Junial Douglas v. Smith International, Inc.

Case: 11-20784 Document: 00511915604 Page: 1 Date Filed: 07/10/2012

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit

FILED
July 10, 2012

No. 11-20784 Lyle W. Cayce
Clerk

JUNIAL DOUGLAS,

Plaintiff - Appellee
v.

SMITH INTERNATIONAL, INC.,

Defendant - Appellant

Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:11-CV-1924

Before DAVIS, OWEN, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
This appeal arises from the district court’s grant of summary judgment in
favor of Plaintiff-Appellee Junial Douglas (“Douglas”) based on the court’s
conclusion that Douglas’s former employer, Smith International, Inc. (“Smith”),
owed Douglas an end-of-service severance award pursuant to Saudi Arabian
labor law. Smith argues on appeal that the district court erred in its
interpretation of Saudi Arabia’s Labor and Workmen Law (“Saudi Labor Law”
or “Labor and Workmen Law”) and the Rotation Assignment Agreement

*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
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(“Agreement”) that covered Douglas’s final term of service in Saudi Arabia. For
the reasons set forth below, we AFFIRM.
I. Facts & Procedural History
The facts are generally undisputed. On December 30, 1997, Smith
employed Douglas, a Missouri citizen, to work on a rotational basis in Saudi
Arabia. During the thirteen years until his 2010 retirement,1 Douglas worked
in various positions and in different locations in Saudi Arabia. During this
tenure, Smith made 401k and profit-sharing contributions on Douglas’s behalf
in the amount of $190,344.29.
On March 1, 2008, Douglas began working for Smith as a district manager
in Saudi Arabia. Under the Agreement that governed this final term of
employment, Douglas worked on a three month rotation, in which he would work
for two months in the field, followed by one month off. Article 84 of the Saudi
Labor Law requires employers to pay an end-of-service severance entailing a
“half-month wage for each of the first five years and a one-month wage for each
of the following years” of employment. LABOR AND WORKMEN LAW, Ministry of
Labour, art. 84 (Saudi Arabia).2 Douglas retired on December 31, 2010, and,
pursuant to Article 84, requested severance pay in the amount of $144,657.45.
Smith rejected Douglas’s request, reasoning that it was not required to pay the
end-of-service award because, inter alia, it had already provided Douglas
benefits that exceeded what he was entitled to under Article 84.
Douglas sued for Smith’s failure to comply with foreign law and breach of
their employment Agreement. Based on a calculation using Douglas’s last
month of wages ($15,227.10) multiplied by nine and a half months’ pay (five

1
The district court stated that Douglas worked for Smith in Saudi Arabia for twelve
years. The record shows that Douglas was actually working for Smith in Saudi Arabia for a
full thirteen years—December 30, 1997 to December 31, 2010—but he did not receive his
Saudi Arabian work permit until August 1998, twelve years and four months from his
retirement date. The end-of-service calculation was thus conservatively based on “full” years
of service, rather than adding a portion of a year to the base wage calculation.
2
Any citation to “Article[s]” in this opinion references the Saudi Labor Law.

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years of service at half-month’s pay, and seven years of service at full-month’s
pay), the district court granted summary judgment in favor of Douglas for
$144,657.45. Smith timely appealed.
II. Standard of Review
“We review a district court’s grant of summary judgment de novo, applying
the same standards as the district court.” Noble Energy Inc. v. Bituminous Cas.
Co., 529 F.3d 642, 645 (5th Cir. 2008). As such, summary judgment is proper
when “there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a). “Where the
record taken as a whole could not lead a rational trier of fact to find for the
nonmoving party, there is no genuine issue for trial.” Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (citation and internal
quotation marks omitted). “Doubts are to be resolved in favor of the nonmoving
party, and any reasonable inferences are to be drawn in favor of that party.”
Gowesky v. Singing River Hosp. Sys., 321 F.3d 503, 507 (5th Cir. 2003).
III. Discussion
The issues presented by Smith’s appeal are (1) whether the Agreement
precludes or offsets end-of-service benefits otherwise available to Douglas under
Saudi Labor Law; and if not, (2) whether the district court properly calculated
the amount of that award.
A. The Rotating Assignment Agreement
The parties agree that the Saudi Labor Law applies to Douglas’s
employment in Saudi Arabia. The parties also agree that they may not contract
out of Saudi law as any condition in their Agreement “that contradicts the [Saudi
Labor Law] shall be deemed null and void.” LABOR AND WORKMEN LAW, art. 8.
To that end, Article 8 allows parties to contract for a “release or settlement of the
worker’s rights arising from” the Saudi Labor Law, but only to the extent the
Agreement is “more beneficial to the worker.” Id. The key provision that
Douglas alleges entitles him to benefits under Saudi Labor Law is Article 84:

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Upon the end of the work relation, the employer shall pay the worker
an end-of-service award of a half-month wage for each of the first five
years and a one-month wage for each of the following years. The
end-of-service award shall be calculated on the basis of the last wage
and the worker shall be entitled to an end-of-service award for the
portions of the year in proportion to the time spent on the job.

