLE OF CONTENTS ....-+---eee- ceocccece iv

TABLE OF AUTHORITIES ....ceeeeeeesccess Vv

GROUNDS FOR REVIEW BY THIS

HONORABLE COURT....--eeeececccceces 1

SUMMARY OF THE CASE ....-cceececcceees 4

ARGUMENT ...cccccccccccccvescsccesecece 9

GRANTED ..cccccccccereceveseccce 9

B. COURT'S DECISION IN MORASH DID

NOT EXTEND ERISA TO EVERY

SEVERANCE PAY PROMISE BY EVERY

EMPLOYER IN AMERICA ......+.2--- 13

C. AMF SEVERANCE POLICY WAS NOT A

PLAN UNDER ERISA AND PETITIONERS

WERE ENTITLED TO THE SAME BENEFITS

OTHER EMPLOYEES RECEIVED FROM AMF

ON AUGUST 1, 1984 .cccccccccces 20

CPC RREEEE Ss ee tke we 66s *6 OS 404 OHO 48 42

APPENDIX

A. Wright, et al. v. AMF Corporation,

OF DD «geo 6.0.0:4 % 6 6a dee Oh lee 0 «46'S © 43

B. 29. U.8.C.., Section. 1002(1)..2s- 62

29 UsB.C., Gestion 1002(3)..... 63

29 U.S.C., Section 1144(a).. 63-64

C. Labor Code Section 201 ..... 64-65

Chanin wv. Paireniid. ef ai...c. 65

B AUTHOR

C S:

Adams v. Jersey Central Power

36 New Jersey, 53, 71,

114 Atlantic 2d 776 ...--+eeee:

Allen v. Adage, Inc. (1st Cir.1992)

967 F.2d 695, 702 «eee. eecese °

Bowers v. Bernards

(1984) 150 Cal. App. 3d 870,

OBT9ZCRTE cocesetcesceseoses Sdeewete

Chapin v. Fairchild Camera and

Instrument Corp. (1933)

31 Cal. App. 3d 192,

107 Cal. Rptr. 111 .-ccc- Fe. Eee

Firestone Tire and Rubber Company _

v. Bruch (1989)

EGS Use BGR, SEO Cee ececceesece

Fort Halifax Packing Company,

Inc. v. Coyne

482 0.8. 3. 429087) cecccsos Da Be

Massachusetts v. Morash

490 U.S. 107 (1989) ... a ae F

id, 24>

46; 3f:

STATUTES:

28 U.S.C., Section 1254(1) ...--+-+-++--

29 U.S.C., Section 1 ..---eseeeeeeees

29 U.S.C., Section 1002 (1)

29 U.S.C., Section 1002(3)

29 U.S.C., Section 1144(a)

coccccccd,

(ERISA)...

IN THE

SUPREME CO . OF THE UNITED STATES

October Term, 1993

DONALD W. WRIGHT, JACK W. BELL, KENNETH A.

BRAUN, HILDEGARDE E. CUTTS, J. E. DUNN,

and MARILYN STROHMAIER, Petitioners,

Vv.

AMF CORPORATION and AMF VOIT, INC.,

Respondents.

PETITION FOR WRIT OF CERTIORARI

TO THE SUPREME COURT OF

THE STATE OF CALIFORNIA

GROUNDS FOR REVIEW BY THIS HONORABLE COURT

Petitioners are former employees of

Respondent AMF Voit, Inc., who were denied

Severance pay benefits when they were

separated from their employment upon the

t nila |

sale of the company by the parent

corporation, Respondent AMF Voit

Corporation, to Reltron Corporation, a New

York corporation. Petitioners were

members of a group who were selected by

Reltron for continued employment but were

then subsequently terminated once Reltron

relocated the business out of California

following the purchase.

Petitioners seek review of the

decision of the Court of Appeal of the

State of California, Fourth Appellate

District, Division III filed in this

action on February 23, 1994, affirming the

Judgment of the trial court in favor of

Respondents. The Decision of the Court of

Appeal is set forth hereinbelow as

Appendix A, pages 43-60. The California

I EF SERD rR — Smee ee ee ee om

Supreme Court denied review on May 12,

1994.

Review by this Honorable Court is

necessary and proper under Rule 10(c) of

the Rules of the Supreme Court of the

United States in that the decision of the

Court of Appeal is not consistent with

this Court's decisions in Massachusetts v.

Morash, 190 U.S. 107 (1989) and Fort

Halifax Packing Company, Inc. v. Coyne,

482 U.S. 1 (1987). Review is necessary

and proper as this Petition presents

important Federal questions affecting

rights and interests of employees

throughout the United States who have been

promised severance pay upon their

termination of employment based upon

length of service and are unaware that

this Court's decision in Morash, Supra,

will be construed arbitrarily to defeat

their claim for severance pay benefits

under ERISA.

This Court has jurisdiction to review

the aforesaid judgment under 28 U.S.C.,

Section 1254(1), and in particular,

jurisdiction over Federal questions

concerning the following provisions of

ERISA: 29 U.S.C., Section 1002(1); 29

U.S.C., Section 1002(3) and 29 U.S.C.,

Section 1144(a) of ERISA. [See Appendix

SUMMARY OF CASE

Since at least 1971, Respondent AMF

Corporation maintained Corporate Policy 3-

17 entitled "Termination Allowance" which

provided for the payment of severance pay

to salaried employees separated at company

convenience through reduction of work

load, reorganization, or relocation of

facilities. The amount of the severance

pay benefits paid under the Policy was

based upon longevity of service (one and

one-half weeks' wages for each year of

service with the company).

On July 6, 1984 AMF Corporation

entered into an agreement for the sale of

the assets of its subsidiary AMF Voit,

Inc., to Reltron Corporation, a New York

corporation, effective August l, 1984.

Thereafter, and prior to August 1, 1984,

Reltron selected some of the employees of

AMF Voit for employment upon acquisition.

However, Reltron did not assume the

obligation to pay severance pay to those

employees of AMF Voit who were offered

employment with Reltron. Reltron had no

severance pay policy of its own. On

August 1, 1984 officers of AMF Corporation

appeared at the AMF Voit facility in Buena

Park, California, and divided the

employees of AMF Voit into two groups.

Group 1 consisted of employees of AMF voit

who had not been selected by Reltron for

employment after the acquisition. Group

2 consisted of the petitioners and

plaintiffs below. Separate meetings were

held with each group. Group 1 employees

were presented with a "AMF Voit, Inc.

General Statement" which informed that

they were not being offered employment

with Reltron and would be provided one and

one-half wee .s' severance pay for each

year of service as well as employee

benefit continuation for a period of three

months. The Group 2 employees

(petitioners) were told that they were

going to work for Reltron; that they had

no choice in the matter; that they would

not receive severance pay and if they did

not go to work for _ Reltron, their

termination would be treated as a

voluntary termination and they would not

receive severance pay or unemployment

benefits.

After the acquisition, and over a

period of several months, Reltron then

transferred the warehousing operation of

AMF Voit to Nevada and the administration

function of the business to New York. As

this transition and transfer process

occurred, petitioners were terminated.’

Meanwhile, petitioners brought suit in

State Court in California for violation of

California Labor Code §201. Based on the

case of Chapin v. Fairchild Camera and

ns m orp. (1993) 31 Cal. App. 3d

192, 107 Cal. Rptr. 111, petitioners

alleged that the sale of AMF Voit to

Reltron constituted a termination of their

employment and entitled them to severance

pay under AMF Corporate Policy 3-17. [See

lReltron paid some severance pay benefit to

some of the petitioners at the time of

their termination from Reltron but the

amount paid by Reltron was substantially

less than what petitioners would have

received if they had not been forced to

work for Reltron during the aforesaid

transition.

Appendix C}

After petitioners commenced suit,

respondents demurred to the State action

on the grounds that petitioners' claim for

severance benefits was preempted under

ERISA. It is undisputed in the case that

neither petitioners or respondents

considered AMF Corporate Policy 3-17 to be

a plan under ERISA during petitioners’

employment for AMF Voit, Inc.

