This is an action by an employee to recover his interest in a profit-sharing plan. *77 At issue is whether an amendment to such a plan providing for forfeiture in the event the employee, took employment with a competitor could be applied by the employer to divest interests which were vested before the amendment took effect.
The facts are not in dispute.
The Alumatie Corporation of America (hereinafter referred to as Alumatie) is engaged in the manufacture and sale of aluminum combination windows and doors. Eugene Rosploch was an employee of Alumatie (or its predecessors) from September of 1946 until October 25,1973, when he voluntarily terminated his employment following a dispute with the president of the company concerning a matter unrelated to this case. Approximately one week later he took a job with Consolidated Aluminum Corporation, a New Berlin, Wisconsin, firm also manufacturing and selling aluminum combination windows аnd doors.
While at Alumatie, Rosploch had been a participant in a profit-sharing plan instituted by the company effective January 1, 1968, for the benefit of all full-time salaried non-union employees. Under the plan, which was qualified by the Internal Revenue Service for tax purposes, Alumatie annually would contribute a portion of its net profits to a trust established for this purpose. The company’s payments to the trust were apportioned among particiрating employees as of December 31st of each year according to a point formula based on annual compensation and years of service. The annual share of each employee was then added to his Company Contribution Account. The plan provided that an employee’s interest in his Company Contribution Account vested immediately upon retirement, death or permanent total disability.. Otherwise the employee’s interest vested according to a specified time schedule, beginning with 10 percent vesting after two years’ service with the company or its predecessors, and culminating with com- *78 píete vesting after eleven years of such service. The rights of a participant upon termination (other than by retirement, death or disability) were stated as follows:
“Except as otherwise provided in the other paragraphs of this Article V, if any employee shall resign or be discharged by the Company prior to reaching age 60 such employee shall be entitled only to the vested equity in his accounts as of the last valuation date preceding the time of such resignation or discharge. ‘Vested equity’ shall mean the full amount of his interest in his Participant Contribution Account plus the percentage of his interest in his Company Contribution Account which has vested under the terms of [the vesting schedule referred to above]
The plan also contained a provision entitled “Divesting” which provided that “Notwithstanding anything in this plan to the contrary, the Participant shall forfeit the entire amount credited to his Company Contribution Account” upon the happening of certain specified events. Under the plan as effective January 1, 1968, the events resulting in forfeiture were discharge of the participant by the company for theft, embezzlement, obtaining money or property by false pretenses, insubordination, assisting a competitor without permission, revealing trade secrets of the company, or interfering with the company’s relationship with a customer. However, on February 8, 1973, approximately eijght months before Rosploch left Alumatic, the plan was amended by adding as an additional ground for forfeiture the following:
“If, during the two years following termination of his employment, the participant shall, without the written consent of Company, enter the employ of, represent, act as a cоnsultant for, or otherwise directly or indirectly perform services for any individual or business organization engaged in activities competitive with those of the Company.”
*79 The provision reserving the right to amend the plan provided in pertinent part as follows:
“The Company reserves the right to amend or terminate the Plan at any time; provided, however, that no amendment or termination shall deprive any Participant of his vested equity nor revest in the Company any assets оf the Trust . . . .”
Following Rosploch’s resignation from Alumatic he made demand upon the company for $3,059.73, the balance in his Company Contribution Account as of December 31, 1972, the last valuation date preceding his departure. Alumatic refused to pay, and Rosploch commenced the instant action on May 20, 1974. Alumatic’s only defense was that under the “no competition” amendment to the plan, of which Rosploch was well aware, Rosploch was divested of all interest in his Company Contribution Account as a result of his taking employment with Consolidated Aluminum Corporation. The trial court expressed considerable doubt as to the validity of the amendment, but declined to rest its decision on this basis, holding instead that inasmuch as Rosploch’s interest in the plan was fully vested at the time the amendment was adopted, the amendment could not be applied. From a judgment entered accordingly Alumatic has taken this appeal.
I. VALIDITY OF THE AMENDMENT
Rosploch has not challenged the general validity of the no-competition amendment to Alumatic’s plan, either in the trial court or on appeal, and as a result a record regarding this issue was not made. Therefore we, like the trial court, do not rest our decision on this basis. However, it is settled in this state that non-competition forfeiture clauses in pension or profit-sharing plans are *80 contracts in restraint of trade, and as such, are subject to sec. 108.465, Stats. 1 We share the trial court’s view that the validity of the amendment to Alumatic’s plan is questionable on this ground.
