IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

April 13, 2000 Session

BARBARA VARGO v. LINCOLN BRASS WORKS, INC.

 Appeal from the Circuit Court for Davidson County

No. 99C-374 Carol Soloman, Judge

No. M1999-00734-COA-R3-CV - Filed March 13, 2003

This appeal involves a dispute between an employee and her former employer over severance pay.

After the employee obtained a $13,750 judgment in the Metropolitan General Sessions Court of

Davidson County, the employer perfected a de novo appeal to the Circuit Court for Davidson

County. Following a bench trial, the trial court concluded that the employee had a vested right to

severance pay under the employer’s severance policy and awarded the employee $15,262.50. The

employer has appealed. We have determined that the employer’s severance policy contained an

enforceable contractual obligation to pay severance pay to eligible employees. In the absence of

proof that the employee was ineligible, we find that the trial court correctly interpreted and applied

the severance policy. Accordingly, we affirm the judgment. 

Tenn. R. App. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed

WILLIAM C. KOCH, JR., J., delivered the opinion of the court, in which WILLIAM B. CAIN and

PATRICIA J. COTTRELL, JJ., joined.

Mark C. Travis, Cookeville, Tennessee, for the appellant, Lincoln Brass Works, Inc.

Alan D. Johnson, Nashville, Tennessee, for the appellee, Barbara Vargo.

OPINION

I.

In March 1988, Barbara Ann Vargo went to work as a receptionist and billing clerk for

Lincoln Brass Works, Inc. in its Detroit, Michigan plant. She was an at-will employee. When

Lincoln Brass Works moved its sales office from Detroit to Nashville in 1993, Ms. Vargo moved

to the new Nashville office and worked there as an office manager and administrative assistant. 

In 1997, Lincoln Brass Works terminated four employees as part of a reduction in force. The

three employees who had been working in the Nashville office received severance pay. In July 1998,

Lincoln Brass Works terminated twenty-one more employees in a second reduction in force. Ms.

Vargo was the only Nashville employee to lose her job. None of the employees terminated as a

result of this reduction in force received severance pay because the company was in a “cash crunch.”
1

$13,750 [severance pay] + $1,512.50 [prejudgment interest] = $15,262.50.

-2-

According to its chief financial officer, Lincoln Brass Works “couldn’t afford severance for anyone”

because the company did not know whether it had enough funds to meet its obligations for raw

materials and other direct labor costs. 

In December 1998, Ms. Vargo sued Lincoln Brass Works in the Metropolitan General

Sessions Court of Davidson County seeking severancepaypursuant to a company “severance policy”

that had been adopted in 1996. In January 1999, the general sessions court awarded Ms. Vargo

$13,750, and Lincoln Brass Works perfected a de novo appeal to the Circuit Court for Davidson

County. Thereafter, in March 1999, Lincoln Brass Works formally rescinded its severance policy.

Following a bench trial, the trial court concluded that Ms. Vargo had a “vested right to severance pay

under the facts” and awarded Ms. Vargo severance pay and prejudgment interest in the amount of

$15,262.50.1

 Lincoln Brass Works has appealed.

II.

The pivotal issues in the case involve the legal significance and meaning of Lincoln Brass

Works’s 1996 severance policy. Ms. Vargo asserts that the policy is part of her contract of

employment and, therefore, that she is entitled to severance pay in accordance with the terms of this

policy. For its part, Lincoln Brass Works insists that its severance policy was not a contractual

obligation, and, therefore, that Ms. Vargo did not have a vested right to be paid severance when she

was terminated in July 1998.

These issues are purely questions of law because they call for the construction and

interpretation of Lincoln Brass Works’s 1992 “Policies and Procedures Manual” and its 1996

“Severance Policy.” Because these are questions of law, the trial court’s interpretation of these

documents is not entitled to a presumption of correctness on appeal. Angus v. Western Heritage Ins.

Co., 48 S.W.3d 728, 730 (Tenn. Ct. App. 2000). Rather, we must review the documents ourselves

and make our own determination regarding their meaning and legal import. Hillsboro Plaza Enters.

v. Moon, 860 S.W.2d 45, 47 (Tenn. Ct. App. 1993). 

III.

An employment relationship is essentially contractual. Hamby v. Genesco, Inc., 627 S.W.2d

373, 375 (Tenn. Ct. App. 1981). Its terms and conditions are supplied from two sources – applicable

federal and state law and the agreement of the parties. An employment agreement may be written,

oral, or a combination of the two. If written, it may be memorialized in a single document or in a

series of documents.