Nevertheless, the Court of Appeal of the

State of California determined that AMF

Corporate Policy 3-17 constituted a "plan"

under ERISA and subsequently affirmed the

judgment of the trial court that under

ERISA AMF could modify its plan at any

time and that the "AMF Voit, Inc., General

Statement" of August 1, 1984 (date of

termination) constituted an enforceable

modification of the plan, denying

severance pay benefits to petitioners.

memppmecr n——™

ARGUMENT

A. REASONS WHY WRIT SHOULD BE GRANTED

The circumstances giving rise to the

denial of severance pay benefits to

petitioners is simply not consistent with

the intent and purpose of ERISA or the

Court's decisions in Morash or Fort

Halifax, supra. When a severance pay

benefit is not part of a defined plan

under ERISA, employees (like petitioners

herein) and employers (like respondents

herein) are not aware that the employers'

promise to pay severance pay benefits may

be governed by ERISA. The primary purpose

of Congress in enacting ERISA was to

protect employees from mismanagement of

funds accumulated to finance employee

benefits and the failure of employers to

pay employee benefits from accumulated

funds. The arbitrary application of ERISA

to all promises to pay severance pay by

all employers goes beyond the scope and

purpose of ERISA and unreasonably intrudes

into the State's power to regulate the

employment relationship. Where the

severance pay benefit is clearly defined

as a part of an established plan under

ERISA, the recipients are afforded

important protection under the disclosure

requirements of ERISA to insure that the

recipients know exactly where they stand

with respect to eligibility for benefits

under the plan. Where the severance pay

benefit is first defined as a plan under

ERISA after termination has occurred (or

after suit has commenced as in the instant

case), the "plan" participants have been

denied the benefits of the disclosure

requirements under ERISA and yet, the

employer is able to assert ERISA as a

sword to defeat the application of State

law and the reasonable expectations of

ee ee ne oe

A NN

employees. ERISA does not specify when a

promise by an employer to pay severance

pay constitutes a plan under ERISA. It

does not define what constitutes a

"severance" or "termination" for purposes

of eligibility for severance pay benefits.

Under California law, if the assets of the

employer are acquired by a company which

does not provide the same severance pay

benefit and does not undertake to

discharge the seller's obligation of

Severance pay under the terms of the

acquisition agreement, the employer is

obligated to pay severance pay benefits

under its policy even to those employees

who are offered employment by the

purchaser. See Chapin v. Fairchild Camera

Instrument Corp. (1973) 31 Cal. App. 3d

192, 107 Cal. Rptr. 111. The decision in

Chapin, supra, is a well reasoned

decision. It protects the reasonable

| expectations of the employee and

recognizes the reality that the sale of

the assets of an employer terminates the

employment relationship such that when the

subsequent termination of employment with

the purchaser occurs, the employee will be

denied the very benefit which the employee

would have received but for the

acquisition. The foregoing concerns,

affect every employee in the United States

who has been promised severance pay

benefits by his or her employer to entice

them to come to work for the employer, or

to continue in their employment or to

forego other employment opportunities.

Therefore, this court needs to clarify the

scope of ERISA's application to promises

by employers to pay severance pay upon

termination of employment.

eee Ce ae

B. COURT'S DECISION IN MORASH DID NOT

EXTEND ERISA TO EVERY SEVERANCE PAY

PROMISE BY EVERY EMPLOYER IN AMERICA.

Petitioners asked the Court of

Appeal to first determine whether every

promise to pay severance benefits by every

employer constituted a "plan" under ERISA

in light of this Court's decisions in

Massachusetts v. Morash (1989) 490 U.S.

170, 109 S.Ct. 1668 and Fort Halifax

Packing Company, Inc. v. P. Coyne (1987)

4823 U.8. 12, i107: Ses. dae In its

opinion, the Court of Appeal omits

discussion of Fort Halifax Packing

Company, supra, but cites dictum from this

Court's decision in Morash, supra, as

support for its prior decision that

Petitioners' claim is preempted by ERISA.

The Court of Appeal relies upon language

from this Court's decision in Morash

"distinguishing" vacation benefits from

the benefits enumerated in Section 3(1) of

ERISA [29 USC §1002(1)]}. Specifically,

the lower court relied upon the following

language from this Court's decision in

Morash:

"unlike normal severance pay, the

employee's right to compensation for

accrued vacation time is not

contingent upon the termination of

their employment." 490 U.S. at pp.

118-119.

The ratio decidendi of the decision in

Morash turned on whether or not the

benefit was paid from the general assets

of the employer and accumulated over time

only at the election of the employee. 490

Uihen “SR TA8s In fact, this Court

expressly observed that if an employer

created a separate fund to pay employees

vacation benefits, then the benefit would

be subject to ERISA. 490 U.S. 114.

Nowhere in Morash is there any language

indicating that every promise to pay

severance pay by every employer

constitutes a plan under ERISA simply

because promises to pay employees

severance benefits are payable only upon

termination of employment or because

severance pay does not accumulate over a

period of time or because the severance

pay is not payable only upon “the

occurrence of a contingency outside the

control of the employee. Nor is there any

language contained anywhere in Morash to

indicate that all severance pay policies

of all employers lack the characteristics

of vacation pay. Indeed, the

uncontroverted evidence in the instant

case is that the severance pay benefit of

AMF Voit did accumulate over time and was

payable only upon the occurrence of a

contingency outside of the employee's

control. The severance pay benefit under

AMF Corporate Policy 3-17 was expressly

tied to years of service and payment was

triggered upon the occurrence of

contingencies outside the control of

Petitioners, to wit: separation from the

Company (AMF Voit, Inc.) ". .« - at Company

convenience through reduction of work

load, reorganization or relocation of

facilities." Further, the fact that

severance pay is payable only upon

termination of employment whereas vacation

pay is payable prior to termination or at

time of termination, does not mean that

Congress intended that all promises by all

employers to pay severance pay, constitute

plans under ERISA. There is absolutely no

language contained anywhere in the Morash

decision to indicate that the court has

interpreted ERISA as reflecting an intent

by Congress to regulate the entire subject

of severance pay. Nor is there any

language anywhere in ERISA to indicate

that Congress intended to regulate all

severance pay promises by all employers in

America.

The suggestion by the Court of Appeal

herein that this court in Morash, supra,

intended by the above-quoted statement to

say that all severance pay benefits are

governed by ERISA is expressly

contradicted by this Court's decision in

Fort Halifax Packing Co. v. Coyne (1987)

482 U.S. 1, 107 S.Ct. 2211. In that case,

an action was brought to enforce rights

under a Maine statute requiring employers

to make a one-time severance payment to

employees in the event of a plant closing.

The employer sought a defense of

preemption claiming that severance was a

benefit under ERISA and therefore ERISA

preempted state law on severance pay

benefits. This Court held that the Maine

statute was not preempted by ERISA

"because the statute neither establishes,

nor requires an employer to maintain, an

employee welfare benefit plan under the

Federal statute." 42: GB, eat Ge The

Supreme Court's reasoning in Fort Halifax

was:

" | , The requirement of a

one-time, lump sum payment

triggered by a single event

requires no administrative

scheme whatsoever to meet the

employer's obligation .

The theoretical possibility of

a one-time obligation in the

future simply creates no need

for an ongoing administrative

program for processing claims

and paying benefits." 482 US,

at ids

This Court's reasoning in Fort

Halifax is consistent with the £ tio

decidenti of its decision in Morash:

nm) . . It is unlikely that

Congress intended to subject to

ERISA's reporting and disclosure

requirements those vacation

benefits which by their nature

are payable on a regular basis

from the general assets of the

employer and are accumulated

overtime only at the election of

the employee." 490 US, at 116

x zk &®

"In reaching this conclusion,

we emphasize that the case

before us/and the Secretary's

regulations on which we

rely/concern payments by a

single employer out of the

general assets. An entirely

different situation would be

presented if a separate fund had

been created by a group of

employers to guarantee the

payment of vacation benefits to

laborers who regularly shift

their jobs from one employer to

another... .-" 490 US at 120.

Cc. AMF SEVERANCE POLICY WAS NOT A PLAN

UNDER ERISA AND PETITIONERS WERE

ENTITLED TO THE SAME BENEFITS OTHER

EMPLOYEES RECEIVED FROM AMF ON AUGUST

1, 1984.

The uncontroverted evidence in this

case and which the Court of Appeal

acknowledged, is that the severance pay

benefits paid to employees of AMF Voit

were paid from the general assets of the

corporation and the amount of the

severance pay benefits accumulated over

time. The longer an employee of AMF Voit

was employed for the company, the large

his severance pay benefits under Policy 3-

17. Thus, the severance pay benefit in

the instant case was a form of incentive

or bonus program, accumulated over time

and payable from the general assets of the

employer. Therefore, it was not a plan

under ERISA.

AMF Corporate Policy 3-17 was

not part of any defined plan under ERISA

and neither Petitioners or Respondents

were even aware of the possible

application of ERISA until after suit

commenced in this case. Since at least

1971, AMF Corporate Policy 3-17 provided:

Any salaried employee is

eligible for -a termination

allowance if he is separated at

company convenience through

reduction of work load,

reorganization or relocation of

facilities, unless he (1) is a

member of a bargaining unit; (2)

has an employment contract

specifying otherwise; (3) was

hired with a written

understanding that the job was

for a temporary period; (4) has

reached the normal age of

retirement.

