Opinion ID: 2445155
Heading Depth: 1
Heading Rank: 1

Heading: Handbook as contract

Text: As to how the handbook came into existence, Kenneth Cass testified as follows: A. Well, they were trying to form a union, out there at Crain, because of them recently firing a supervisor, and Mr. Crain called a meeting. I think it was the day or the day before we were to take a vote. And he said that we didn't need a union, that if we would vote no to the union, he would come out with a policy that wouldguidelines for the employees and the supervisors and Crain Industry, you know. Q. And was the union voted in or voted out? A. They were voted out. Q. And subsequent to that, was the policy manual adopted? A. Yes. Cass went on to testify that he was aware of the seniority provisions in the handbook and that the seniority concept was important to him as he remained with the company. Marion, Sherman, Knauls, Keith, and Haywood, also testified of their awareness of the provisions and their expectations that Crain Industries would follow them. The testimony was submitted to the jury which was instructed to find in favor of the employees if the jury found express provisions in the handbook constituting an express agreement. The jury found the express provision an agreement. The Trial Court entered judgment based on that finding. Generally, the law of this State is that an employer or an employee may terminate an employment relationship at will. In Jackson v. Kinark Corp., 282 Ark. 548, 669 S.W.2d 898 (1984), we recognized that this common law rule was changing in other states which were softening it by finding express or implied agreements for a specified period of employment or by holding that an employer could not discharge an employee arbitrarily or in bad faith. The Jackson case was presented to this Court on appeal of a summary judgment in favor of the employer. We remanded so that facts could be developed with respect to the existence and meaning of an employee handbook which Jackson claimed to constitute a contract of employment. We wrote that we would be in a position to fully consider that trend only after the facts in [the] case [had] been definitely determined. See also Gaulden v. Emerson Electric Co., 284 Ark. 149, 680 S.W.2d 92 (1984); Griffin v. Erickson, 277 Ark. 433, 642 S.W.2d 308 (1982). In Gladden v. Arkansas Children's Hospital, 292 Ark. 130, 728 S.W.2d 501 (1987), we dealt with the cases of two employees, each of whom contended she could not be fired by her employer without cause. Each claim was based on statements of the employer made in employment regulations or an employee handbook. We reviewed our cases to date and stated the extent to which we meant to revise the employment at will doctrine. We held the statements in the handbook and regulations were not sufficiently specific to be binding, and thus we sustained the judgments in favor of the two employers. In discussing our willingness to reconsider the employment at will doctrine, we wrote: We do ... believe that a modification of the at will rule is appropriate in two respects; where an employee relies upon a personnel manual that contains an express provision against termination except for cause he may not be arbitrarily discharged in violation of such a provision. Moreover, we reject as outmoded and untenable the premise announced in St. Louis Iron ML Ry. Co. v. Matthews, 64 Ark. 398, 42 S.W. 902 (1897), that the at will rule applies even where the employment agreement contains a provision that the employee will not be discharged except for cause, unless it is for a definite term. With those two modifications we reaffirm the at will doctrine. [292 Ark. at 136, 728 S.W.2d at 505] We thus reaffirmed the employment at will doctrine except where there is an agreement that the employment is for a specified time, in which case firing may be only for cause, or where an employer's employment manual contains an express provision stating that the employee will only be dismissed for cause and that provision is relied on by the employee. In Smith v. American Greetings Corp., 304 Ark. 596, 804 S.W.2d 683 (1991), we were asked, and we declined, to hold this language in an employer's handbook created an enforceable promise to discharge only for cause: We believe in working and thinking and planning to provide a stable and growing business, to give such service to our customers that we may provide maximum job security for our employees. We held that it did not rise to the level of an express provision as the Gladden case ruling required. In the case now before us, there is no contention that the employees were hired for a specified time. The question is thus whether the exception to the employment at will doctrine for a contract arising from a promise made in the handbook, applied. Crain Industries argues that there was no express provision. By comparison with the one we reviewed in the Smith case, the provision here is a model of clarity and definiteness. There is no doubt as to its meaning, but the question remains whether it is to be enforced. Although the handbook in this case did not contain the provision on firing only for cause, the employees contend with respect to the Gladden case, it is clear that the court envisioned a modification of the atwill doctrine in any case in which there was an express provision in the employee handbook governing the procedure at the time of termination. The trial court did not err in presenting the matter to the jury. In the Gladden appeal, where we held for the employers because we could find no specific provision in the employment regulations or manual requiring dismissal to be for cause only, one of the appellants cited Wagner v. Sperry Univac, 458 F.Supp. 505 (E.D.Pa.1978). We distinguished the case and stated, In Wagner , a reduction in force was to be governed by seniority in determining who would be laid-off and Wagner's discharge violated that provision. While the holding in the Gladden case is hardly a direct adoption of the Wagner decision, we did imply that if there were such a provision in an