New England Biz Law Update
An employer that fired a worker without providing the prior warning or suspension called for under the disciplinary policy in its personnel manual violated an implied employment contract, the Massachusetts District Court/BMC Appellate Division has ruled.
The plaintiff employee did not negotiate the terms of the manual, which expressly stated that it could be unilaterally modified by the defendant employer and that it served as a guide, not a contract.
A jury later found that the manual — receipt of which the employee had acknowledged in writing — constituted an implied contract and awarded the plaintiff $48,000 for the
defendant’s breach.
The employer argued on appeal that the jury had no reasonable basis upon which it could have found an implied contract based on the manual’s terms.
But the Appellate Division disagreed.
“[The employee] testified that [the employer’s operations manager] told him it was ‘very necessary’ to sign the … manual because of a noncompetition clause in the manual,” Judge
Paul J. McCallum wrote for the court.
“[The employee also] testified that he had understood himself to be bound by [the manual’s] terms, particularly the noncompetition clause, which he said he had honored for two years following his termination,” McCallum said. “Viewing the evidence in the light most favorable to [the employee], it would not be unreasonable for [him] to regard the manual as a binding commitment.”
Floodgate effect?
Dennis, Mass., attorney E. James Veara, who represented the employer, said the ruling is “troubling” in that the court ignored the “litany of criteria” that other courts have found to keep employee handbooks out of the realm of contracts.
Veara also predicted that the decision will create a lot of “nervous” employers.
“If you look at the careful work that goes into putting [manuals] like this together and the mere fact that someone signed an acknowledgement of receipt can manifest an agreement, a lot of people will have misgivings about having the handbook at all,” said the Zisson & Veara lawyer.
For those employers that already have handbooks, Veara warned that “this could create a potential floodgate of terminated employees-at-will asserting claims that they had a contract.”
Veara said his client is appealing the ruling.
Newton, Mass., attorney Christopher M. Mirabile, president-elect of the local chapter of the Association of Corporate Counsel, said the court’s decision is probably correct under existing law.
“But from a practical perspective as an in-house lawyer, it serves yet again to illustrate the issue with personnel manuals,” said Mirabile, former general counsel and chief financial officer of IONA Technologies PLC in Waltham, Mass.
“There’s a tendency to want to throw a [human-resources] process or procedure at everything, while at the end of the day, there’s no substitute for good management and good common sense,” he said.
Accordingly, Mirabile suggested that companies put their energy into training managers rather than writing employee handbooks.
“This is a classic example of being hoisted on your own petard in terms of personnel manuals,” he said. “I’m not sure they don’t cause more trouble than they’re worth. You can’t solve every management problem by papering it up with a manual.”
Counsel for the employee, Sean P. Early, of Creedon & Early in Hyannis, Mass., could not
be reached for comment.
Discipline policy
Plaintiff Jeffrey Buttrick was employed by defendant Intercity Alarms three different times between the 1980s and 2004, when he was terminated. During that time, the defendant issued at least three versions of its “Employee Reference Manual,” including substantially similar versions issued in 2000 and 2004.
The 47-section manual’s stated purpose was to inform employees of the company’s “current policies and programs” and to help clarify “important aspects of employment.” The manual also contained a detachable form requesting the employee’s signature to acknowledge receipt, which the plaintiff signed in 2000.
The manual contained a “Disciplinary Policy” section stating that action would be taken whenever an employee violated a company rule, policy or procedure or “fail[ed] to uphold the spirit” of the company’s objectives. The section also stated that “the severity of any action
taken will be in accordance with the following: Verbal Counseling … Written Counseling … Suspension.”
There was, however, no provision for termination in the manual.
On Jan. 22, 2004, the employer’s service manager, James Yurasits, conducted the plaintiff’s
annual review. According to the written review, the plaintiff had excellent technical skills, but his attitude and interpersonal skills were below average.
Yurasits later testified that he issued the plaintiff a “verbal warning for 90 days,” which the plaintiff denied ever receiving.
The defendant fired the plaintiff on May 4, 2004. In a subsequent exit interview, Yurasits reportedly told the plaintiff he had been fired because of poor performance — specifically his alleged refusal to go on a service call; his alleged refusal to give his sales manager information about a potential sale without receiving compensation in return; and an alleged falsification of his time card.
In April 2005, the plaintiff sued the defendant in District Court, alleging breach of an implied employment contract based on terms in the employee manual.
Following trial, a jury returned a verdict for the plaintiff, awarding him $41,888 in damages. Judge Kathryn E. Hand denied the defendant’s request for a judgment notwithstanding the verdict, and the defendant appealed.
Reasonable implication
The defendant argued on appeal that the jury lacked sufficient evidence to imply a contract based on the terms of the employment manual.
Addressing that argument, the Appellate Division noted that, under the Supreme Judicial Court’s 1996 decision in O’Brien v. New England Tel. & Tel. Co., the central question is whether an employee could reasonably conclude that the employer presented the manual “‘as a statement of the conditions under which employment could continue.’”
Factors weighing against an implied contract include the employer retaining the right to unilaterally modify the manual; the manual stating that it is merely intended for “guidance”; the lack of negotiation between the employee and employer over the manual’s terms; and the lack of a specific term of employment, the court stated.
The Appellate Division acknowledged that all those factors were present in Buttrick.
However, McCallum pointed out, the employer had called special attention to the manual, which is a factor that can weigh in favor of an implied contract.
The plaintiff had testified that a manager had told him it was “very important” to sign the 2000 manual because it contained a noncompetition clause, the judge said.
Additionally, Yurasits had asked the plaintiff to sign the 2004 version of the manual at least three times, McCallum said, noting that while the plaintiff hadn’t signed it, he testified that he had seen it.
McCallum further emphasized the plaintiff’s testimony that he understood himself to be bound by the manual’s term and, in accordance, honored the noncompetition clause for two years after he was fired.
That evidence was sufficient to support the jury’s finding of an implied contract, he said.
Meanwhile, the court rejected the defendant’s argument that even if there was an implied contract, terminating the plaintiff without prior warning or suspension did not constitute a breach.
“During the trial and the posttrial hearing, … [the defendant’s] counsel focused exclusively … on the insufficiency of the evidence to support a finding of an implied contract,” McCallum wrote, affirming the judgment of the trial court. “The added ground that [the employer] now seeks to raise on appeal — that there was insufficient evidence of breach assuming the existence of a contract — was not brought to the attention of the court below. We decline, therefore, to address it.”
Eric T. Berkman is an attorney and freelance writer.