There was no exception stated

anywhere in Policy Memorandum 3-17 other

than the exceptions enumerated above and

in particular, no exception for employees

who were separated at company convenience

but offered employment by the purchaser of

the assets of the company. Since

Corporate Policy 3-17 was not part of a

plan under ERISA, Petitioners were not

afforded the protection of ERISA'S

disclosure requirements which were

intended to insure that the individual

participant of a plan "knows exactly where

he stands with respect to the plan."

Firestone Tire and Rubber Company v. Bruch

(1989) 489 US 101, 118, citing H.R. Rep.

No. 93-553, page 11 (1973), US Code

Congressional Administrative News 1978,

page 4649. Thus, up until the time of

Petitioners' termination on August 1,

1984, the only writing generated by

Respondents concerning the terms and

conditions for eligibility of severance

pay benefits under Policy 3-17 was the

Corporate Policy Memorandum 3-17. On

August 1, 1984, officers of Respondent AMF

Voit Corporation (the parent corporation)

appeared at the facility of the

employer/subsidiary AMF Yoit, .Ine«;,

Buena Park, California, and divided the

employees of the company into two groups.

Group 1 consisted of employees of AMF Voit

who had not been’ selected by the

purchaser, Reltron, for employment after

the acquisition. Group 2 consisted of the

Plaintiffs in the instant case. Separate

meetings were held with each group. Group

1 employees were presented with a "AMF

Voit, Inc., General Statement" which

informed that these employees were not

being offered employment with Reltron and

that AMF would provide one and one-half

weeks' severance pay for each year of

service, as well as employee benefit

continuation for a period of three months,

or for the period of severance, whichever

was longer. Petitioner Donald W. Wright

testified at trial that in the meeting

with the Group 2 employees

(Plaintiffs/Petitioners), these employees

were told:

"Those of you in this room are

going to work for Reltron. You

do not have a choice. Reltron

is going to be your employer.

There will be additional work

ioawe€, e424 4473 On 8.2

responsibilities there (will) be

fewer of you going to work for

Reltron than there was working

at AMF Voit, Inc." [R.T. p 52,

lns 4-10]

Petitioners were told that if they

did not go to work for Reltron, the

separation would be considered a voluntary

termination and they would not receive

severance pay or unemployment

compensation. They were not offered

alternative employment positions with AMF

or any of its other subsidiary

corporations. The AMF Voit, Inc., General

Statement published at the time of the

termination on August 1, 1984 also stated:

"AMF will provide severance and

benefit continuance for all

those employees being terminated

who do not have a job with

Reltron. Some employees will be

requested to stay on to conclude

the activities of AMF Voit and

others will be severed now."

(Emphasis added)

Some employees in Group 1 received

severance pay benefits under Policy 3-17

and then subsequently were hired by

Reltron. At trial, Petitioners produced

evidence to show that Plaintiffs' role was

simply to facilitate the transition of AMF

Voit business into Reltron. Reltron was

not a manufacturing concern like AMF:

"They purchased everthing that they did

and imported it and sold it on a retail

level." (SR... pte «ee lIns 17-18)

Following the acquisition by Reltron, the

employments of the Group 2 employees

(Plaintiffs) terminated as Reltron merged

———————————

the administration aspect of the AMF Voit

business into its administrative operation

in New York and transferred the

warehousing operation to Nevada. At

trial, Petitioner Kenneth A. Braun

testified regarding his employment

experience at Reltron. At the time of the

sale in August 1984, Mr. Braun was in

charge of the machine shop operation at

the Buena Park facility of AMF Voit. His

job then involved supervision of all the

tooling that was required to manufacture

sporting goods equipment at AMF voit and

supervise both salaried and union

employees. [R.T. p 164, l1ns 24-26 & p

165, lns 1-10] Petitioner Braun testified

that his job at Reltron was "not even

close" to the job he had at AMF Voit.

After the acquisition, Reltron put

Petitioner Braun in charge of disposition

of tooling and racking and inventory and

office supplies and desks and chairs and

then eventually sweeping the floor and

locking the door as the facility was

closed.

At the time of the acquisition,

Reltron did not have a 4 severance pay

policy much less a policy comparable to

AMF Voit, Inc. Moreover, Reltron did not

assume the obligation to pay severance pay

benefits to Group 2 employees when their

employment with Reltron did terminate

following the merger of the business and

transfer of the operations to New York and

Nevada. Some of the Plaintiffs did

receive a partial severance payment from

Reltron when they were subsequently

terminated by Reltron. However, others

aid not receive any severance benefit when

they terminated their employment in

anticipation of termination by Reltron

with the understanding that there was no

‘

—_—_—_——————— rr

severance pay policy offered by Reltron.

In Chapin v. Fairchild Camera and

Instrument Corporation (1973) 31 Cal. App.

3a 192, 107 Cal. Rptr. 111, the court held

that severance pay is a form of

accumulated compensation for past services

and a material recognition of their past

value. In Chapin, Fairchild Corporation

sold substantially all of its assets of

one of its subsidiaries, Memory Products,

to Core Memories, Inc. (Core). In the

negotiations, Core expressed the desire to

retain all of the employees of Memory

Products and employ them in identical jobs

with continuing seniority rights and

similar but not identical fringe benefits.

However, there was no provision for

severance pay in the asset purchase

agreement. All but one of the employees

of Fairchild-Memory Products transferred

to Core. Subsequently, Core terminated

approximately half of the former Fairchild

employees and paid severance benefits to

them. However, these severance pay

benefits were not equal to the amounts

that would have been payable to them

pursuant to the Fairchild severance pay

policy. These employees then brought suit

against Fairchild claiming that they were

entitled to receive the severance pay due

and owing to them by Fairchild at the time

of the sale of Memory Products to Core.

The trial court found that the plaintiffs

had been given the option by Fairchild at

the time of the sale of obtaining

severance pay from Fairchild if they did

not wish to become employed by Core or

going to work for Core. The trial court

found that the acceptance of employment

with Core by the plaintiffs was done with

full knowledge, freely and willingly. The

trial court therefore concluded that the

plaintiffs had waived any rights pursuant

to the agreement with Fairchild and that

acceptance of employment with Core

constituted a novation and substitution of

Core's terms of employment for those at

Fairchild. The Court of Appeal reversed.

The court held that severance pay benefits

are wages due and payable at the time of

termination. Fairchild argued, however,

that the plaintiffs suffered little, if

any, immediate economic loss as they

remained in continuous employment with

their seniority rights and at the same

rate of pay. The court in Chapin rejected

the arguments saying:

"This argument involves’ the

proposition that events

occurring subsequent to the

layoff are the important factors

in the determination of whether

the plaintiffs are entitled to

—

pe a a

separation pay- This is not

true. As pointed out in Adams

v. Jersey Central Power and

Light Co., 36 New Jersey, supra,

$3, 71, 434 Atlantic 2d 776,

affirmed, 21 New Jersey 8, 120

Atlantic 2d 737, unemployment is

not a prerequisite to the right

to severance pay which may, and

frequently does, exist where

there is no interruption

whatever in the continuity of

employment. Separation pay is

not analogous to nor is it a

form of unemployment

compensation. Rather, it is a

kind of accumulated compensation

for past services and a material

recognition of their past value.

It concerns the past, not the

future. And once it is earned,

it becomes payable no matter

what may thereafter happen."

(31 Cal. App. 3d, at 198-199]

The court in Chapin made clear that

the sale of Memory Products by Fairchild

to core constituted a permanent release of

the employees, thereby giving rise to the

obligation to pay the severance pay. In

Chapin, the court attached particular

importance to the fact that the employees

were hired by the purchaser (Core) under

substantially different terms that did not

include a severance pay policy of the same

duration and did not include an

undertaking by Core to discharge

Fairchild's severance pay obligation.

In the instant case, Petitioners were

not given a choice as to whether to go to

work for Reltron or receive severance pay.

Petitioners were told they had to go to

work for Reltron and that if they did not,

their termination from AMF Voit would be

deemed a voluntary termination and they

would not receive severance pay oF

unemployment compensation. Like Chapin,

there was a substantial difference in

employment benefits in that Reltron did

not offer a severance pay policy. Like

Chapin, there was no assumption of the

severance pay obligation by Reltron.

Unlike Chapin, there was substantial

aifferences in the employment. While it

is true that Plaintiffs continued at their

same salary rate and same job titles, the

nature and conditions of their employment

changed dramatically as evidenced by the

change in the employment of Petitioner

Braun. Finally, unlike Chapin, in the

instant case Petitioners' employment was

short-lived. Petitioners ' employment

‘Terminated as the process of concluding

the activities of AMF Voit in California

progressed to the complete transfer of

both the administrative and warehousing

operations out of State.

