IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

 Filed 

 September 15, 1999

MICHAEL PHILLIPS, ) C/A NO. 03A01-9901-CH-00030

)

Plaintiff-Appellant, ) UNICOI CHANCERY

)

v. ) HON. THOMAS J. SEELEY, JR.,

) CHANCELLOR

MORRILL ELECTRIC, INC., )

) VACATED AND

Defendant-Appellee. ) REMANDED

TONY SEATON and LEE HERRIN, LAW OFFICES OF TONY SEATON, Johnson

City, for Plaintiff-Appellant.

WILLIAM C. BOVENDER and STEPHEN M. DARDEN, HUNTER, SMITH &

DAVIS, LLP, Johnson City, for Defendant-Appellee.

O P I N I O N

Franks, J.

In this action for breach of employment contract, the defendantemployer was granted summary judgment by the Trial Court, and plaintiff-employee

has appealed. 

On November 10, 1994, plaintiff-employee and defendant-employer

entered into an employment agreement providing that plaintiff was to be employed for

a term of five years as a Special Assistant to the President of the company. The

agreement contained a clause regarding termination that stated:

5. Termination for Cause: For good and sufficient cause,

Employer may terminate this Agreement at any time upon giving written
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notice to Employee specifying the reasons for such termination. The

following specific grounds, while not exclusive, shall constitute

sufficient reasons for termination of this Agreement for cause:

A. If the Employee shall engage in any conduct or activity which

would be a material breach of his obligations under this Agreement; or

B. If the Employee shall be convicted of any offense or crime

punishable as a felony or otherwise involving moral turpitude; or

C. If Employee shall engage in any act or conduct which would

be a violation of any rule, law or regulation relating to the conduct of

Employer’s business and which would subject Employer to civil or

criminal liabilities.

Defendant’s President,Giles Morrill, died unexpectedly on May 22,

1997. Vice President, William E. “Bud” King, assumed the role of President of the

company and King began to restructure the company, and eliminated several positions,

including that of Special Assistant to the President. He stated that in his new

“organizational chart” there was no place for an Assistant to the President, regardless

of who had worked in that capacity. He reassigned plaintiff to a production job at the

company’s Rocky Fork f acility.

After the death of Morrill, his widow and daughter approached Paul

Farnor and asked him to become a member of the Board of Directors. Mr. Farnor was

elected to Chairman of the Board in June of 1997, and between July 18, 1997, and

August 18, 1997, Farnor evaluated the plaintiff’s performance. He reviewed the

documents in plaintiff’s personnel file and interviewed co-workers as to plaintiff’s job

performance. Farnor concluded that plaintiff was making no contribution to the

company. 

On August 18, 1997, Farnor met with Phillips and asked Phillips to

leave the company “quietly” with six months benefits and pay. He told plaintiff that

he had not been contributing to the company, and that he “had been moved around,”

and that his peers were giving negative feedback about him. Farnor gave plaintiff a

copy of the notes from that meeting. On September 8, 1997, Farnor gave Phillips a
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“separation notice.” This notice stated that Phillips was discharged for cause “because

he engaged in conduct and activities which are a material breach of his obligations

under his employment agreement.” Plaintiff then brought this action, alleging that he

had been wrongfully terminated in violation of his employment contract, and that he

did not receive adequate notice of termination in accordance with the employment

agreement, which also constituted a breach of the agreement. This appeal ensued,

following the Trial Court’s grant of summary judgment to defendant.

In evaluating a motion for summary judgment, a trial court should

consider “(1) whether a factual dispute exists; (2) whether the disputed fact is material

to the outcome of the case; and (3) whether the disputed fact creates a genuine issue

for a trial.” Byrd v. Hall, 847 S.W.2d 208, 214 (Tenn. 1993). When reviewing the

action of the Trial Court, this Court must view the evidence in the light most favorable

to the opponent of the motion, and all legitimate conclusions of fact must be drawn in

favor of the opponent. Gray v. Amos, 869 S.W.2d 925 (Tenn. App. 1993). 

