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JOHNSON v. IBM

June 16, 1995

RONALD D. JOHNSON, Plaintiff,
v.
INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant.



The opinion of the court was delivered by: EDWARD A. INFANTE

 I. Introduction and Background

 Plaintiff Ronald D. Johnson is a former employee of defendant International Business Machines Corporation ("IBM") who was laid-off from his position at one of IBM's San Jose divisions in late 1993 and early 1994. He asserts federal race and age discrimination claims, as well as several supplemental state law claims, in connection with his discharge.

 Johnson also purports to represent an uncertified class of similarly-situated former IBM employees, all of whom signed a written release of legal claims against and covenant-not-to-sue IBM in consideration for enhanced severance benefits. The sixth and seventh claims of the Second Amended Complaint, filed February 3, 1995, assert that the uncertified class was subjected to, respectively, economic duress and undue influence at the time each signed the release and covenant-not-to-sue because of their distress at losing their jobs and the uncertain Silicon Valley job market. Both claims seek rescission of the release and covenant-not-to-sue and contain offers to remit the severance benefits in the event the release and covenant-not-to-sue is ordered rescinded.

 The parties agreed to bifurcate discovery and trial of the claims of economic duress and undue influence from the remainder of the litigation. *fn1" Phase I of the lawsuit, limited to Johnson's sixth and seventh claims, was tried to the Court without a jury over several days, on May 9-11 and 16-18, 1995. As noted, on this initial phase of the action, Johnson seeks rescission of the release and covenant-not-to-sue. IBM seeks an order of dismissal of the action with an award of costs. The Court's findings of fact and conclusions of law regarding Phase I of the trial are set forth below.

 II. Findings of Fact

 1. IBM is a New York corporation with its principal place of business in that State.

 2. Plaintiff Johnson, an African-American San Jose resident, was employed by IBM as a mainframe computer programmer for a period of approximately twenty years.

 3. Johnson was hired by IBM in 1973 upon graduation from California State University at Los Angeles.

 4. Johnson started working at IBM's San Jose facility, the Storage Systems Division ("SSD"), in 1974 and remained continuously employed by IBM until he was laid off effective January 27, 1994.

 5. Johnson's performance evaluations were consistently good during his first five years of employ, but declined thereafter, and in later years were barely satisfactory.

 6. On October 28, 1993, IBM announced a Storage Systems Division Resource Reduction Program ("SSRP"). Johnson was notified by his manager, Paul Pederson, that he had been designated a "surplus employee" and would be involuntarily laid-off effective December 31, 1993. Johnson was given a packet of materials describing the SSRP and escorted by Pederson from the SSD facility.

 7. The SSRP "surplus employee" designations were based on employee performance ratings. The three lowest-rated of the thirty-two SSD computer programmers were designated surplus, and Johnson had the lowest performance rating among them.

 8. The SSRP was the first involuntary reduction-in-force program ever instituted by IBM at its SSD facility in San Jose, and among the first lay-offs by IBM at any of its facilities. IBM had an historical tradition, trumpeted in its employee handbook, of providing workers with job security. IBM variously told employees that it engaged in "great", "all-out" and "extraordinary" efforts -- including retraining, reassigning and relocating employees -- to ensure "full employment" of its workforce.

 9. IBM's employee handbook, About Your Company, as periodically revised, states: "IBM has not established any specific term of employment; therefore termination may be initiated at any time by either an employee or by management." Further, the handbook provides that "IBM retains complete and full discretion to modify, amend or cancel any of [its] separation allowance plans". A 1992 revision to the handbook elaborates:

 
"In the past IBM has provided separation allowances from time to time to employees upon termination where the employee faces a period of expected unemployment, in connection with a mutual resignation or as an exit incentive to resolve overstaffing or workload imbalances. . . . The contents of these programs have varied widely according to business needs at the time of their announcement.
 