The Court of Appeal affirmed the

trial court's determination that

Petitioners were not "separated" by the

sale of AMF Voit to Reltron and that the

intended purpose of Policy 3-17 was to

provide ". . . a buffer against the

privations which so often attend

unforeseen layoff," citing Allen v. Adage,

Inc. (lst Cir. 1992) 967 F.2d 695, 702.

The Court of Appeal, however, omits any

discussion of the California rule under

Chapin, supra, or Petitioners' evidence

regarding the differences between the

employment at AMF Voit and the employment

at Reltron. Moreover, the Court of Appeal

does not address the fact that

Petitioners’ employment was short-lived

and lasted only as long as it took for

—— ———

Reltron to transfer its warehousing to

Nevada and its administrative operation to

New York. Instead, the Court of Appeal

simply says that its task was to uphold

the judgment of the trial court if

supported by "any credible evidence,

notwithstanding the existence of evidence

to the contrary." The Court of Appeal

cited as authority for this proposition,

Bowers v. Bernards (1984) 150 Cal. App. 3d

870, 873-874. However, the court in

Bowers, Clearly states that there must be

"substantial evidence" which is not simply

defined as “any credible evidence" but

rather evidence "of propounderable legal

significance, reasonable in nature,

credible, and of solid value." [Ibid] In

the instance case, the judgment was not

supported by substantial evidence. Policy

3-17 contained no language which would

deny Petitioners severance pay upon the

termination of their employment from AMF

Voit. Respondents' argument that the "AMF

Voit, Inc., General Statement" constituted

a modification of Policy 3-17 was not

credible and indeed, was inconsistent with

Respondents' contention that Policy 3-17

was unambiguous and did not afford

severance pay benefits to Plaintiffs.

Policy Memorandum 3-17 sets forth the

corporate policy on termination allowance

on a preprinted corporate policy form.

The "General Statement" was not set forth

on AMF Corporate Policy Form and could

only be fairly construed as a last minute

"bulletin" of what AMF Corporate intended

to do. Finally, the judgment was not

supported by substantial evidence

consistent with the reasonable

expectations of Plaintiffs/Petitioners.

In fact, the Court of Appeal decision did

not even attempt to ascertain whether the

judgment was supported by substantial

evidence consistent with the Plaintiffs'

reasonable expections even though the

Court of Appeal acknowledged that a de

novo review was appropriate. Clearly,

there was a lack of substantial evidence

to support the trial court's judgment

regarding the reasonable expections of

Plaintiffs given that the uncontraverted

evidence at trial was that none of the

Plaintiffs were ever told that they would

not receive severance pay if the assets of

the company were sold and they were

offered employment by the purchaser. In

fact, the evidence received by the trial

court on this issue and as outlined in the

Opening Brief of Petitioners to the Court

of Appeal, was the testimony of

Petitioners and in particular, Plaintiff

Jane Heintz who was the Human Resources

Adnministrator for AMF Voit. Mrs. Heintz

testified at trial that she was required

to explain the severance policy to

employees of the company and relied upon

Corporate Policy 3-17 to do so. She also

testified that she paid severance pay

benefits and/or processed the paperwork to

effectuate a payment of severance pay

benefits to employees while employed for

the company. [R.T. pp 56-57] Mrs. Heintz

testified categorically that the General

“Statement of August 1, 1984 was not the

severance pay policy of AMF Voit. (R.T.

pp 62-63] She further testified that

while employed as the Human Resources

Administrator for AMF Voit, she received

no prior communications or consultation at

all regarding what would happen to

employees of AMF Voit upon the sale of the

company to Reltron. Further, Petitioner

Donald Wright was Distribution Manage for

AMF Voit and employed for the company for

a little over nine years. [R-.T P 36) Mr.

Wright testified that at the meeting of

August 1, 1984, AMF Corporate Officers did

not tell Plaintiffs that there was no

severance Policy 3-17 and did not state

that Policy 3-17 had been superceded.

[R.T. p 127, Ins 8-16] Moreover, Mr.

Wright testified that Plaintiffs were not

told at the meeting that the General

Statement was the new Policy on severance

pay. [R.T. p 127 lns 19-23] Further, Mr.

Wright testified that during the entire

time he was employed for Reltron after

August 1, 1984, he never received anything

in writing from AMF informing him that the

General Statement was the new severance

pay Policy and that this was why he did

not receive severance pay on August 1,

1984. [R.T. p 128 lns 2-9] Clearly, the

trial court and the Court of Appeal should

have concluded that there was a lack of

credible evidence to support the

proposition of Respondents that Policy 3-

17 was modified by the "General

Statement." Further, the Court of Appeal

should have taken into consideration the

reasoning in Chapin, supra, particularly

given the circumstances of Petitioners’

employment post termination from AMF Voit.

Petitioners were "severed" from AMF. Voit

and at the time of Petitioners'

“termination of employment on August 1,

1984, Respondents clearly knew that for

Plaintiffs "the privations which so often

attend unforeseen layoffs" was merely

being delayed until Plaintiffs assisted

Reltron in the transfer of the AMF Voit

operation out of the State of California.

CONCLUSION

WHEREFORE, Petitioners respectfully

request that this court grant certiorari.

DATED: August 5, 1994

Respectfully submitted,

4, pf

tT Si,

By £11k Rigo

Counsel of Record

APPENDIX A: WRIGHT V. AMF CORP.

IN THE COURT OF APPEAL OF THE

STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

DONALD W. WRIGHT et al.,

Plaintiffs and Appellants,

Vv.

AMF CORPORATION, ET AL.

Defendants and Respondents.

No. G011488

OPINION

Appeal from a judgment of the

Superior Court of Orange County, David H.

Brickner, Judge. Affirmed.

Knez & Jolley and Fred J. Knez for

Plaintiffs and Appellants.

Latham & Watkins, Kenneth W. Oder,

Joseph B. Farrell and Andrew M. Paley for

Defendants and Respondents.

Filed February 23, 1994

AMF Voit, Inc., 4 subsidiary of AMF

Corporation, was acquired by Reltron

Corporation through an asset purchase.

Appellants, a group of Voit employees,

were offered employment with Reltron with

the proviso that if they refused, their

termination from Voit would be considered

voluntary and they would be denied

severance benefits. Appellants, most of

whom accepted Reltron's offer, filed a

complaint for damages based on state law,

and Voit successfully demurred on the

grounds the action was preempted by ERISA.

That determination was affirmed on appeal

by this court in September 1988. The one

surviving cause of action was tried under

ERISA, and the trial court found there was

no right to severance benefits.

Appellants claim = an intervening

change in the law requires us to re-

examine our decision that the state law

claims are preempted by ERISA.

Alternatively, they claim the judgment

denying them severance benefits under

ERISA must be reversed because the trial

court failed to use a de novo standard of

review of Voit's corporate policy and

under that standard there is insufficient

evidence to support the judgment; they

also claim the trial court failed to

follow principles of equity in making its

decision. Voit requests sanctions against

appellants for filing a frivolous appeal

and for repeated violations of the court

rules. We deny the request for sanctions

and affirm the judgment.

* * * * *

In July 1984 AMF Corporation entered

into ” asset purchase agreement with

Reltron Corporation for the sale of the

assets of Voit to Reltron. The sale

closed on August 2, 1984. On August l,

AMF officers came to the voit facility and

divided the Voit employees into two

groups: Group one were employees not

offered jobs by Reltron; and group two

were employees whom Reltron wished to

retain. Group one employees were

presented with an “AMF Voit, Inc. General

Statement," which explained that their

jobs were being eliminated by Reltron's

acquisition of voit and there were no

alternative positions with AMF. They

would receive one and one-half weeks

severance pay for every year of service.

Group two employees’ were told they would

‘The original plaintiffs in this

action consisted of all the group two

employees. Many of the original

plaintiffs have chosen not to pursue this

appeal. The appellants use the term

"plaintiffs" to refer to the 19 original

employees.

be employed by Reltron at their previous

salaries and would not receive severance

pay. They were told that if they did not

go to work for Relton, their separation

would be considered a voluntary

termination and they would not receive

severance pay or unemployment

compensation. They were not offered

alternative positions with AMF.

After the meeting with AMF officers,

all but three of the plaintiffs

collectively decided to accept Reltron's

employment offer but to pursue legal

remedies against AMF and Voit. Reltron

guaranteed at least five months '

employment and similar benefits, with the

notable exception, however, that Reltron

did not provide a severance pay benefit.

Most of the plaintiffs' job duties

remained the same after the acquisition

and most received significant raises

during their employment with Reltron.

