Appellate Court Denies Retirement Benefits To Former Employee After Finding The Employee Violated The Employer's Retirement Plan


In Wall v. Alcon Laboratories, Plaintiff, an employee at Alcon Laboratories, was offered a job with Otonomy, a bio-pharmaceutical company and, in Alcon's view, one of its competitors. Plaintiff accepted the job offer from Otonomy and requested the retirement benefits he believed he was entitled to receive from Alcon. While at Alcon, Plaintiff participated in the Alcon Supplemental Executive Retirement Plan (ASERP), a retirement plan subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA). As a condition of receiving ASERP benefits, employees must agree to various covenants, including the covenants not to disclose Alcon’s confidential information and not to compete. During the ASERP internal claims review process, Plaintiff's request for ASERP benefits was denied on the grounds that Alcon and Otonomy were competitors in the pharmaceutical industry and that Plaintiff violated the terms of the non-compete provisions of the ASERP by accepting employment with Otonomy. Plaintiff sued Alcon for the retirement benefits, but the district court granted summary judgment in favor of Alcon because the court concluded that Alcon's finding that Plaintiff violated the non-compete was neither arbitrary nor capricious. The Fifth Circuit affirmed the district court’s decision granting summary judgment to Alcon. The Court rejected Plaintiff's narrow interpretation of the ASERP’s non-compete provision and held that the provision squarely applied to Plaintiff's position at Otonomy. This decision is a reminder to employers that attaching non-compete obligations to retirement and other compensation plans can be an effective way to deter violations of post-employment obligations; courts tend to be more willing to give effect to these provisions where they result in the forfeiture of benefits than in circumstances where enforcement of a non-compete agreement would prevent a person from securing future employment.

Topics:  ERISA, Non-Compete Agreements, Retirement Plan

Published In: Civil Procedure Updates, General Business Updates, Labor & Employment Updates, Science, Computers & Technology Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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