employment manual it would be enforceable, and that is entirely consistent with our explanation that an exception to the employment at will doctrine may arise from reliance on a promise made in an employment handbook. The Trial Court was correct in assuming, after studying the Gladden decision, that this Court would not hold that clear language constituting a promise not to dismiss other than for cause would be upheld but clear language constituting a promise not to dismiss in a lay-off except by departmental seniority would not be upheld. Cases dealing specifically with handbook provisions are collected in Comment, Unilateral Modification of Employment Handbooks: Further Encroachments on the Employment-at-Will Doctrine, 139 Penn.L.Rev. 197 (1990). The author points out that unilateral contract analysis is common in handbook cases and quotes the following, omitting citations, from Small v. Springs Indus., Inc., 292 S.C. 481, 357 S.E.2d 452, 454 (1987). [There are] strong equitable and social policy reasons militating against allowing employers to promulgate for their employees potentially misleading personnel manuals while reserving the right to deviate from them at their own caprice.... It is patently unjust to allow an employer to couch a handbook, bulletin, or other similar material in mandatory terms and then allow him to ignore these very policies as a gratuitous, non-binding statement of general policy whenever it works to his disadvantage. Assuredly, the employer would view these policies differently if it were the employee who failed to follow them.... If company policies are not worth the paper on which they are printed, then it would be better not to mislead employees by distributing them. In Pine River State Bank v. Mettille, 333 N.W.2d 622 (Minn.1983), the Minnesota Supreme Court was apparently confronted with arguments to the effect that provisions in an employment handbook relating to disciplinary action against an employee were unenforceable. A bank employee was fired summarily, allegedly for cause, and the bank president did not follow the discharge or disciplinary procedures in the handbook. The employee brought an action based on contract and prevailed. The first two issues, as stated by the Court, were as follows: (1) Can a personnel handbook, distributed after employment begins, become part of an employee's contract? (2) If so, are job security provisions in the handbook enforceable when the contract is of indefinite duration? Answering the first question in the affirmative, the Court wrote: If the handbook language [is sufficiently definite to constitute] an offer, and the offer has been communicated by dissemination of the handbook to the employee, the next question is whether there has been an acceptance of the offer and consideration furnished for its enforceability. In the case of unilateral contracts for employment, where an atwill employee retains employment with knowledge of new or changed conditions, the new or changed conditions may become a contractual obligation. In this manner, an original employment contract may be modified or replaced by a subsequent unilateral contract. The employee's retention of employment constitutes acceptance of the offer of a unilateral contract; by continuing to stay on the job, although free to leave, the employee supplies the necessary consideration for the offer. [Footnotes omitted.] In answer to the second question, also in the affirmative, the Court wrote: The argument is that a provision for job security in a contract of indefinite duration, whether initially promised or subsequently added, is not binding without additional, independent considerations other than services to be performed.       Handbook provisions relating to such matters as bonuses, severance pay and commission rates are enforced without the need for additional, new consideration beyond the services to be performed. See DeGuiseppe, The Effect of the Employment-at-will Rule on Employee Rights to Job Security and Fringe Benefits, 10 Fordham Urban L.J. 1 (1981). We see no reason why the same may not be true for job security provisions. Accord Note, Protecting At Will Employees, ... 93 Harv.L.Rev. at 1819-20 (employee's continued labor despite freedom to resign is ample consideration for all express or implied promises, including those relating to job security). Thus, the consideration here for the job security provision is Mettille's continued performance despite his freedom to leave. See, e.g., Carter v. Kaskaskia Community Action Agency, 24 Ill.App.3d 1056, 1059, 322 N.E.2d 574, 576 (1974). As such, the job security provisions are enforceable. The Minnesota Supreme Court's opinion on these issues concludes as follows: Not every utterance of an employer is binding. It remains true that the employer's prerogative to make independent, good faith judgments about employees is important in our free enterprise system. Blades, Employment at Will v. Individual Freedom: On Limiting the Abusive Exercise of Employer Power, 67 Colum.L.Rev. 1404, 1428 (1967). Properly applied, we think that the unilateral contract modification analysis appropriately accommodates the interests of the employee and the employer. The reference to not every utterance is apparently to an earlier discussion in the Court's opinion about the sort of vague assurances of permanency in employment to which an employer cannot be held, and the sort of vague references we encountered in Smith v. American Greetings Corp., supra . The essence of the Minnesota Supreme Court's opinion is like that found in the Pennsylvania Law Review article referred to and quoted above; when an employer makes definite statements about what its conduct will be, an employee has a contractual right to expect the employer to perform as promised. Given our statement in the Gladden case that we would regard a specific handbook promise not to discharge except for cause, and given the contract rationale spelled out by these authorities for handbook promises generally, we conclude it was not error to instruct the jury as was done in this case.