John R. Roesgen v. American Home Products Corp., John P. Brincko v. American Home Products Corp.

In this diversity case, appellants John Roesgen and John P. Brincko seek to invalidate a forfeiture provision in the compensation agreement they entered into with American Home Products Corporation (AHP).

Roesgen and Brincko, formerly employed by AHP at its New York headquarters, received contingent stock credits as part of AHP’s Management Incentive Plan (MIP). Both men voluntarily left AHP to accept employment with California companies.

The MIP provided that an ex-employee who met all of the conditions of the plan would receive shares of stock in the amount of one-tenth of his or her contingent credits in each of the ten years following termination. One of the conditions of the MIP was that the employee refrain from engaging in employment with a competitor of AHP. If AHP determined that a former employee had accepted employment with a competitor, all of the employee’s rights to stock under the MIP were forfeited. AHP notified Roesgen and Brincko that their new employers were competitors of AHP and that stock payments would be discontinued.

Roesgen and Brincko brought suit, contending that the forefeiture provision is an illegal restriction on employment under Cal. Bus. &…