In an action for wrongful discha rge in breach of contra ct, the burden is

on the plaintiff to prove all facts essential to his cause of action. The employee

establishes a prima fac ie case by proving the contract, his performance thereof up to

the time of his discharge, and the damage resulting from the discharge that is in breach

of the contract. 30 C.J.S. Employer-Employee Relationship §89(a) (1992). Where the

contract requires good cause for a discharge, the employer has the burden of proving

such good cause. Id. At §89(b).

It is plaintiff’s position that he was discharged due to the restructuring

of the company, and therefore was not discharged for cause as required under the

Employment Agreement, and further that the defendant further breached the

Agreement by not giving plaintiff adequate notice of his termination and the reasons.

Plaintiff was hired to the specific position of “Special Assistant to the
4

President” with such duties and responsibilities as assigned to him by the President or

Board of Directors. The Employment Agreement states that initial duties will include

assistance in the establishment and codification of corporate policies and procedures,

and also to formulate and provide implementation for enhancement of manufacturing

productivity. It was further agreed that future assignments would include duties and

responsibilities commensurate with a senior management position for employer. The

term of employment would continue through November 27, 1999.

When King took over the role of President following the death of

Morrill, he vacated plaintiff from his position and reassigned him to a production job,

which plaintiff described as work on the production line and “helping with department

assessments and review, which was essentially process engineering or plant

engineering kind of work.” He also stated that by the time he left work with

defendant, his position “had been reduced five levels.” Neither his pay nor benefits

was cut with the change of positions.

When an employee is hired to fill a particular position, any material

demotion or change of duties constitutes a breach of the contract, unless the contract

contemplates a change in rank and nature of job. 30 C.J.S. Employer-Employee

Relationship §52 (1992); David J. Oliveiri, Annotation, Reduction in Rank or

Authority or Change of Duties as Breach of Employment Contract, 63 A.L.R.3d 539

(1975). Also see Smith v. American General Corporation, NLT, 1987 WL 15144

(Tenn.App. 1987). 

In Moore Coal Co. v. Brown, 64 S.W.2d 3 (Tenn. 1933), involving a

change of duties under an employment contract, the parties were held to have

modified the employment agreement resulting in no breach. In Balderac chie v. Ruth,

256 S.W.2d 390 (Tenn. App. 1953), the Court held that modification of an existing

contract cannot be accomplished by the unilateral action of one of the parties. Rather,
5

there must be the same mutuality of assent and meeting of minds as required to make a

contract, and new negotiations cannot affe ct a completed contrac t unless they result in

a new agreement. Moreover, a modification of an existing contract cannot arise from

an ambiguous course of dealing between the parties from which diverse inferences

might reasonably be drawn as to whether the contract remained in its original form or

was changed. Id.

The reassignment of plaintiff to a job “five levels” lower than the job for

which he was hired without more, would constitute a breach of the employment

contract. Plaintiff was hired for a specific position of Special Assistant to the

President, and his duties were described in the employment agreement as being

comparable to that of s enior management. While his sa lary remained the same, his

duties were significantly diminished with his reassignment to a production job, and it

has been held that such a demotion can be characterized as a discharge of the

employee. See 30 C.J.S. Employer-Employee Relationship §52 (1992). The

defendant has the burden of showing the modification of the contract by mutual assent

or of establishing facts either constituting an accord or forming the basis of an

estoppel. Id. 

A contract for a definite term may not be terminated before the end of

the term except for cause or by mutual agreement, unless the right to do so is reserved

in the contract. 30 C.J.S. Employer-Employee Relationship §38. An employer has a

right to discharge an employee at any time for just cause. The fact that the employer

bears with the incompetency or irregularities of such employee for a time does not

estop the employer from discharging the employee for such incompetency if it

continues. Little v. Federal Container Corp., 452 S.W.2d 875 (Tenn. App. 1969),

citing Glasgow v. Hood, 57 S.W. 162 (Tenn.Chan.App. 1900) and Jackson v. Texas

Co., 10 Tenn.App. 235 (Tenn.App. 1929).
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The Trial Judge held that plaintiff was fired for good cause, and there

was no genuine issue of material fact as to the cause of termination. Good cause for

discharge is found when the employee acts in a way that tends to injure his employer’s

business, interests, or reputation. 30 C.J.S. Employer-Employee Re lationship §60. 