Eventually, Reltron ceased operations in

California and paid all involuntarily

terminated employees severance benefits

equal to one week's wages for every year

of service with both Voit and Reltron.

Some of the plaintiffs voluntarily

resigned from Reltron before its closure

and received no severance benefits.

AMF's corporate policy regarding

severance benefits, which the trial court

found applicable to Voit, was embodied in

Corporate Policy 3-17 issued in 1975.

That policy states, "Any salaried employee

is eligible for a termination allowance if

he is separated at company convenience

through reduction of work load,

reorganization or relocation of facilities

. . « « The termination allowance .

shall provide one-half month's pay for

each two and one-half years of completed

$$ $_$____._ —

SS SS fe SS

service, with a minimum of one-half month

and a maximum of six months' pay (30 years

of service)." The trial court found that

although the acquisition of Voit by

Reltron constituted a "reorganization"

under 3-17, there was no "separation"

because the employees still hac

substantially similar jobs. The trial

court also found that the General

Statement delivered to the Voit employees

the day before the sale closed "clarifies

and restates" the "probable meaning of 3-

17," which was that an employee out of a

job would receive severance pay and one

not out of a job would not.

Appellants first ask us to reexamine

our previous decision that ERISA preempts

their state law claims, contending the

subsequent decision by the United States

Supreme Court in Massachusetts v. Morash

(1989) 490 U.S. 107 has limited the scope

of ERISA's preemption.

Under the doctrine of "law of the

case," a rule of law or principle stated

in an appellate court decision is binding

throughout all further proceedings in that

case, both in the lower court and on a

subsequent appeal. (Clemente v. State of

California (1985) 40 Cal.3d 202, Bi.)

The doctrine is not jurisdictional,

however, in that it does not affect a

court's power to proceed; rather, it is a

rule of procedure that exists for reasons

of policy and convenience. “It will not

be adhered to where its application will

result in an unjust decision." (id. at p.

212.) The primary reason for departing

from the doctrine is an intervening change

in the law (ibid.), which exception

appellants claim here.

In our previous unpublished opinion

(Wright v. AMF Corporation (Sept. 8,

1988)G004589), we relied on the United

States Supreme Court's broad language in

Pilot Life Ins. Co. v. Dedeaux (1987) 481

U.S. 41 to hold "{ajll state laws

pertaining to employee benefit plans,

except those regulating insurance, are

preempted by ERISA." (Wright v. AMF

Corporation, supra, (typed opn. at p.3).)

Plaintiffs' complaint alleged AMF 's

failure to pay them severance benefits

when the company was sold was a violation

of its pension benefits plans.

"Plaintiffs' civil remedy, if any exists,

must be obtained through the exclusive

ERISA scheme. Damages under state law are

simply not available." (Id. at p. 5.)

Appellants now argue that AMF's

Corporate Policy 3-17 was not an employee

benefit plan under ERISA, citing

deposition testimony to that effect from

AMF's Director of Human Resources at the

time Voit was sold* and the United State

Supreme Court case of Massachusetts v.

Morash, supra, 490 U.S. 107. In Morash,

an employer failed to compensate two

discharged vice presidents for vacation

time they accrued but did not use, in

violation of a state statute. The

Supreme Court held that although ERISA

included vacation benefits in its

Gefinition of an employee welfare benefit

plan, it did not intend to regulate

"ordinary" vacation benefits, which are

"typically fixed, due at known times, and

do not depend on contingencies outside the

employee's control ...." (Id. at p.

115.) The court referred to Department of

2The deponent, Joe van Dorn, testified he

never thought the severance pay policy was

an ERISA plan and he assumed severance pay

and wages were paid from the same bank

account.

Labor regulations, which characterized the

payment of vacation benefits out of an

employer's general assets rather than a

trust fund as "payroll practices" and not

employee welfare benefit plans within the

meaning of ERISA. (Id. at pp. 117-118.)

Appellants seize upon this language

and argue that severance benefits paid

from an employer's general assets, rather

than a trust fund, are not regulated by

_ ERISA. But the Morash opinion

specifically distinguished the types of

benefits covered by ERISA, including

severance benefits, from the type of

vacation benefit under review. "The

distinguishing feature of most of these

benefits is that they sacomnl ate over a

period of time and are payable only upon

the occurrence of a contingency outside of

the control of the employee .... Thus,

for example, plans to pay employees

severance benefits, which are payable only

upon termination of employment, are

employee welfare benefit plans within the

meaning of the Act." (Id. at pp. 115-

116.) In the face of this clear language,

it seems that Morash does not represent a

change in the law so as to allow us to

disregard the doctrine of law of the case

and reexamine our previous decision on

preemption.

Appellants next contend that even if

their claim for severance benefits is

governed by ERISA, they are entitled to

recover. A participant or beneficiary of

a welfare benefit plan is entitled to

bring a civil action in state or federal

court to recover benefits due him under

the terms of his plan. (29 U.S.C. §1132,

Ssubd.(a)(1)(B) & (e).) A claim for

benefits wrongfully denied is determined

by the trial court's de novo review of the

plan provisions, "unless the benefit plan

gives the administrator or fiduciary

discretionary authority to determine

eligibility for benefits or to construe

the terms of the plan." (Firestone Tire &

Rubber Company v. Bruch (1989) 789 U.S.

101, 114.)

Appellants claim the trial court

failed to use the de novo standard of

review when interpreting Policy Memorandum

3-17 or the General Statement. But the

record indicates otherwise. Although the

trial court received evidence of AMF's

interpretation of its policy, permissible

to clarify ambiguous terms of a plan

(Awbrey _v. Pennzoil Co. (10th Cir. 1992)

961 F.2d 928, 930-31), it gave no

deference to AMF's interpretation when

making its findings.°

Appellants challenge the sufficiency

of the evidence to support the trial

court's findings even if made under a de

novo standard. Of course, our task is to

uphold the judgment below if supported by

any credible evidence, notwithstanding the

existence of evidence to the contrary.

(Bowers v. Bernards (1984) 150 Cal. App.

3d 870, 873-874.)

The trial court found Policy 3-17 did

not provide for severance benefits to

appellants because they were not separated

from their e »loyment. Van Dorn testified

appellants did not miss one day of work

following the asset sale to Reltron. They

3Pre-Firestone, many trial courts upheld

the administrator's or fiduciary's

decision unless it was clearly

unreasonable. (Firestone Tire and Rubber

Corp. v. Bruch, supra, 489 U.S. at p.

114.)

retained their same jobs at the same

location with the same initial salary and

with similar benefits.‘

The trial court also found the

purpose of Policy 3-17 was to provide

assistance to employees out of a job. In

support of that finding, Van Dorn stated

the purpose of the policy was to provide

"an amount of income or cushion for the

employee once they leave the company and

set out to find their next opportunity."

The trial court's conclusion comports with

the weight of authority. The usual

purpose of a severance benefits plan "is,

first and foremost, to provide employees

with a buffer against the privations which

4minor differences in employee benefits are

irrelevant to a determination of

entitlement to severance pay when an

employee is retained by a purchasing

company. (Sejman v. Warner-Lambert Co.,

Inc. (4th Cir. 1989) 889 F.2d 1436.)

so often attend unforseen layoffs."

(Allen v. Adage, Inc. (1st Cir. 1992) 967

F.2d 695, 702. See also Awbrey v.

Pennzoil Co., supra, 961 F.2d at pop. 931-

932.)

Van Dorn also testified that when AMF

sold the assets of other subsidiaries in

the past, which it had done a number of

times, none of the retained employees

received severance benefits. "Although

past practice may not have as much

probative value after Bruch as theretofore

- « « »-, it is still frequently used by

courts as a device for deciphering the

meaning of ambiguous plan provisions."

(Allen v. Adage, Inc., supra, 967 F.2d at

p. 702.) This evidence also supports the

trial court's conclusion regarding the

meaning of the word "separated."

IIt

AMF requests sanctions in the form of

EE EEE!EE

oe =

its attorney's fees for this appeal of

$31,939.53. It complains that the appeal

on the preemption issue is “totally and

completely without merit." (Marriage of

Flaherty (1982) 31 Cal. 3d 637, 650.) But

we do not agree. Although we have

concluded the judgment must be affirmed,

the appellants' contentions are not

frivolous.

AMF also asserts appellants should be

sanctioned because they have violated

court rules by quoting from exhibits not

introduced at trial and by citing facts

never admitted into evidence. California

Rules of Court, rule 13 requires the

statement of facts in the opening brief to

be "accurate and confined to matters in

the record on appeal." And appellants

have taken liberties with the record, as

AMF claims. But the facts outside the

record included in the brief are not

particularly significant to the issues

raised, and their inclusion could not have

been the cause of any substantial portion

of AMF's attorney's fees on appeal.

