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Nye v. Ingersoll Rand Company

783 F. Supp.2d 751 (D. N.J. 2011)

EMPLOYER-EMPLOYEE; CONTRACTS; ACCORD AND SATISFACTION — If a benefit plan, by its terms, may be terminated and an employer wishes to do so by the promulgation of an replacement plan, it must do so clearly and not merely by an information notice and not by expecting that negotiation of a benefits check under the later plan would constitute an accord and satisfaction of the employer’s obligations under the earlier plan.

A company began to solicit buyers for a recent acquired subsidiary. To further that purpose, the company adopted a sales incentive plan that rewarded employees for their contributions toward maximizing earnings because such efforts would increase the value of the subsidiary. It did so by rewarding qualifying employees with payments triggered by the sale of the subsidiary. It was based on a formula tied to the ultimate sale price. The plan was to remain in effect until the subsidiary was sold.

After the subsidiary failed to sell within two years, the company abandoned its sales efforts. Later, the company received an unsolicited offer from a potential buyer. It wanted to limit what it would have to pay if a sale was consummated, so it devised a successor sales incentive plan. The new plan’s creation was disseminated to employees by letter. It said the old plan was no longer in effect. The letter required recipients to countersign the letters promptly or be ineligible for the new benefits. The letters did not warn that any rights would be lost by enrolling. The sale closed and the company paid benefits pursuant to the second plan. Enclosed with each benefit check was a letter saying that endorsing the check would constitute full and final payment under this program and its predecessors.

Employees of the company’s subsidiary sued, alleging that they had not surrendered their rights under the earlier plan and that the company breached the terms of the earlier plan when it failed to pay upon the sale of the subsidiary. The company responded that the earlier plan expired before the sale and that by agreeing to the new incentive plan, the employees surrendered their rights under the earlier plan.

The Court granted summary judgment in favor of the employees on the issue of liability, concluding that the earlier plan did not expire. The plan was perfectly clear that it would be in force until the subsidiary was sold. The court further held the employees did not relinquish the right to enforce the earlier plan when they signed information letters about the new plan. Those letters never said the employees would be relinquishing their rights. According to the Court, any forfeiture of rights had to be clearly identified. It noted the company was a sophisticated entity and could have made clear that agreeing to the new plan would release claims under the old plan.

As to the letter accompanying the payment under the new plan, the Court held that it did not effectuate an accord or satisfaction as such would require that the payment was in partial payment of the original obligation. The checks distributed were for amounts due under the new plan and no more. Also, the letter itself referred to a predecessor plan, but it was not clear to the court that the earlier plan was actually a predecessor plan, which would imply a substitution or succession by a successor plan.

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