McClendon v. Ingersoll-Rand Co.

779 S.W.2d 69, 33 Tex. Sup. Ct. J. 44, 11 Employee Benefits Cas. (BNA) 1912, 4 I.E.R. Cas. (BNA) 1515, 1989 Tex. LEXIS 115, 1989 WL 122640

• Court: Texas Supreme Court
• Decided: October 18, 1989
• Docket: C-7973
• Status: Published

Opinions

SPEARS, Justice.

This is a suit for wrongful discharge. Perry McClendon sued his former employer, Ingersoll-Rand Company. McClendon alleged that he was discharged from his employment so that Ingersoll-Rand could escape its obligation to contribute to his pension fund. The trial court rendered summary judgment in favor of Ingersoll-Rand. The court of appeals affirmed. 757 S.W.2d 816 (1988). We reverse the judgment of the court of appeals and remand the cause to the trial court.

In August 1972, McClendon began employment with Ingersoll-Rand as a salesperson and distributor of construction equipment. He was paid on a commission basis in accordance with the terms of a “Compensation Arrangement” that was to remain in effect through December 1982; however, this “compensation arrangement” did not specifically dictate the term of McClendon’s employment.

In late 1979, Ingersoll-Rand transferred McClendon from San Antonio to Dallas so that he could develop a potentially lucrative market there. McClendon secured a substantial amount of business in Dallas, and McClendon’s supervisor later testified that he was satisfied with McClendon’s job performance. Nevertheless, Ingersoll-Rand fired McClendon on November 19, 1982. Ingersoll-Rand justified McClendon’s termination by claiming that external economic factors mandated a work force reduction of one salesperson.

McClendon’s termination from employment occurred after he had accumulated nine years and eight months of service to Ingersoll-Rand. Further, the termination occurred exactly four months prior to the vesting of McClendon’s retirement and pension benefits, at which time Ingersoll-Rand would have been required to contribute to McClendon’s pension fund.

In filing suit, McClendon alleged that Ingersoll-Rand breached its employment contract with him and breached its duty of good faith and fair dealing in connection with the employment relationship.¹ In addition, McClendon asserted a cause of action for wrongful discharge and alleged that Ingersoll-Rand had terminated him to escape its obligation to contribute to his pension fund² and to avoid paying him the commission from a particular sale.

At issue is whether McClendon’s allegations state a cause of action under Texas law. Texas courts have traditionally followed the employment-at-will doctrine which allows that employment for an indefinite term may be ended at will and without cause. East Line & R.R.R. Co. v. Scott, 72 Tex. 70, 10 S.W. 99 (1888); Molder v. Southwestern Bell Tel. Co., 665 S.W.2d 175 (Tex.App. — Houston [1st Dist.] 1983, writ ref’d n.r.e.).

Although this doctrine has been widely accepted, numerous exceptions and limitations have been placed on its application. For example, federal law prohibits the discharge of an employee because of age, race, religion, sex, color or national origin. Age Discrimination in Employment Act of 1967, 29 U.S.C. § 623(d) (1982 & Supp. Ill 1985); Title VII, Civil Rights Act of 1964, 42 U.S.C. § 2000e-2(a) (1977). Federal law also prohibits a private employer from discharging an employee who exercises his rights under the Fair Labor Standards Act to minimum wage and overtime. 29 U.S.C. § 215(a)(3) (1977 & Supp.1982). Similarly, Texas has enacted various statutes that restrict an employer’s discretion to terminate the employment relationship. See, e.g., TEX.REV.CIV.STAT. art. 5207a (discharge based on union membership); TEX. CIV.PRAC. & REM.CODE § 122.001 (discharge because of jury service); TEX.REV. CIV.STAT. art. 8307c (discharge for filing a worker’s compensation claim); TEX. GOV’T CODE § 431.006 (discharge because of active duty in the state military forces); TEX.REV.CIV.STAT. art. 5221k, § 5.01 (discharge based on race, color, handicap, religion, sex, national origin or age).