It is not uncommon for employers to include some, but not all, of the terms of their

agreements regarding wages, hours, and conditions of employment in an employee handbook or

manual. Accordingly, these handbooks or manuals may include contractually enforceable promises

on the part of the employer. King v. TFE, Inc., 15 S.W.3d 457, 461 (Tenn. Ct. App. 1999).

However, before a particular provision in an employee handbook or manual will be construed to be
2

Reed v. Alamo Rent-A-Car, Inc., 4 S.W.3d 677, 687 (Tenn. Ct. App. 1999) (finding an enforceable contract

in a document stating that it was the “entire agreement of employment” and that the employer agreed to abide by all of

its terms and conditions); Hamby v. Gensco, Inc., 627 S.W.2d at 376 (finding an enforceable contract in an employee

handbook stating that it contained the employer’s “guaranteed policies, practices, and procedures” as long as the

employment relationship continued). 

3

Guekel v. Cumberland-Swan, Inc., No. 01A01-9410-CV-00482, 1995 WL 386558, at *3 (Tenn. Ct. App. June

30, 1995) (No Tenn. R. App. P. 11 application filed); Gaines v. Response Graphics, Inc., No. 01A01-9204-CV-00181,

1992 WL 319441, at *2 (Tenn. Ct. App. Nov. 6, 1992) (No Tenn. R. App. P. 11 application filed); Crigger v. Columbia

Power & Water Sys., No. 01A01-9001-CV-00036, 1990 WL 121570, at *2 (Tenn. Ct. App. Aug. 24, 1990), perm. app.

denied (Tenn. Jan. 28, 1991). 

4

King v. TFE, Inc., 15 S.W.3d at 461-62; Rose v. Tipton County Pub. Works Dep’t, 953 S.W.2d at 693-94;

Bringle v. Methodist Hosp., 701 S.W.2d 622, 624 (Tenn. Ct. App. 1985). 

-3-

contractually binding, the relevant language in the manual or handbook, viewed in light of all the

documents pertaining to the contract of employment, must reflect the employer’s intent to be bound

by the particular provision. Rose v. Tipton County Works Dep’t, 953 S.W.2d 690, 692 (Tenn. Ct.

App. 1997); Smith v. Morris, 778 S.W.2d 857, 858 (Tenn. Ct. App. 1988).

The courts will construe provisions in an employee handbook or manual stating that the

employer either guarantees or unequivocally commits to provide a particular benefit or condition of

employment to be contractually binding on the employer.2

 However, the courts will decline to

construe an employee handbook or manual to contain enforceable contractual obligations if the

handbook or manual states that it is not intended to be a contract3 or that the provisions in the manual

are subject to unilateral change by the employer without the employee’s consent.4

Whether an employee handbook or manual contains contractually enforceableterms depends

upon the specific language used in the handbook or manual. Rose v. Tipton County Pub. Works

Dep’t, 953 S.W.2d at 692. The interpretive rules used to determine what the language means are the

same as the rules used to construe contracts. Accordingly, the courts will focus on the four corners

of the manual or handbook and the other related employment documents and will construe these

documents as written. They will also give the terms in the documents their natural and ordinary

meaning, Williams v. Maremont Corp., 776 S.W.2d 78, 80 (Tenn. Ct. App. 1988), and will construe

these terms in the context of the entire agreement. 

The courts will not make a new contract for parties who have spoken for themselves, Petty

v. Sloan, 197 Tenn. 630, 640, 277 S.W.2d 355, 359 (1955), and will not relieve parties of their

contractual obligations simply because these obligations later prove to be burdensome or unwise.

Boyd v. Comdata Network, Inc., 88 S.W.3d 203, 223 (Tenn. Ct. App. 2002). Thus, when called upon

to interpret a contract, the courts will not favor either party. Marshall v. Jackson & Jones Oils, Inc.,

20 S.W.3d 678, 682 (Tenn. Ct. App. 1999). However, when a contract contains ambiguous or vague

provisions, these provisions will be construed against the party responsible for drafting them.

Hanover Ins. Co. v. Haney, 221 Tenn. 148, 153-54, 425 S.W.2d 590, 592-93 (1968); Realty Shop,

Inc. v. RR Westminster Holding, Inc., 7 S.W.3d 581, 598 (Tenn. Ct. App. 1999).