II. APPLICATION OF THE AMENDMENT
Assuming for purposes of decision that the no-competition amendment was valid, we reach the dispositive issue in this case. There was no evidence that would have justified divestment of Rosploch’s interest under any of the causes of forfeiture in the plan before it was amended on February 8, 1973. It is also undisputed that Rosploch *81 had been employed by Alumatic or its prеdecessors for more than eleven years before the profit-sharing plan was instituted; that he therefore acquired a 100 percent vested interest in each annual contribution to his Company Contribution Account at the time the contribution was made; and that as of December 31, 1972, Rosploch had in his account the sum of $3,059.73. But for the amendment in question, when Rosploch resigned in October of 1973, he would have been entitled to payment of that sum, “the vested equity in his acсounts as of the last valuation date preceding the time of [his] resignation . . . ,” according to one of the alternative modes of payment specified in the plan. The issue is whether the trial court correctly concluded that under the circumstances the amendment could not change this result.
The profit-sharing plan herein was in essence a contract between the employer and the employee.
Holsen v. Marshall & Ilsley Bank,
*82 The plan reserves to Alumatic the right to amend the plan at any time, but qualifies this right as follows:
“[N]o amendment . . . shall deprive any Participant of his vested equity . . . .”
The term “vested equity” is defined in the plan to mean:
“. . . the full amount of his interest in his Participant Contribution Account plus the percentage of his interest in his Company Contribution Account which has vested under the terms of Article V, sub-paragraph A, 2.”
These two provisions plainly state that vested interests are protected from impairment by subsequent amendment. But Alumatic, seizing on a phrase from this court’s decision in
Zimmermann v. Brennan,
In
Evo v. Jomac, Inc.,
The plan did not provide for vesting until employment was actually terminated, and the company argued that since the amendment was passed before the plaintiff *85 resigned, it could properly be applied. However, the court held that the power to amend was limited by the instrument itself to preclude deprivation of “accrued” benefits, and interpreted “accrued” to mean “accumulated,” which did not require actual vesting. The court held that the amendment could be applied only with respect to benefits accruing after the effective date of the amendment. 4
In
Rochester Corp. v. Rochester,
The company concedеd that it would not have been able to apply the amendment in cases where the employee retired or was terminated before its effective date. However, it argued that as to this employee, its action was proper because the amendment was adopted before he resigned, at a time when his rights were not yet vested. This distinction was rejected, the court holding that the amendment could not be applied to prejudice the emplоyee’s rights to benefits accruing prior to the date of its adoption. 5
*87 Though the precise terminology of the Evo and Rochester plans differs from that of Alumatic’s plan, we are of the opinion that the differences are insignificant and that the result in those cases is appropriate here. Alumatie appears to concede that if Rosploch had quit before the amendment became effective it could not have amended the plan to affect his status. Thus if Rosploch had resigned and gone to work for a competitor in January of 1973 he would have been entitled to receive full benefits. The company claims, however, that since he did not quit until after February 8, 1973, when the amendment was adopted, a different result must follow. This is precisely the differentiation rejected in the Rochester Case, and we reject it here.
Alumatic’s profit-sharing plan constituted an offer of the benefits stated therein in exchange for service as an employee. In Rosploch’s case, by virtue of his lengthy employment with Alumatie аnd its predecessors, those benefits took the form of a fully vested interest in the share of the company’s contributions which was allocated to him on December 31st of each year. His actual receipt of such payments was not guaranteed — payments could be forfeited as a result of his discharge for theft, insubordination or other of the specified causes. The risk of forfeiture on these grounds was part of the contract created by Rosplоch’s performance. But to hold that Alumatie could impose the no-competition amendment as an additional condition upon Rosploch’s contractual right, after he had earned his account by virtue of his performance, is tantamount to saying that benefits under the plan were merely a gratuity. That view of pension and profit-sharing plans has long been inconsistent with Wisconsin law — at least since Zwolanek v. Baker, supra, decided in 1912. The limitation incorporated in Article X as to thе company’s power of amend *88 ment, construed as it should be in favor of the employee, is ample evidence of an intent to preclude such a result.
Alumatic suggests that the trial court’s decision herein creates problems as to how long an amendment must be in effect before it is controlling, and further suggests that it leads to undesirable discrimination in the treatment of employees who commence work at different times with respect to the time an amendment is adopted. Both of these contentions lack merit. The amendment (assuming it to be valid) became effective immediately as to all participants in the plan, but only with respect to interests in company contributions which became vested after its adoption. If Rosploeh had worked through December 31, 1973, and had additional amounts allocated to his Company Contribution Account for the year 1973, and if he had thereafter left Alumatic to work for a competitor, the amendment (if valid) could have been applied to forfeit the December 31, 1973, allocation. All employees are treated by the same standard. It is simply a coincidence that in the case at bar Ros-ploch acquired no additional vested rights after the amendment was adopted.
By the Court. — Judgment affirmed.
Notes
Sec. 103.466, Stats., provides as follows:
“Restrictive covenants in employment contracts. A covenant by an assistant, servant or agent not to compete with his employer or principal during the term of the employment or agency, or thereafter, within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any such restrictive covenant imposing an unreasonable restraint is illegal, void and unenforceable even as to so much of the covenant or performance as would be a rеasonable restraint.”