In addition to state and federal legislation, courts have developed various common-law restraints on the doctrine of employment-at-will. In Sabine Pilot Service, Inc. v. Hauck, 687 S.W.2d 733 (Tex.1985), this court recognized a cause of action for a plaintiff alleging 'that he was discharged for refusing to perform an illegal act. In creating this exception to the employment-at-will doctrine, we considered the changes in American society and in the employer/ employee relationship over the course of the past century, and we held that public policy, as expressed in both state and federal law, required such an exception. See also Petermann v. International Brotherhood of Teamsters, Local 396, 174 Cal.App.2d 184, 344 P.2d 25 (1959) (recognizing public policy exception to employment-at-will doctrine in case of employee alleging that he was wrongfully discharged for refusing to perjure himself before a legislative investigative committee).

Numerous other states have accepted the principle that public policy can limit an employer’s power to discharge at-will employees. See Kelsay v. Motorola, Inc., 74 Ill.2d 172, 23 Ill.Dec. 559, 384 N.E.2d 353 (1978); Frampton v. Central Indiana Gas Co., 260 Ind. 249, 297 N.E.2d 425 (1973); Fortune v. National Cash Register Co., 373 Mass. 96, 364 N.E.2d 1251 (1977); Monge v. Beebe Rubber Co., 114 N.H. 130, 316 A.2d 549 (1974); Nees v. Hocks, 272 Or. 210, 536 P.2d 512 (1975); Harless v. First Nat’l Bank, 162 W.Va. 116, 246 S.E.2d 270 (1978). More specifically, the Eastern District of New York has recognized a cause of action for wrongful discharge when an employee alleges that he was terminated to deprive him of pension benefits. Hovey v. Lutheran Medical Center, 516 F.Supp. 554 (E.D.N.Y.1981). The court expressly recognized the public policy associated with the preservation of pension plans for both governmental and private employees. Id. at 558; see also Savodnik v. Korvettes, Inc., 488 F.Supp. 822, 826 (E.D.N.Y.1980) (recognizing strong public policy “favoring the protection of integrity in pension plans” and allowing wrongful discharge cause of action for plaintiff who alleged that employer fired him to avoid paying pension benefits).

In determining whether McClendon has stated a cause of action under Texas law, we recognize that the state has an interest in protecting employees’ interests in pension plans. Cf TEX.REV.CIV.STAT., Title HOB (Vernon 1988) (reflecting state’s interest in preserving pension plans for public employees). Also, the Employee Retirement Income Security Act (ERISA) makes it unlawful for any person to discharge, fine, suspend or discriminate against any employee for the purpose of interfering with that employee’s potential rights under a pension plan. 29 U.S.C. § 1140. The very passage of ERISA demonstrates the great significance attached to income security for retirement purposes.

We hold that public policy favors the protection of integrity in pension plans and requires in this case an exception to the employment-at-will doctrine. This exception allows recovery when the plaintiff proves that the principal reason for his termination was the employer’s desire to avoid contributing to or paying benefits under the employee’s pension fund.³

We reverse the judgment of the court of appeals and remand this cause to the trial court for trial.

COOK, J., files a dissenting opinion in which PHILLIPS, C.J., and HECHT, J., join. GONZALEZ, J., files a dissenting opinion.

1 . Because we have decided this cause on other grounds, we need not reach the issues relating to the tort duty of good faith and fair dealing and we express no view on this matter.

2 . Although Ingersoll-Rand ultimately allowed McClendon's pension to vest, McClendon argues that such subsequent vesting does not retroactively reverse any bad faith conduct in which Ingersoll-Rand engaged when it terminated McClendon to avoid pension contributions. McClendon argues that the pension plan issue is relevent in order to explain the motivation behind Ingersoll-Rand’s initial termination of McClendon.

3 . Two federal district court cases have held that a claim for wrongful discharge in order to avoid the payment of pension funds is preempted by ERISA. Pratt v. Delta Air Lines, Inc., 675 F.Supp. 991 (D.Md.1987); Cahall v. Westinghouse Electric Corp., 644 F.Supp. 806 (E.D.Penn.1986). These cases, however, can be distinguished from the present action because here the plaintiff acknowledged in his brief to the court of appeals that he is not seeking lost pension benefits but is instead seeking lost future wages, mental anguish and punitive damages as a result of the wrongful discharge.