Likewise, they did not mislead or

delay this court in the preparation of

this opinion. In Alicia T. v. County of

Los Angeles (1990) 222 Cal. App. 3d 869,

the opening brief contained no references

to the record, “confused and obfuscated

the factual and legal bases" of the case,

and required the reviewing court to expend

substantial additional time to prepare an

opinion. Furthermore, counsel refused to

desist in citing an unpublished opinion,

even after being warned. In light of

these transgressions, the court assessed

sanctions payable to the clerk of the

court. (Id. at pp. 875, fn. 1, 886.)

Short of such egregious violations of the

court rules, it is appropriate simply to

disregard the extraneous facts when

reviewing the case. (Kendal v. Allied

Investigations, Inc. (1988) 197 Cal. App.

3d 619, 625.)

The judgment is affirmed. The

request for sanctions is denied, but AMF

is entitled to its costs on appeal.

WALLIN, J.

We concur:

Moore, Acting P.J.

Crosby, J.

APPENDIX B:

29 U.8.C., Bection 1002(1);

29 U.S.C., Section 1002(3);

29 U.8.C., Section 1144 (a)

29 U.S.C., Section 1002(1)

(1) The terms “employee welfare

benefit plan" and “welfare plan" mean any

plan, fund, or program which was

heretofore or is hereafter established or

maintained by an employer or by an

employee organization, or by both, to the

extent that such plan, fund, or program

was established or is maintained for the

purpose of providing for its participants

or their beneficiaries, through the

purchase of insurance or otherwise, (A)

medical, surgical or hospital care or

benefits, or beneifts in the event of

Sickness, accident, disability, death or

unemployment, or vacation benefits,

apprenticeship or other training programs,

or day care centers, scholarship funds, or

prepaid legal services, or (B) any benefit

described in section 186(c) of this title

(other than pensions on retirement or

death, and isurance to provide’ such

pensions).

29 U.S.C. 1002(3)

(3) The term “employee benefit plan"

or "plan" means an employee welfare

benefit plan or an employee pension

benefit plan or a plan which is both an

employee welfare benefit plan and an

employee pension benefit plan.

29 U.S.C. 1144(€a)

(a) Supersedure; effective date

Except as provided in subsection (b)

of this section, the provisions of this

subchapter and subchapter III of this

chapter shall supersede any and all state

laws insofar as they may now or hereafter

relate to any employee benefit plan

described in section 1003(a) of this title

and not exempt under section 1003(b) of

this title. This section shall take

effect on January 1, 1975.

APPENDIX C:

LABOR CODE SECTION 201

Time for payment on discharge or

layoff; seasonal employment; mail

If an employer discharges an

employee, the wages earned and unpaid at

the time of discharge are due and payable

immediately. An employer who lays off a

group of employees by reason of the

termination of seasonal employment in the

curing, canning or drying of any variety

of perishable fruit, fish or vegetables,

shall be deemed to have made immediate

payment whtn the wages of said employees

are paid within such reasonable time as

may be necessary for computation and

payment thereof; provided, however, that

such reasonable time shall not exceed 72

hours, and further provided that payment

shall be made by mail to any such employee

who so requests and designates a mailing

address therefor.

Chapin v. Fairchild Camera and Instrument

Corp.

Chapin v. Fairchild Camera etc. Corp.

(31 Cal. App. 3d 192]

[Civ. No. 29866.

Court of Appeals of California, First

Appellate District, Division Two.

March 20, 1973.]

MARY ANN CHAPIN et al., Plaintiffs

and Appellants, v. FAIRCHILD CAMERA AND

INSTRUMENT CORPORATION, Defendant and

Respondent

SUMMARY

The trial court determined that

employees of a department of a corporation

sold to another corporation were not

entitled to termination pay from the

seller. Standard practice instructions of

the seller provided for "in lieu of notice

pay" for hourly employees and severance

pay for salaried employees in the event of

a layoff. The employees had been given

the option of continuing their employment

with the buyer in identical jobs with

similar but not identical fringe benefits.

All employees but one accepted, but within

three months after the sale date about

half of them were terminated by the buyer.

The termination benefits provided by the

buyer were not equal to those previously

available from the seller and the sale

contract did not provide for the buyer's

assumption of the termination pay

obligation of the seller. (Superior Court

of Santa Clara County, No. 215017,

Marshall S. Hall, Judge.)

The Court of Appeal reversed, holding

that the sale amounted to a layoff within

the meaning of the seller's’ standard

practice instructions which were a part of

the understanding of employment. The

court noted that the sale made it wholly

impossible for the employees to continue

their employment with the seller, and it

pointed out that separation pay is not a

form of unemployment compensation so as to

make unemployment a prerequisite to the

right thereto.

(Opinion by Taylor, P. J., with Kane

and Rouse, JJ., concurring.)

HEADNOTES

Master and Servant § 26.5—Contract

of Employment—Severance Pay and Similar

Benefits.

1. Termination pay provisions are

identically <*pg.193> construed whether

they are contained in formal written

agreements, such as collective bargaining

agreements, or in a corporate personnel

policy that becomes a part of the

understood employment agreement, or are

provided by statute.

Master and Servant § 26.5-—Contracts

of Employment-—Severance Pay and Similar

Benefits.

2a, 2b. A corporation's sale of an

entire department to another corporation

constituted a "layoff" of the employees in

that department so as to entitle hourly

employees to "in lieu of notice pay" and

Salaried employees to severance pay as

provided in the seller's standard practice

instructions, even though the employees

were given the option of continuing with

the buyer in identical jobs with similar

but not identical fringe benefits, and all

but one accepted, where the sale made it

wholly impossible for the employees to

continue their employment with the seller,

and where termination benefits provided by

the buyer were not equal to those

previously available from the seller, and

the sale agreement did not provide for

assumption by the buyer of the seller's

obligation of termination pay to the

employees.

[Construction and effect of severance

or dismissal pay provisions of employment

contract or collective bargaining

agreement, note, 40 A.L.R.2d 1044. See

also Cal.Jur.2d, Master and Servant, § 42;

Am.Jur.2d, Master and Servant, § 81.]

Master and Servant § 26.5—Contracts

of Employment—Severance Pay and Similar

Benefits.

3. Separation pay is not analogous

to, nor is it a form of, unemployment

compensation, and unemployment is not a

prerequisite to the right to separation

pay, which is a kind of accumulated

compensation for past services and a

material recognition of their past value.

It concerns the past, not the future, and

once it is earned, it becomes payable no

matter what may thereafter happen.

COUNSEL

Schiller & Rose, Philip L. Grauman

and M. Fred Rose for Plaintiffs and

Appellants.

Danaher, Gunn & Klynn and Michael

Klynn for Defendant and Respondent.

<*pg.194>

OPINION

TAYLOR, P. J.

This appeal by certain former

salaried and hourly employees (Employees)

of the Memory Products Department (Memory

Products) of respondent, Fairchild Camera

and Instrument Corporation (Fairchild),

from an adverse judgment after a court

trial, presents a question of first

impression in this state as to the nature

of severance and in lieu of notice

benefits<fn 1> in a contract of

employment. For the reasons set forth

below, we have concluded that the trial

court erred in concluding that Fairchild's

sale of Memory Products was not a

termination of employment that would

entitle the Employees to the benefits in

issue.

. The record reveals the following

pertinent facts: Fairchild, the parent

foreign corporation with several

subsidiaries and 13 different divisions in

50 states, created Memory Products in

November 1965, as a separate department to

produce memory cores for small computers.

Fairchild's Semiconductor Division

(Semiconductor), under contract, performed

personnel and payroll functions, as

Semiconductor did for all Fairchild west

coast personnel. The Employees were thus

subject to the corporate standard practice

instructions (SPIs) issued by Fairchild's

home office and the divisional

instructions locally issued by

Semiconductor. The SPIs and divisional

instructions were kept in loose leaf

binders and available to all personnel who

wanted to look at them; these binders were

about two inches thick and contained

several hundred pages.

Prior to May 1965, a time when about

six of the employees were employed by

Semiconductor, Fairchild's SPI 706 (which

applied only to salaried Employees),

provided, so far as pertinent, that

Salaried personnel were entitled to

"separation allowances" of one week's pay

for up to one year's service, and two

weeks' pay for over one year to 10 years

of service.<fn 2> 706 also provided that

severance pay was “intended to cover the

readjustment period required by the

employee to obtain another position."