Smith acknowledges this provision but argues on appeal that Douglas
agreed to a “more beneficial” benefits package in the form of 401k and profit-
sharing contributions, and thus is not entitled to an end-of-service award. There
is no dispute that Smith paid Douglas $190,344.29 in benefits during Douglas’s
tenure in Saudi Arabia—an amount greater than what Douglas is eligible to
receive under Article 84’s end-of-service award. Douglas argues, however, that
the Agreement does not call for such a compromise.
The Agreement stipulates that it is governed by Texas law. Therefore, we
must construe the Agreement so as to effectuate the parties’ intent as it has been
expressed in light of the circumstances present when the contract was entered.
See, e.g., David J. Sacks, P.C. v. Haden, 266 S.W.3d 447, 451 (Tex. 2008). To
accomplish this end, we must accord the terms of the Agreement their plain
meaning, see Lyons v. Montgomery, 701 S.W.2d 641, 643 (Tex. 1985), and view
each clause in light of the entire agreement so that no provision will be rendered
meaningless, see, e.g., Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). If
contract language can be given a definite “meaning or interpretation, then it is
not ambiguous and we construe it as a matter of law.” Tex. Farm Bureau Mut.
Ins. Co. v. Sturrock, 146 S.W.3d 123, 126 (Tex. 2004). “An ambiguity does not
arise simply because the parties offer conflicting interpretations” of the contract
language. Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003).
Rather, an agreement is only ambiguous if it “is susceptible to two or more
reasonable interpretations.” Id.
The Agreement was entered to effectuate the terms and conditions of
Douglas’s employment as district manager, effective March 1, 2008. Though the
parties agree that the language of the Agreement is unambiguous, they disagree

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about its meaning. We agree that the provisions at issue are only susceptible to
one reasonable interpretation and are thus unambiguous.
Smith’s argument on appeal focuses on the language of the “Termination”
and “Further Conditions of Employment” sections of the Agreement. According
to Smith, these provisions indicate that Douglas agreed he would not be entitled
to Saudi end-of-service benefits if the benefits provided by Smith over the course
of his employment exceeded the amounts due under Article 84, and in the
alternative, that any end-of-service payment due to Douglas must be offset by
benefits paid to Douglas under the Agreement. In neither instance, however,
does the Agreement’s language express such an intent to limit Douglas’s post-
employment rights under Saudi law.
1. “Further Conditions of Employment” Provision
We first look to the “Further Conditions of Employment” section, which
provides in relevant part:
A. Special Employment Contracts or Agreements: As directed by
the Company, you may be required to sign Special Employment
Contracts or Agreements at your assignment location. If such
contracts or agreements are deemed necessary or appropriate, the
Company expects your full assistance and cooperation with local
representatives to successfully fulfill those requirements. If such
special contracts or agreements should cause a conflict with the
Company’s policies, procedures or benefits, then you must notify
your manager immediately of any such conflict and promptly assist
with its resolution as directed by the Company. Under no
circumstances will the compensation or benefits of your foreign
assignment exceed the greater of those provided by the Company or
those required by local laws.

(emphasis added). Smith argues that the last sentence of this subsection
indicates that Douglas agreed to forego his Saudi end-of-service award for
greater benefits provided by Smith.
Smith, however, reads this sentence entirely out of context. The
subsection is titled “Special Employment Contracts or Agreements,” and the
first sentence notifies Douglas that local laws may require him to enter special