Neither the 1992 Policies and Procedures Manual nor the 1996 Severance Policy explicitly

states that Lincoln Brass Works guarantees the payment of severance pay or any other benefits. Nor
5

An adhesion contract is simply a standard printed contract prepared by one party to be signed by the party in

a weaker bargaining position who has little choice about the terms of the contract. Buraczynski v. Eyring, 919 S.W.2d

314, 320 (Tenn. 1996) (characterizing an adhesion contract as a standardized contract offered on an essentially “take

it or leave it” basis without affording a reasonable opportunity to bargain).

6

The Severance Policy states that a discharge for cause “shall be for reasons determined by Company

management and shall include, but not be limited to, unsatisfactory performance and misconduct.” 

-4-

do they contain a specific disclaimer that they are not intended to be contracts or that they are subject

to unilateral revision by Lincoln Brass Works. The Severance Policy states that it “is designed to

provide a period of income after termination to eligible employees” and that

Severance payments will be paid at the rate of one half month’s salary

for each full year of employment, as of the termination date, with a

maximum payment of six months (deductions will be made as

required by law).

It also states that Lincoln Brass Works’s management “has sole discretion to determine eligibility

for severance pay.” 

In the absence of more general language regarding Lincoln Brass Works’s contractual

intentions regarding the benefits offered in its Policies and Procedures Manual or Severance Policy,

the most significant phrase illuminating what Lincoln Brass Works had in mind with regard to

severance pay is the statement “[s]everance payments will be paid.” The choice of the phrase “will

be paid” could have one of two meanings in this context. First, because the Policies and Procedures

Manual and Severance Policy are “adhesion contracts,”5

 it could reflect Lincoln Brass Works’s

obligation to pay severance benefits. Second, it could express a future contingency. BRYAN A.

GARNER, A DICTIONARY OF MODERN LEGAL USAGE 941-42 (2d ed. 1995). Contracts of adhesion

are construed against their drafters. Griffin v. Shelter Mut. Ins. Co., 18 S.W.3d 195, 199-200 (Tenn.

2000). Accordingly, we construe the Severance Policy against Lincoln Brass Works and find that

it embodies an enforceable obligation to pay severance benefits to “eligible employees.”

The discretion that Lincoln Brass Works retained in the Severance Policy did not involve

determining whether or not to pay severance pay but rather involved determining whether a

particular employee was “eligible” to receive severance pay. According to the policy, an employee’s

eligibility to receive severance pay did not depend on the company’s cash flow but rather on whether

the employee had voluntarily terminated his or her employment or had been “discharged for cause.”6

Thus, Lincoln Brass Works’s reservation of its prerogative to determine whether a particular

employee was eligible to receive severance pay is not inconsistent with our conclusion that eligible

employees had a vested right to receive severance pay from the time the policy was adopted until the

time it was formally rescinded.

The cases relied on by Lincoln Brass Works do not support its argument that retaining the

discretion to determine whether an employee is eligible to receive severance pay permits an

employer to deny severance pay to otherwise eligible employees. MacDougal v. Sears, Roebuck &

Co., 624 F. Supp. 756 (E.D. Tenn. 1985) involves an employee who sought severance pay even
7

Earlier in its opinion, this court noted that the employees were discharged when Kellwood Company sold its

plant as a going concern to Active Generation, Inc. and that many of the discharged Kellwood employees were

immediately hired by Active Generation, Inc. without any interruption in their work. Abbott v. Kellwood Co., 1985 WL

661896, at *1.

8

This court also stated that the “policy” of the labor contract “indicated” that there was no meeting of the minds

with respect to severance pay because the decision to give severance pay was “unilateral,” the employees “did not

contribute to secure the right,” and the “reservation is absolute.” Abbott v. Kellwood Co., 1985 WL 661896, at *4.

Because the opinion does not set out the disputed severance pay section, we cannot determine reliably what language

prompted the conclusion that decisions regarding severance pay were unilateral or that the reservation [of the obligation

to pay severance pay] was absolute. 

9We decline to follow Abbott v. Kellwood Company to the extent that its outcome may have been predicated

on the company’s reservation of the right to decide whether an employee was eligible to receive severance pay. An

employer’s reservation of the right to determine an employee’s eligibility to receive an employment benefit does not

necessarily mean that eligible employees do not have an enforceable contractual right to that benefit. Under the facts

in the Abbott v. Kellwood opinion, the employees seeking severance pay were not eligible to receive it because they

already had new employment lined up. 