Semiconductor's divisional

instructions 710 and 713, respectively, so

far as pertinent, defined "layoffs" as the

involuntary termination of employment

<*pg.195> due to lack of work, and

provided that on layoff: 1) hourly

Employees were entitled to one week's

notice or one week's pay in lieu thereof

("in lieu of notice pay"); and 2) salaried

Employees were entitled to one week's

severance pay, for service up to one year,

and two weeks' severance pay for service

of more than one year. While neither 706

nor 710 and 713 were -concealed from the

Employees, those who testified had no

knowledge of 706, but had knowledge of 710

and 713.

In January 1968, Fairchild began

negotiations with Core Memories, Inc.

(Core) for the sale of Memory Products.

At meetings held during the second week of

February, the Employees were informed by

a Fairchild executive, Dr. Noyce, that a

sale was pending but were not told of the

exact date. The Employees were also

informed that Core wanted to purchase

Memory Products as a continuing business

and wanted to retain all personnel, in

identical jobs with continuing seniority

rights and similar but not identical

fringe benefits.<fn 3> The contract of

sale was signed on Friday, March 1, 1968,

at which time Core agreed toc continue the

same rate of pay and seniority rights of

Memory Products' Employees and similar

fringe benefits; the agreement did not

contain any sum for severance pay. The

contract was executed on Saturday, March

2, 1968, and on Monday, March 4, 1968,

Core took over the operation of Memory

Products. All but one of the employees

transferred to Core; in April of 1968,

Core terminated 40 of the 187-191

Employees; within three months of the sale

date, Core terminated another 50-55. Core

paid severance or in lieu of notice pay to

some of the discharged Employees. These

payments, however, were not equal to the

amounts that would have been pawable to

them pursuant to divisional instruction

713, and, in some instances, were made

purely at the discretion of Core's

management.

Employee, Mary Ann Chapin, filed a

complaint with the labor commissioner and

subsequently in the small claims court for

severance benefits under her contract of

employment with Fairchild. By

stipulation, Fairchild's appeal from the

municipal court action was dropped on

filing of the instant class action in the

superior court.

The trial court found that this was

a valid class action pursuant to Code of

Civil Procedure section 382, but that the

Employees were not entitled to damages or

benefits. The trial court based its

conclusion on the following premises:

Employees had the option at the time of

sale of obtaining <*pg.196> severance pay

from Fairchild if they did not wish to

become employed by Core. When the sale

was consummated, Employees were in fact

offered jobs by Core that resulted in

their receiving full seniority rights and

substantially equal fringe benefits from

Core. The acceptance of emplcoynent with

Core by Employees was done with full

knowledge and intention, freely and

Willingly, and constituted an acceptance

of Core's employment terms, a waiver of

any rights pursuant to their employment

agreement with Fairchild and further

constituted a novation and substitution of

Core's terms of employment for Fairchild.

The transfer of employment from Fairchild

to Core did not constitute a layoff within

divisional instruction 713. At least two

weeks prior to the sale of Memory

Products, the Employees were told at a

meeting by a vice president of Fairchild

and a representative of Core about the

intended sale and the opportunity to

become employed by Core. This meeting

constituted notice within divisional

instruction 713 and gave the Employees a

reasonable choice concerning their future

employment.

At the outset, we note that the trial

court's conclusion was based on a legal

theory of novation that was. neither

pleaded, proved nor urged by either

party,<fn 4> and reversal would be

required on this ground alone. Novation

must be specifically pleaded (Alexander v.

Angel, 37 Cal.2d 856 [236 P.2d 561]). In

addition, the findings that the February

meetings constituted proper notice to the

hourly Employees<fn 5> and that SPI 706

became a part of the Empioyees'’ contract

of employment<fn 6> are not supported by

the record. <*pg.197>

While the interpretation of severance

and in lieu of notice benefits<fn 7> in a

contract of employment has not previously

been presented to an appellate tribunal of

this state, there are numerous decisions

in other jurisdictions (see 147 A.L.R.

151; 40 A.L.R.2d 1044). {1} As

Fairchild relies on the absence of a

statutory requirement and/or a collective

bargaining agreement, we are constrained’

to point out, preliminarily, that

termination pay provisions are identically

construed whether contained in formal

written agreements, such as collective

bargaining agreements (Adams v. Jersey

Central Power & Light Company (1956) 21

N.J. 8 [120 A.2d 737]), or -a corporate

personnel policy that becomes a part of

the understood employment agreement /(

Willets v. Emhart Manufacturing Company,

supra; Mace v. Conde Nast Publications,-

Inc. (1967) 155 Conn. 680 [237 A.2d 360]}),

or pursuant to a statute (Bolta Products

Div. v. Director of Div. of Emp. Sec.

(1970) 356 Mass. 684 [255 N.E.2d 357}).

[2a] The record here establishes:

1) the existence of an understanding of

employment between the Employees and

Fairchild prior to the sale of Memory

Products; 2) pursuant to Fairchild's

employment policies, salaried personnel

were entitled to one or two weeks of

severance pay, depending on length of

service, and hourly personnel to one

week's notice, or one week's pay in lieu

thereof, as set forth in Semiconductor's

divisional instruction 713; 3) the

interpretation of separation allowances as

unemployment compensation in original SPI

706 and the subsequent exclusion of

separation allowances on the sale of a

facility in revised SPI 706 were never

communicated to any of the Employees; 4)

the termination benefits provided by Core

to the Employees were not equal to those

previously available from Fairchild; and

5) Fairchild's agreement with Core for the

sale of Memory Products as a going

concern, including all personnel, did not

contain a sum for the separation benefits

here in issue.

Here, as in Willets v. Emhart

Manufacturing Company, supra, the

underlying question is whether the sale of

| Memory Products was a layoff for lack of

work within the language of 713. There

can be no question that here, as in

Willets, the sale involved a permanent

release of the Employees <*pg.198> by

Fairchild. By that sale, Fairchild made

certain that it could no longer fulfill

its part of the employment relationship

(Matthews v. Minnesota Tribune Co. (1943)

215 Minn. 369 [10 N.W.2d 230, 147 A.L.R.

147]}). Nor can it be argued that this

release is not a layoff because it is

permanent and not temporary in duration.

Divisional instruction 713 defines a

layoff as involuntary termination due to

lack of work, consistent with the

dictionary and accepted definition of a

layoff as a cessation of employment

because of a slack in production and

without prejudice.<fn 8> The fact that a

layoff is often temporary does not require

that it must be (see International Ass'n

of Machinists v. State (1943) 153 Fla. 672

[15 So.2d 485}).

Certainly, Fairchild's sale of Memory

Products was a permanent layoff of the

Employees. Fairchild's admitted

modification of 706 after the 1965

decision in Willets v. Emhart, supra,

(discussed in fn. 2 above), indicates that

its own interpretation of its own

personnel policies prior to the 1965

amendment and those of its Semiconductor

division, as set forth in 710 and 713, was

that separation benefits would be payable

on the sale of a facility or division.

The trial court and Fairchild make

much of the fact that the Employees

suffered little, if any, immediate

economic loss, as they remained in

continuous employment with their seniority

rights and at the same rate of pay with

Memory Products. An identical argument

was rejected in Willets, supra, at page

548: "The defendant makes much of the

fact that the plaintiffs have suffered

little, if any, immediate economic loss.

It argues that the principal difference is

not in the work or pay of the plaintiffs

but in the ownership of the employer's

business. This argument involves the

proposition that events occurring

subsequent to the layoff are the important

factors in the determination whether the

plaintiffs are entitled to separation pay.

This is not true. [3] As was pointed

out in Adams v. Jersey Central Power &

Light Company, 36 N.J.Super. 53, 71, 114

A.2d 776, aff'd, 21 N.J. 8, 120 A.2da 737,

unemplcyment is not a prerequisite to the

right =o separation pay which may, and

frequertly does, exist where there is no

interruption whatever in the continuity of

employment. Separation pay is not

analogous to, nor is it a form of,

unemployment compensation. Rather, it is

a kind of accumulated compensation for

past services and a material recognition

of their past value. (Citation. ] ze

concerns the past, not the future, and

once it is earned, it becomes payable no

matter what may thereafter <*pg.199>

happen. For various applications of this

rule, see the cases set forth in the

annotations in 147 A.L.R. 151 and 40

A.L.R.2d 1044."

Fairchild attempts to distinguish

Willets on the ground that in that case

the court was concerned with equitably

compensating personnel who had to move

from Connecticut to Louisiana, to continue

their employment with the purchaser. The

theory of Willets, quoted above, indicates

that this is not a proper basis of

distinction. Willets was followed in

Mace v. Conde Nast Publications, Inc.,

supra, and Straus-Duparquet, Inc., supra.

