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Russell v. Princeton Laboratories Inc.

Decided: July 10, 1967.


For reversal and remandment -- Chief Justice Weintraub and Justices Jacobs, Francis, Proctor, Hall and Schettino. For affirmance -- None. The opinion of the court was delivered by Weintraub, C.J.


This case involves a dispute as to the amount payable to an employee from an employees' profit-sharing trust upon the termination of his employment. On cross-motions for summary judgment, the trial court found against the employee. The Appellate Division affirmed, and we granted certification. 47 N.J. 574 (1966).

The trust was created in the light of section 401 of the Internal Revenue Code of 1954, 26 U.S.C.A. ยง 401, to obtain the tax advantage it permits the employer and the employees. The indenture provides the trust "is created for the exclusive benefit of the employees of the Corporation to compensate and reward them for loyal and faithful service." The employer's contributions, fixed at a percentage of annual earnings, are allocated upon a set formula among the participating employees (those who were employed when the trust

was created or who have completed two years of continuous employment).

Although the benefits so earned by the employees constitute deferred compensation, the plan nonetheless contemplates a loss of earned credits in certain eventualities. These losses are described in the trust indenture as "forfeitures." In the case before us the deferred compensation credited to plaintiff at the time his employment was terminated was $11,613.58, but defendants contend only $4,589.45 was "vested," or in other terms, that $7,024.13 was "forfeited."

In outline, these are the contentions of the parties: Defendants say plaintiff incurred the forfeiture under the terms of the trust indenture because he left his employment voluntarily, whereas plaintiff, invoking other provisions, says he was entitled to the full amount either (1) because he was totally and permanently disabled or (2) because his separation resulted from neither a discharge for "cause" nor a "voluntary" quit and hence constituted an "other discharge" within the meaning of the trust instrument. Upon either thesis, plaintiff would suffer no forfeiture. Defendants rely also upon the decision of the "Advisory Committee" which the indenture says "shall be final," while plaintiff assails the decision as arbitrary and therefore of no binding effect. We will set forth the provisions in more detail after stating the facts disclosed on the cross-motions for summary judgment.

Plaintiff was employed by the corporation continuously from April 1955 to March 6, 1964. His final rate of compensation was $145 per week plus a yearly bonus of $1,000. For about a year prior to the termination of employment, plaintiff suffered from a pulmonary difficulty, resulting in his hospitalization on February 14, 1964. His illness being traced to certain exposures at the place of work, his doctors advised that the exposures had to be terminated. This is not disputed. On March 6, the date of termination, plaintiff met with Dr. Kleinberg, the president of the company. Plaintiff's affidavit says that after telling Dr. Kleinberg of the medical report:

"I informed Dr. Kleinberg that I was ready and willing to continue my employment in some other capacity which would not expose me to the products responsible for my condition. We discussed other possible positions for me and Dr. Kleinberg told me, following this discussion, that there was no other work available and that it would not be possible to transfer me to another job. I asked Dr. Kleinberg, in substance, if that meant that there was no job for me at Princeton Laboratories, Inc., and he, in substance, agreed."

In response Dr. Kleinberg's affidavit acknowledges receipt of the medical opinion and says:

"* * * Plaintiff thereupon requested a change of job assignment within the laboratory, so as to separate him from the substances which were the alleged cause of his illness. I explained to him that there were no other jobs or work available which would not bring him into contact with these same substances. He then indicated that he would no longer work at the laboratory because of the effect on his health, and his employment was terminated."

Article XI of the indenture covers "Severance of Employment." Paragraph (A) deals with "Forfeiture on Discharge for Cause" and provides for a total forfeiture in that event. Paragraph (B) deals with "Forfeiture on Voluntary Severance," and provides for partial forfeiture graduated by the years of service. This is the provision defendants ...

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