-5-

though he had been terminated for “wrongful conduct.” The United States District Court granted

the employer’s motion for summary judgment and dismissed the claim because (1) the personnel

manual stated that severance pay would not be given to employees terminated for willful misconduct

and (2) the manual itself specifically disclaimed providing employees “any additional rights to

employment or employment benefits.” MacDougal v. Sears Roebuck & Co., 624 F. Supp. at 759.

Abbott v. Kellwood Co., Gibson Law. No. 1, 1985 WL 661896 (Tenn. Ct. App. Aug. 23,

1985) involved a group of employees who were discharged when a manufacturing plant was sold as

a going concern to another company. The employees filed suit seeking vacation and severance pay.

The trial court determined that the labor contract indicated that severance pay “was intended only

to be paid where the employees did not have new employment lined up” and that each employee

suing for severance pay had, in fact, been hired by the purchaser of the plant.7

 Because the

employees seeking severance pay had “new employment lined up,” this court concluded that the trial

court “had a reasonable basis upon which to deny severance pay.” Abbott v. Kellwood Co., 1985 WL

661896, at *3.8

InAbbott v. Kellwood Company, we concluded that the employees could not “reasonably rely

on the promise of severance pay except in the discretion of the company.” Abbott v. Kellwood Co.,

1985 WL 661896, at *4.9 Based on the specific language in the 1996 Severance Policy, we find that

Lincoln Brass Works’s employees could reasonably rely on the company’s promise of severance pay

except when the company, in its discretion, determined that an employee was not eligible to it.

Under the terms of the Severance Policy, an employee’s eligibility to receive severance pay depended

only on the circumstances surrounding his or her termination. Employees who quit voluntarily or

who were terminated for cause were not eligible to receive severance pay. Because this record

contains no evidence that Ms. Vargo quit voluntarily or was terminated for cause, we conclude that

the trial court had a reasonable factual basis for determining that she was entitled to severance pay

under Lincoln Brass Works’s Severance Policy. 
-6-

Written contracts whose terms are plain and unambiguous should be enforced according to

their plain terms. Bob Pearsall Motors, Inc. v. Regal Chrysler-Plymouth, Inc., 521 S.W.2d 578, 580

(Tenn. 1975); Pitt v. Tyree Org. Ltd., 90 S.W.3d 244, 252 (Tenn. Ct. App. 2002). Accordingly, the

post-contracting conduct of the parties does not figure prominently in the analysis when a court is

called upon to construe and give effect to an unambiguous contract. However, when a particular

contractual provision is ambiguous, the “rule of practical construction” permits the courts to use the

contracting parties’ conduct and statements regarding the disputed provision as guides in construing

and enforcing the contract. Fidelity-Phenix Fire Ins. Co. v. Jackson, 181 Tenn. 453, 466-67, 181

S.W.2d 625, 631 (1944); American Barge Line. Co. v. Jones & Laughlin Steel Corp., 179 Tenn. 156,

173-74, 163 S.W.2d 502, 509 (1942); Williamson County Broadcasting Co. v. Intermedia Partners,

987 S.W.2d 550, 552 (Tenn. Ct. App. 1998). 

We have already noted that the Severance Policy’s use of the phrase “[s]everance payments

will be paid” is ambiguous because it could connote either an obligation or a future contingency.

Our construction of this language as connoting a contractual obligation to pay severance pay to

eligible employees is buttressed by the evidence regarding Lincoln Brass Works’s interpretation and

application of the clause after its adoption in 1996. Prior to the 1998 reduction in force, Lincoln

Brass Works had consistently paid severance benefits to employees who had not quit voluntarily or

who had not been terminated for cause. Business employers are rarely gratuitous when it comes to

their employees’ salary and benefits. Accordingly, the company’s practice of consistently paying

eligible employees severance pay fairly reflects its understanding that it was contractually obligated

to do so.

 

IV.

We affirm the judgment and remand the case to the trial court for further proceedings

consistent with this opinion. We tax the costs of this appeal to Lincoln Brass Works, Inc. and its

surety for which execution, if necessary, may issue.

_____________________________ 

WILLIAM C. KOCH, JR., JUDGE