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agreements in order to work in the area. Indeed, the subsection as a whole
requires Douglas to cooperate with Smith and local officials in order to meet
local labor requirements at the start of Douglas’s assignment to ensure Douglas’s
employment eligibility. The limitation that Smith focuses on must, therefore,
be read in light of this prefatory language. See Coker, 650 S.W.2d at 393. Smith
cannot simply take a general statement of limitation out of context in an attempt
to expand its application. See Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132,
133-34 (Tex. 1994) (“For example, when a contract provision makes a general
statement of coverage, and another provision specifically states the time limit
for such coverage, the more specific provision will control.”). Smith’s
interpretation, however, wrongly attempts to compare employee benefits
provided Douglas during his tenure with severance payments mandated by local
law upon completion of his employment.
Ultimately, Smith’s reliance on this subsection is unavailing because the
language relates to limiting Douglas’s compensation and benefits, but nowhere
contemplates foreign severance or pension mandates. Indeed, the end-of-service
award is a right granted employees under Saudi Labor Law, not a “Special
Employment Contract or Agreement.” This provision does not aid Smith here.3
2. “Termination” Provision
Smith next argues that the Agreement’s “Termination” provision allows
Smith to offset any settlement payments required under local law with benefits
it already provided to Douglas. That provision reads:
Termination:
...
Termination will require immediate settlement of all outstanding
expenses, advances, taxes and other local financial issues. In some
countries, local employment conditions require settlement payments
under local law. If such payments are required, these payments will

3
It is notable that the Agreement here does include a “Benefits” section. If it were
Smith’s intent to provide Douglas employment benefits in lieu of foreign severance payments,
that section is the most logical place to have so provided.

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offset any compensation and benefits due to you from the Company.
You hereby consent to this offset as determined by the Company. . . .

Upon termination, you will be entitled to receive your base salary and
field earned incentives through your last day of work, subject to any
required or authorized deductions or offsets.

(emphasis added).

Smith’s reasoning is flawed. First, Smith again reads the relevant text
completely apart from its surrounding language. Smith assumes that this
language indicates Douglas’s consent to offset local settlement payments against
any compensation it has ever provided to Douglas. Even assuming that this
provision’s reference to “settlement payments” refers to the end-of-service award
at issue, Smith ignores the fact that the offsetting payments only apply to
“compensation and benefits due to [Douglas] from [Smith].” Not only is this
language forward-looking, but the compensation and benefits due to Douglas are
exemplified as “base salary and field earned incentives through [the] last day of
work,” and that Douglas is “entitled to receive.” Just as Douglas cannot claim
he is still entitled to compensation he already received, Smith cannot argue that
Douglas’s past compensation and benefits may offset his future severance
because it was once “due to [him].”
Though Saudi Labor Law clearly does not control our contract
interpretation here, it contains provisions that clarify how the “Termination”
provision operates. Indeed, Article 88 specifically allows for an offset much like
the one in the parties’ Agreement. That article notes that an “employer may
deduct any work-related debt due to him from the worker’s [end-of-service
entitlements].” The first sentence of the “Termination” provision reads similarly,
requiring an employee to settle outstanding “expenses, advances, taxes and
other local financial issues.” Indeed, Article 92 contemplates several scenarios
where an employer may deduct certain costs from an employee’s wages,
including: repayment of loans, social insurance contributions, worker

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contributions to thrift funds, home ownership program installments, and fines
imposed on the worker for workplace violations.
The Agreement’s “Termination” section is clearly a windup provision
aimed at limiting Smith’s liability for the range of payments it may be obligated
to make in favor of an employee. Indeed, the Agreement nowhere mentions
substitution of benefits provided during Douglas’s tenure for end-of-service
benefits under Saudi law. Moreover, Smith’s interpretation is simply
backwards. The Agreement contemplates the possibility that “[severance
payments] will offset any compensation and benefits due.” This is significantly
different than Smith’s position: that compensation and benefits once due may
offset a foreign settlement award. Bearing in mind that our primary goal is to
uncover the intent of the parties when they entered the contract, we find Smith’s
construction unreasonable. We conclude that the district court did not err in
rejecting Smith’s argument on this point.
B. End-Of-Service Award Calculation
Article 84 of the Saudi Labor Law provides that “[t]he end-of-service award
shall be calculated on the basis of the last wage and the worker shall be entitled
to an end-of-service award for the portions of the year in proportion to the time
spent on the job.” The district court determined that Douglas’s “last wage”
included “basic pay, hazardous work pay, housing and vehicle allowances,”
amounting to $15,227.10.
Smith argues that the wage determination should exclude housing and
vehicle allowances. Though Article 84 does not specify exactly what “last wage”
entails, “wage” is defined in the Saudi Labor Law. Article 2 breaks a worker’s
wage into “basic wage” and “actual wage.” Basic wage is “[a]ll that is given to
the worker for his work . . . regardless of the kind of wage or its method of
payment . . . .” Actual Wage, on the other hand, is “basic wage plus all other due
increments decided for the worker for the effort he exerts at work or for risks he
encounters in performing his work, or those decided for the worker for the work

