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Fourth Circuit Rules Employment Agreement Ambiguous

Published by on April 5, 2012

On March 22, 2012, the U.S. Court of Appeals for the Fourth Circuit found an employment contract calling for the company to pay a $100,000 annual benefit to a deceased employee’s surviving spouse to be ambiguous.  The court vacated the district court’s judgment in favor of the company and remanded the case.  More after the […]

On March 22, 2012, the U.S. Court of Appeals for the Fourth Circuit found an employment contract calling for the company to pay a $100,000 annual benefit to a deceased employee’s surviving spouse to be ambiguous.  The court vacated the district court’s judgment in favor of the company and remanded the case.  More after the break.

On December 1, 1994, David Williams entered into a Deferred Compensation Agreement (“Agreement”) with his employer, CDP, Inc.  The Agreement provided that the company would pay $100,000 annually to his spouse, Sharon Williams, after his death.  The Agreement contained a paragraph that defined deferred compensation payable to David Williams at his retirement as well as a death benefit payable to his spouse.  That same day, David Williams also signed an Employment Agreement that ended upon the termination of his employment. 

David Williams died while still employed by CDP, and in accordance with the Agreement, following his death, Sharon Williams began receiving monthly payments totaling $100,000 per year.  Nine years after her husband’s death, the company stopped paying Williams, and Williams brought a lawsuit against CDP and several affiliated companies seeking to enforce the Agreement. 

The district court granted the defendants’ motion for judgment on the pleadings and held that as a matter of law the Agreement unambiguously required David Williams to be retired as a condition precedent to the payment of the spousal death benefit.  Because David Williams was still employed by the company when he died, the court determined that Williams had failed to state a claim upon which relief could be granted.  Williams subsequently appealed.

The Fourth Circuit disagreed and found that the Agreement was ambiguous.  Although the court found the district court’s reading of the paragraph in question to be reasonable, the court stated that there was another reasonable interpretation of the words employed by the parties in the contract.  The court examined the sentence structure of the paragraph in question to determine that the Agreement was susceptible to multiple interpretations.  

The Defendants argued that the court should read the Deferred Compensation Agreement and the Employment Agreement together – that the Employment Agreement necessarily limited the Deferred Compensation Agreement.  Essentially, Defendants charged that the benefits of the Deferred Compensation Agreement began after at the end of the benefits under the Employment Agreement  – at David Williams’s retirement.  The court disagreed.  Although it construed the meanings of the two agreements together, the court held that the term of the Deferred Compensation Agreement began as of the date of the Agreement.  Furthermore, the court held that the two agreements provided distinct benefits payable to different beneficiaries.  

To view the Fourth Circuit’s opinion, click here.

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