MacIntosh v. Brunswick Corp.
241 Md. 24, 1965 Md. LEXIS 406, 215 A.2d 222 (1965)
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Rule of Law:
Post-employment restraints requiring forfeiture of deferred earned compensation due to competitive activity are unenforceable if they are unlimited in geographic area, unnecessary to protect the employer's business, and impose undue hardship on the employee.
Facts:
- Francis J. Macintosh began working for Brunswick Corporation, a manufacturer of recreation equipment, as a counter salesman in 1946 under an oral employment contract and was later promoted to a sales position in 1948, receiving a 'salary and bonus' pay arrangement where bonuses were paid annually after being earned.
- In April 1960, Brunswick revised its bonus plan to defer a portion of the bonus, payable in five equal yearly installments starting three years later, and included a clause stating that employees would lose rights to future payments if they engaged in acts derogatory to the company's interests; this plan was not clearly implemented or communicated to Macintosh.
- Effective January 1, 1961, Brunswick issued another bonus plan revision for sales engineers (Macintosh's role), deferring portions of bonuses with payment starting one year later in five equal yearly installments, and including a forfeiture clause for competitive activity, which Macintosh was not notified of until March 1961.
- In March 1961, Macintosh received $6,900 of his $17,509.27 bonus earned for 1960, along with a letter explaining the remaining $10,609.27 was deferred and subject to forfeiture if he engaged in 'business activity substantially competitive with the Company,' which Macintosh signed.
- Macintosh received his first deferred bonus payment of $2,121.87 on March 15, 1962.
- On August 31, 1962, Brunswick dismissed Macintosh from his employment due to a reduction in its sales force, leaving $8,487.40 in his deferred bonus account.
- Macintosh accepted a position with Bowl-Mor Company, a manufacturer of tenpin pin-setters, which competed with Brunswick in that specific product line.
- On October 12, 1962, Macintosh informed Brunswick of his new employment, and Brunswick subsequently declared his remaining $8,487.40 in deferred compensation forfeited due to competitive activity.
Procedural Posture:
- Francis J. Macintosh (plaintiff) filed a lawsuit against Brunswick Corporation (defendant) in a lower court.
- Both parties filed cross-motions for summary judgment.
- The lower court denied both motions for summary judgment.
- At the conclusion of the plaintiff’s case, the lower court granted Brunswick Corporation's motion for a directed verdict.
- Francis J. Macintosh (plaintiff-appellant) appealed the lower court's judgment to the Maryland Court of Appeals.
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Issue:
Are post-employment restraints that require an employee to forfeit deferred earned compensation if they engage in competitive business activities enforceable when the restraints are unlimited in geographic area and impose undue hardship on the employee?
Opinions:
Majority - Horney, J.
No, post-employment restraints requiring an employee to forfeit deferred earned compensation for competitive activities are not enforceable when such restraints are unlimited in geographic area and impose undue hardship on the employee, as they constitute an unlawful restriction on seeking similar employment. The Court first determined that the 'bonus' in question was not a gratuity but 'essentially earned compensation for services rendered' by Macintosh. Since the salary and additional compensation were fixed or readily ascertainable, the bonus was earned in 1960 under the original oral employment contract, which imposed no conditions on the time of payment. Furthermore, Macintosh was not notified of the revised bonus plans until March 14, 1961, rendering the post-employment provisions unenforceable as to the bonus already earned. Regardless of whether the bonus was earned under the original contract or if there was assent to the revised plan, the Court held that the unilaterally proposed post-employment restraints constituted an unlawful restriction on Macintosh's ability to seek similar employment. Maryland law dictates that restrictive covenants in employment contracts are only sustained if they are 'no wider as to area and duration than are reasonably necessary for the protection of the business of the employer and do not impose undue hardship on the employee or disregard the interests of the public' (citing Silver v. Goldberger). The restraint in this case was unlimited as to area, making it unreasonable for protecting Brunswick's business interests. Additionally, the restraint imposed undue hardship on Macintosh, who was discharged through no fault of his own (reduction in force) and had been unemployed for over two months, with his specialized training limiting his employment options. Therefore, Brunswick had no right to forfeit the balance of Macintosh's earned bonus.
Analysis:
This case significantly clarifies that forfeiture clauses for deferred compensation, if triggered by competitive employment, are treated as restrictive covenants and must meet the same strict reasonableness standards as traditional non-compete agreements. It reinforces Maryland's strong public policy against restraints on trade that are overly broad or cause undue hardship to employees. Future cases will scrutinize such forfeiture provisions by evaluating geographic scope, duration, necessity for employer protection, and the impact on the employee's ability to earn a living, especially when the compensation is deemed 'earned' rather than a mere gratuity. The decision also implies that unilateral changes to compensation plans that introduce restrictive covenants may require clear notice and acceptance to be enforceable, particularly regarding already-earned compensation.