"It is not possible to predict how or when circumstances might arise to require changes in the current separation allowance plans or the addition of new separation allowance plans to respond to new business needs. Each separation allowance plan is designed to respond to the particular business needs at the time of announcement. Only top management makes these decisions. Managers outside of top management are not intended to know about the consideration of such changes, and no manager is authorized to discuss, give opinions, predict or otherwise comment on possible future changes in separation allowance plans or termination incentive programs. Employees are cautioned that they may not rely on such discussion, opinion, prediction or other managerial comment. You should understand that IBM may adopt new or modified separation allowance plans or exit incentive plans that, depending on your individual circumstances, may be more or less advantageous to you than those currently offered, or that IBM may withdraw such plans."

 Finally, the handbook states: "Nothing contained in any section of this book shall be construed as creating an express or implied obligation on the part of IBM."

 10. The SSRP provided that employees who were designated as surplus personnel were eligible to receive certain benefits, including outplacement assistance, career counseling, job retraining, and an enhanced "separation allowance".

 11. Under the terms of the SSRP, all employees who were designated as surplus were eligible to receive, at IBM's discretion, a separation allowance of two week's pay. The SSRP also provided that, in consideration of the execution of a General Release and Covenant Not to Sue (the "Release"), surplus employees could receive an enhanced separation allowance of one week's pay for each six months of accumulated service, up to a maximum of twenty-six weeks pay. The enhanced separation allowance was the only of several separation benefits conditioned on signing the Release.

 12. The SSRP also provided that by November 5, 1993, surplus employees could apply for alternate, generally lower-paying, positions in the SSD manufacturing area. Some of the manufacturing positions were sedentary, and it was not a condition of obtaining a manufacturing position that an employee release IBM from liability in connection with his discharge from his previous position. Eighty-nine designated surplus employees applied for manufacturing positions, and each was offered a position by the end of November 1993. Fifty-nine of these accepted the position, while the remaining thirty opted to instead sign the Release and receive enhanced severance benefits. Johnson, however, never applied for a manufacturing position at SSD.

 13. During the period October 28 through December 31, 1993, Johnson continued to be employed by IBM and received his regular salary and benefits but was not expected, or permitted, to perform his previous duties. Johnson's receipt of regular paychecks during this period was not conditioned on his ultimately signing the Release.

 14. From October 28, 1993 through at least the end of January 1994, Johnson was emotionally upset about being laid-off, was concerned about his financial situation and believed that he had been designated a surplus employee because of his race. He did not seek professional counseling during this period and was not mentally-incapacitated by a depressive disorder.

 15. Johnson suffers from a rare skin condition, known as pachyonychia congenita, which becomes exacerbated when he is under stress. The dermatological affliction, during pronounced periods, causes soreness and callousing of Johnson's hands and feet, and he encounters discomfort in walking. From October 28, 1993 through at least the end of January 1994, Johnson's skin condition was exacerbated and flared-up due to stress related to his being laid-off. However, Johnson has never at any time been immobilized or incapacitated by his skin condition.

 17. On December 20, 1993, Shum informed Johnson that he had received Johnson's December 14, 1993 letter and that IBM would investigate Johnson's charges. Shum also told Johnson that IBM would place Johnson on an unpaid leave of absence for the period from December 31, 1993 until the investigation was completed.

 18. IBM's internal investigation of Johnson's discrimination charges resulted in a determination that the charges were unfounded. The determination was communicated to Johnson on or about January 24, 1994.

 19. In the meantime, on January 4, 1994, Johnson consulted with Robert Baker, an attorney whom he had located in the "yellow pages" of the local telephone directory. The purpose of the consultation regarded Johnson's potential claims against IBM. The attorney reviewed Johnson's letter to Shum and told Johnson that if he signed the Release, he would have difficultly pursuing his discrimination charges.

 20. On January 24, 1994, Johnson was examined by Denise Clement, M.D., an IBM physician. Dr. Clement observed callousing of Johnson's hands and feet, tenderness in his heels, and purplish discoloration of his toes. She noticed, nonetheless, that Johnson was able to walk "normally". Dr. Clement observed that Johnson was coherent, articulate and cooperative. He understood the questions posed to him and was able to make judgments. Dr. Clement concluded that Johnson was capable of searching for and performing sedentary work which did not require extensive walking or standing.

 21. On January 27, 1994, at IBM's personnel office in San Jose, Johnson signed the Release, which he had read and understood. He received a check dated December 28, 1993 representing 26 weeks of separation pay, the maximum permitted under SSRP. The gross amount of the ...


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