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under the work contract or work organization regulation.” The default “Wage”
is then defined simply as “actual wage.”
Smith contends that the housing and vehicle allowances afforded Douglas
should not be included in the base “wage” used to calculate Douglas’s end-of-
service award because those allowances are not afforded Douglas “for his work.”
This argument, however, relies on the language provided in the more restrictive
“basic wage” definition. As noted, the default “wage” under Saudi Labor Law is
“actual wage” and includes “all other due increments . . . decided for the worker
for the work under the work contract or work organization regulation.”4 An
example provided in the definitions illuminates our inquiry, noting that actual
wage includes “[i]ncrements that may be granted in accordance with the
standard of living or to meet family expenses.” LABOR AND WORKMEN LAW, art.
2. This example certainly includes housing and vehicle allowances, and the
district court was thus correct in including those payments in Douglas’s last
wage calculation.
Smith also argues that the district court erred in making its calculations
based on Douglas’s total service in Saudi Arabia rather than his last rotation as
District Manager. Douglas worked under the Assignment contract from March
1, 2008, to December 31, 2010—two years and ten months. Douglas’s entire
tenure with Smith pursuant to a Saudi work visa spanned from August 1998 to
December 2010—twelve years and four months.
Smith’s construction of Article 84 is untenable. Article 37 of the Saudi
Labor Law contemplates the duration of foreign employment: “The work contract
for non-Saudis shall be written and of a specified period. If the contract does not

4
Though not effective here, Article 86 provides a solitary exception to the compensation
that should be included in the end-of-service last wage. That exception allows the employer
and employee to agree to exclude from the last wage “all or some of the commissions, sales
percentages, and similar wage components paid to the worker which are by their nature
subject to increase or decrease.” This exception is enumerated in examples one and four of the
definition for “actual wage” under Article 2, meaning that Saudi Labor Law contemplated the
end-of-service award to parallel “actual wage,” not “basic wage.”

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specify the duration, the duration of the work permit shall be deemed as the
duration of the contract.” Nowhere does the record show, nor does Smith
contend, that any of Douglas’s work contracts during his thirteen years of service
were for a specified time period. The duration of Douglas’s employment must
therefore be determined by the length of his work visa.5
Nor does Smith argue that there was ever an interruption in Douglas’s
thirteen years of service that would constitute a break sufficient to sever
Douglas’s compensable years of service. Article 2 defines “Continuous Service”
as “[u]ninterrupted service of a worker for the same employer or his legal
successor from the starting date of service.” Douglas received his Saudi Arabian
work visa in August 1998, thus triggering the “starting date of service.”6 There
is no dispute that Douglas ever stopped performing work for Smith,
notwithstanding changes in job title or specific contractual arrangements.
If we were to restrict an end-of-service award to time spent working under
individual contracts, it would provide Smith an end-around to Saudi-mandated
severance payments because Article 84 explicitly limits end-of-service awards
to work that lasts longer than two years. Not only would it be unreasonable and
out of course for an employer to provide an end-of-service award after the
completion of every contract performed in Saudi Arabia, it would enable a
company like Smith to simply transfer its employees to new positions within the
company every two years and never be required to pay a severance award
regardless of how long the employee is stationed in Saudi Arabia. Ultimately,

5
Smith itself contemplated the end of the employment relationship to coincide with the
maintenance of Douglas’s work visa. In Human Resources information sent to Douglas, Smith
stated to Douglas that his “work VISA has been sponsored by [Smith] and now that this
employment relationship has ended, your VISA will be cancelled.”
6
Though “Service” is not defined, the plain meaning of the word must constitute
employment when Douglas began working for Smith in Saudi Arabia. Indeed, Webster’s
defines “service” in this context as “the work performed by one that serves.” MERRIAM
WEBSTER’S COLLEGIATE DICTIONARY 1070 (10th ed. 1994); see also Parsons v. W. Va. Works
Hourly Emps. Pension Plan, 879 F.2d 130, 130-31 (4th Cir. 1989) (per curiam) (finding that
employees’ service started on their respective dates of hire).

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Article 84 contemplates a severance payment to be made “[u]pon the end of the
work relation,” not at the end of the rotation. No reasonable construction of this
provision would consider Douglas’s work relationship with Smith to have ended
each time he was transferred within Saudi Arabia, or promoted to a different
managerial position.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the ruling of the district court
granting summary judgment in favor of Plaintiff-Appellee Douglas.

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