[2b] Here, as in Adams v. Jersey

Central Power & Light Company, supra, 120

A.2d 737, 741, the fact remains that the

employment with the seller was terminated;

the Employees were hired by Core under

substantially different terms<fn 9> that

not only did not provide severance pay of

the same duration as Fairchild, but also

did not undertake to discharge Fairchild's

obligation of severance pay to the

Employees. Thus, it cannot be said that

the termination of their employment by

Fairchild was voluntary on the part of the

Employees. We are not concerned with the

new jobs but the old ones. The

termination was entirely involuntary on

the part of the Employees. Fairchild sold

Memory Products, that part of its business

in which the Employees were engaged, and

by its voluntary act made it wholly

impossible for the Employees to continue

their employment with Fairchild.

As indicated above, the trial court

determined the issues on the basis of

novation. Even assuming the issue had

been properly pleaded, it would not be

possible here as there was no

consideration (Ybarra v. Solarz, 56

Cal.App.2d 342, 346 [132 P.2d 880]).<fn

10> Nor could there be a novation without

the consent of the Employees. Thus,

Fairchild's reliance on Armstrong v.

Cherry, 89 Cal.App. 442 [264 P. 798]. is

inapposite.<fn 11> We note that an

<*pg.200> employer's identical contention

based on novation was carefully analyzed

and rejected by the court in Mace v. Conde

Nast Publications, Inc., supra, at page

363, as follows: "The plaintiffs knew

nothing of the agreement between the

defendant and Butterick until after it was

signed. The plaintiffs went to work for

Butterick because they were automatically

transferred there by the defendant without

being requested to transfer there and

without either an oral or ae written

agreement by them to such a transfer.

"There can be no question that, as a

result of the licensing agreement with

Butterick, the defendant permanently

terminated its employer-employee

relationship with the plaintiffs and, at

the same time, effected a reduction in its

staff. That termination, without more,

served to entitle the plaintiffs to

severance pay under the terms of their

employment contract. ([Citation.] The

defendant sought to escape this result by

providing that the circumstances

established a novation by indicating that

the plaintiffs had, by their actions,

expressed acceptance of Butterick in lieu

of the defendant as the company to which

they would look for severance payments.

'Novation' is a term usually used to refer

to instances in which a new party is

introduced into a new contract.

(Citation. ] It requires proof that the

one in the position of creditor, in this

case the plaintiffs, had accepted a new

debtor, in this case Butterick, in the

place of the defendant to which they would

look for fulfilment of the severance pay

obligation owing to them. [Citation.] In

addition, it requires proof that the

plaintiffs had agreed to a discharge of

the defendant's obligation to then.

(Citation. ]"

Fairchild's public policy argument

concerning the initiation of business

sales and mergers is likewise without

merit. The many cases in other

jurisdictions, discussed above, do not

suggest that the sale of businesses has

been inhibited by the holdings of the

cases cited. We may take judicial notice

of the many corporate sales, mergers and

reorganizations that have taken place in

recent years and venture to suggest that

these are not related to severance pay

provisions. Fairchild is not prohibited

from further sales, only from sales that

do not take into account its pre-existing

contract obligations to Employees that are

sold as part of the on-going business.

Fairchild can <*pg.201> easily protect

itself by informing its personnel that

certain benefits do not accrue or are not

payable in cases of sale or merger.

The judgment is reversed and the case

remanded to the trial court for an

assessment of the precise damages

sustained by each of the Employees.

Kane, J., and Rouse, J., concurred.

HISTORY

A petition for a rehearing was denied

April 19, 1973, and respondent's petition

for a hearing by the Supreme Court was

denied May 16, 1973. <*pg.202-207>

FOOTNOTE 1 Under the terms of the

employment here in issue, the salaried

Employees were entitled to "severance pay"

benefits, and the hourly Emplyees to "in

lieu of notice pay" benefits. Thus, the

terms are interchangeable (cf.

Straus-Dupargquet, Inc. v. Local U. No. 3

Int. Bro. of Elec. Wkrs. (2d Cir. 1967)

386 F.2d 649).

FOOTNOTE 2 On May 19, 1965, after

Willets v. Emhart Manufacturing Company

(1965) 152 Conn. 487 [208 A.2d 546], 706

was amended to provide that employees

terminated by the sale of a Fairchild

facility would not be eligible for a

separation allowance. However, the court

below found that the employees who so

testified did not have notice of this

amendment and could make no findings as to

the others; and did not base its decision

on the provisions of 706.

FOOTNOTE 3 For example, for salaried

Employees with service of more than one

year, Core provided one week of severance

pay, in contrast to Fairchild's two weeks

of severance pay. The vacation and

insurance benefits also differed.

FOOTNOTE 4 The record indicates that

novation was first mentioned negatively by

the Employees' counsel in his closing

argument to the trial court. Fairchild's

counsel stated that the "suggestion that

this is a situation of novation is absurd.

It is not a novation situation." Although

the trial court indicated that it would

permit an amendment of the pleadings, no

motion to amend was ever made.

FOOTNOTE 5 The uncontroverted

evidence indicates that the Employees were

told that the sale was imminent, but were

not given a specific date. On the

afternoon of Friday, March 1, the badges

of the Employees were first collected and

then returned as the sale was in doubt.

None of the Employees received written

notice of the termination of their

employment with Fairchild, and apparently

were not aware that Core had, in fact,

taken over, until Monday, March 4.

FOOTNOTE 6 The Employees were

informed of the substance of 710 and 713;

there was conflicting evidence as to

whether 713 had been posted. The

uncontroverted evidence indicates that

neither 706 (either in its revised or

original form), nor its content, was ever

communicated to the Employees. Fairchild's

policy was that SPIs were distributed in

binders to executives and available for

inspection by other personnel. Ms.

Chapin, as executive secretary to the

general manager of Memory Products, was in

charge of keeping the binders up to date

and answering questions of Memory Products

personnel about their contents but had

never seen or heard of 706. At the

hearing before the labor commissioner and

in the small claims court, Fairchild's

witnesses indicated that 706 had never

been circulated as it was only an

interoffice memo.

FOOTNOTE 7 Fairchild argues that

public policy supports its position and

cites the following from Commerce Clearing

House Wage and Hour Reporter, PL

25.580.55: “severance pay is not pay for

time worked; just the reverse is true — it

depends upon the employee not working at

the time he receives it." The language is

quoted out of context from an illustration

indicating that under the Fair Labor

Standards Act, an employer is not allowed

to credit severance pay against regular or

overtime wages due to an employee, so that

on termination, an employee is entitled to

both. This is also the law in this state

(Powell v. California Dept. of Employment,

63 Cal.2d 103 [45 Cal.Rptr. 136, 403 P.2d

392]), but does not support Fairchild's

argument or resolve the issues. here

presented.

FOOTNOTE 8 Webster's New Collegiate

Dictionary (2d ed.) page 477, states:

"Layoff. The act of laying off, esp. work

or workmen; a period of being laid off

work; a shutdown."

FOOTNOTE 9 Apart from the differences

in fringe benefits previously mentioned,

ee ee ee re ee ee 2 a RT OS Se Ee ee

Fairchild had a reputation in the industry

| that included the fact that there had

| never been a layoff.

FOOTNOTE 10 Chinn v. China Nat.

Aviation Corp., 138 Cal.App.2d 98 [291

P.2ad 91], is also pertinent as there the

employee (who had previously announced his

intention to resign), remained on the job

after the employer enacted regulations

providing for severance pay. In holding

that the employee had stated a cause of

action for severance benefits, this court

(division one), quoting from Vogel v.

Bankers Bldg. Corp., 112 Cal.App.2d 160,

169 [245 P.2d 1069], said at page 103: "'A

single consideration may support the

several counterpromises made by the other

party to the transaction.' Thirdly, it

should be remembered that plaintiff did

not terminate the employment. It was

terminated by the employer, so that the

—— ae A ae Te —

—=— mht 2 ae ee Se ee ee ee

question of what the employee's rights

might have been had he left the employment

a moment after the regulations were

announced is academic. While, of course,

there was nothing in the regulations that

guaranteed the employee continued

employment, and therefore the employer

could terminate the employment at any

time, the regulations stated the

obligation of the employer upon. such

termination."

FOOTNOTE 11 In fact, in Armstrong v.

Cherry, supra, although the employee was

denied damages because he knew of and

acquiesced in the new conditions of

employment, this court (division one) said

at page 444: "It is a rule universally

recognized, that while a master may not

close out his business without becoming

liable in damages to an employee under a

contract of employment for a _ specific

meer ee ee ee ee

term, still an immaterial change gives no

cause of action for damages where there is

otherwise no change in the manner of

conducting the business and the employer

continues in a way to be the real owner.

(39 Cor.Jur. 76.) See, also, Levy v.

Friedlander, 24 La.Ann. 439."

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