Non-competition forfeiture clauses in pension or profit-sharing plans are contracts in restraint of trade, subject to sec. 103.465, Stats.
Holsen v. Marshall & Ilsey Bank,
In
Evo v. Jomac, Inc.,
“[S]ince the plan did not result from a consensual bilateral negotiation but represented a unilateral work product of the employer, any ambiguities in the language should be resolved against the company. [Citations omitted.] And the general dis *82 favor of forfeiture, together with the policy of liberal construction in favor of the employee, further dictates a construction whieh would avoid such a drastic result.”
The Zimmermann Case was an action by an employee to remove the trustees of a profit-sharing trust on the ground that a conflict of interest existed because the trustees, who were officers of the employer corporation, were beneficiaries of the trust. The action was instituted whеn, upon the employee’s resignation, the trustees refused to pay the employee’s benefits in a lump sum, but instead determined to pay the benefits in annual installments over a period not to exceed ten years. The plan provided that an employee who within one year of his termination took employment in a competitive business in the Milwaukee area would forfeit the unpaid portion of his vested interest. During the course of the litigation it appеared that the employee had violated this provision, and the trustees accordingly informed the employee that his interest had been forfeited. Under the plan the amount of any forfeitures was redistributed among the participants who remained, which included the trustees.
*83
The sole issue in the case was whether the trustees had to be removed. This court held that in the case of a profit-sharing trust which contemplated beneficiary-trustees, the conflict of interest resulting from redistribution of forfeitures was not in and of itself grounds for removal of such trustees. Some act of mismanagement or other impropriety was required to be shown. In the course of demonstrating that no such improprieties had been committed by the trustees in that case, the language relied upon by Alumatic here was used (
“In the instant case, the trustees were not found to have committed any act of mismanagement or of making a decision motivated by self-interest. Thе trustees found Zimmermann was competing with the Studios by working with BarMn-Herman & Associates. Upon this finding the vested rights of Zimmermann were forfeited, not by the acts of the trustees, but by the acts of Zimmermann under the terms of the trust agreement. No issue is raised in this case that the finding of the trustees to the effect Zimmermann was competing is incorrect.
“Indeed it would seem the trustees would have been derelict in their duties to the Studios had they decided to pay Zimmermann his benefits in a lump sum within ninety days when they had reason to know he intendеd to compete or might compete with the Studios within one year. The profit-sharing plan was to prevent, or at least discourage, as part of its purpose, the employees’ voluntary termination of employment and subsequent competition with the Studios at least for one year after such termination. This was one of the benefits the employer received from the plan.” (Emphasis added.)
Neither in the trial court nor on appeal did either of the рarties in Zimmermann raise the issue of the validity of the no-competition clause under Wisconsin law. And, as the trial court in this case stated in its decision, that clause in Zimmer-matm had been part of the profit-sharing plan from the time it was adopted. It was not added by subsequent amendment as occurred in the case at bar.
The court outlined the general principle it was applying as follows,
“The correlative rights and obligations of the employee and employer under both the pension and profit-sharing plans are governed by ordinary contract principles. These plans do not constitute mere gratuities on the part of the employer to be granted or withdrawn at the whim or largesse of the employer. ... In effect, the sums payable are no less than deferred compensation for services rendered during the period of employment. As a consequence, ‘when the employee renders service in response to thе promise of the trust plan, he acquires a right no less contractual than if the plan were expressly bargained for.’ ”
See
Annot.,
Private Pension Plan: Construction of Provision Authorizing Employer to Terminate or Modify Plrni,
“We perceive no sound or logical basis for differentiating, as the defendant does, between an employee-member who has served more than ten years but is still employed and one, who has likewise served more than ten years but is not then employed, or for designаting the rights of one as ‘vested’ and the other as ‘inchoate.’ The result of adopting the defendant’s argument would be that an employee serving more than ten years, who had been discharged for cause, would be protected from dilution of his right through an amendment of the plan, but one who had not been so discharged but was still employed, would not be protected. Such a distinction is obviously both unfair and unreasonable. The language of the plan, which, of course, controls, neither suggests nor supports such an inequitable result.
“The pension plan provided that all employees of the defendant, if they remained in the employ of the defendant ten or more years, would be entitled, on attaining retirement age, to certain specified pension rights. While unilateral, that offer, when accepted by an employee as evidenced by rendering services for ten or more years, became ‘irrevocable’ and such emрloyee acquired ‘a right no less contractual than if the plan were expressly bargained for’. By rendering service for the period required under the plan, the employee’s rights to benefits under the plan are ‘earned no less than the salary paid to him (the employee) each pay period’ and are ‘in the nature of delayed compensation for former years of faithful service’. Whether the plan be contributory or noncontributory, the benefits, thus earned, are not gratuities.”