The issue presented in this action is whether an employee's vested interest in a profit-sharing trust is subject to forfeiture solely because he engages in competitive employment following a discharge by his employer.
Robert Ellis was employed as a salesman by State Insulation Corporation (State) from September 9, 1966 until April 29, 1975. State is a New Jersey corporation, wholly owned by defendant George Lionikis, engaged in the distribution
and sale of insulation materials and accessories. In 1962 State established the State Insulation Corporation Profit Sharing Trust (Plan)
Defendant Lionikis has been a trustee of the Plan since its inception, and at all times relevant here he and his wife have been the sole trustees of the Plan. The Plan consists solely of contributions made from time to time by State and contains the following provision:
If the Trustees find that any separated participant during the first two (2) years of his separation, is engaged in conduct prejudicial to the Company's interest or is engaged, directly or indirectly, or in any manner takes part in any business profession or other endeavor, either as an employee, agent, independent contractor, owner or otherwise, in the entire State of New Jersey -- excluding Cumberland and Cape May Counties in New Jersey, and including, Staten Island, New York, [which] shall, in the opinion of the Directors of the company, be in competition with the business of the Company, which opinion of the Directors shall be final and conclusive for the purposes hereof and if after due notice, such separated participant continues to be so engaged, the Trustees shall suspend the payment of any further separation benefits to the separated participant.
In the event a participant is charged with forfeiture of all benefits the Company shall be called upon to produce affirmative evidence to prove such charge beyond a reasonable doubt. The participant so charged shall be accorded the right to be heard, and to produce witnesses to deny such charge -- the Trustees' decision shall be final.
The Plan further provides that in the event of separation from employment an employee forfeits a specified percentage of his accrued interest in the Plan, the percentage of forfeiture diminishing with the length of service. In the case of Ellis it has been stipulated that as an employee with eight
full years of service his vested interest at the time of his discharge was equal to 60% of his accrued interest in the Plan. Since the latter amount was $29,592.09 at December 31, 1974, the dollar value of his vested interest was $17,755.74, the recovery of which he seeks in this action.
The proofs at the trial disclosed that Ellis sold State's products to insulation contractors and industrial accounts primarily in northern New Jersey and to a limited extent in New York City and Long Island. He received a base salary against sales commissions, and in every year of his employment his commission income exceeded his base salary. During the last full year of his employment Ellis accounted for sales of $1,102,742, while the total sales of State in that year were $2,622,544.
Both Ellis and Lionikis described the insulation materials business as a highly competitive one. There are at least four major competitors of State in the geographic area in which it sells, as well as several smaller companies selling the same or similar products. Price and service to the customer are the most important factors in effecting a sale. State has enjoyed an ...