Whether good cause exists to terminate an employment contract is a determination

made on a case-by-case basis, and exists only where the discharge is “objective ly

reasonable.” Video Catalog Channel, Inc. v. Blackwelder, 1997 WL 581120

(Tenn.App. 1997) citing 30 C.J.S. Employer-Employee Relationship §60 (1992).

The Trial Judge relied heavily on an admission by the plaintiff that he

was fired for cause. When asked why he was terminated from the job at Morrill

Motors, plaintiff responded “ for cause.” However, this statement is not dispositive. 

Plaintiff could have merely been repeating the rea son he was given for his

termination. This may evince the fact that plaintiff knew the company was

discharging him for cause and not for some other reason. Nonetheless, the stated

reason for termination and the actual reason for termination may not coincide.

There are disputed issues of material fact as to the true cause of

plaintiff’s termination. On the one hand, plaintiff’s position was eliminated in the

restructuring of the company, and on the other hand there is evidence that plaintiff’s

job performance was not acceptable to the defendant.

Section 5 of the Employment Agreement states that “for good and

sufficient cause, Employer may terminate this Agreement at any time upon giving

written notice to the employee specifying the reasons for such termination.”

(Emphasis added). Plaintiff contends there is a dispute as to whether he received

adequate written notic e for the reasons for his termina tion. 

Defendant points to three written documents as evidence of adequate

notice of the termination and the reasons therefor. First, defendant points to a memo
7

dated May 9, 1997, reprimanding plaintiff’s job performance. Next, defendant relies

on a hand-written copy of the minutes of the August 18, 1997 meeting, that was

furnished to plaintiff. Defendant states that it was in that meeting that plaintiff was

terminated, and the notes contain notice, in writing, of plaintiff’s deficiencies. At the

time plaintiff was advised that “he was simply not contributing to the company, and he

had been moved around and his peers are giving negative feedback about him.” 

Plaintiff counters that in the meeting “there was no discussion of termination for

cause.” However, the notes from the meeting indicate that plaintiff was being

terminated from his position. The third written notice to plaintiff was the separation

notice completed on September 8, 1997. This stated that plaintiff was discharged

because “he engaged in conduct and ac tivities which are a materia l breach of his

obligations under his employment agre ement.”

Plaintiff relies upon the deposition of Farnor to support his position that

he was not given adequate notice of his termination. Farnor was asked if he had, at

any time, given plaintiff “written notice specifying the reasons for his termination”,

and Farnor responded that he did not. Farnor was then asked if any other written

reprimands in plaintiff’s file specified a reason for termination, to which Farnor again

replied “no.” Farnor further stated that he had no knowledge of anyone else in the

company giving plaintiff anything in writing specifying the reasons for termination.

There is a genuine issue of fact as to whether any of the written

documents cited by the defendant satisfy the notice requirement. While defendant

argues that it did satisfy this requirement, the Chairman of defendant’s Board of

Directors admits that he never gave plaintiff written notice of the reasons for his

termination, nor knew of anyone else in the company providing such notice.

On this issue, an employee who is summarily discharged with less notice

than spec ified under the contract may recover compensation for the notice period only,
8

and not for the balance of the contrac t period. See 27 Am.Jur.2d, Employment

Relationship §43 (1996).

There are disputed issues of material fact to be resolved, and we

therefore vacate the summary judgment and remand for trial on these issues.

We vacate the summary judgment and remand with cost of the appeal

assessed to the defendant.

__________________________

Herschel P. Franks, J.

CONCUR:

___________________________

Charles D. Susano, Jr., J.

___________________________

D. Michael Swiney, J.