Opinion ID: 1911222
Heading Depth: 1
Heading Rank: 5

Heading: Did the Handbook's Progressive Discipline Procedures Constitute an Offer?

Text: We now consider whether DLC's handbook constituted an offer to Anderson to utilize progressive disciplinary procedures. We believe this aspect of the analysis should be conducted according to traditional contract theory. A. Offer. All contracts must contain mutual assent; mode of assent is termed offer and acceptance. Kristerin Dev. Co. v. Granson Inv., 394 N.W.2d 325, 330 (Iowa 1986); Restatement (Second) of Contracts § 22 (1981); see also Service Employees Int'l Local No. 55 v. Cedar Rapids Community Sch. Dist., 222 N.W.2d 403, 408 (Iowa 1974). An offer is a manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. Restatement (Second) of Contracts § 24 (1981); accord Farnsworth, § 3.10, at 210 (offer is a promise that is conditional on a manifestation of assent in the form of some action by the offeree and that confers upon the offeree the right to create a contract by taking that action). We look for the existence of an offer objectivelynot subjectively. Cf. La-Fontaine v. Developers & Builders, Inc., 261 Iowa 1177, 1183, 156 N.W.2d 651, 655 (1968) (existence of contract determined from words and circumstances). Judge Learned Hand explained this rule: A contract has, strictly speaking, nothing to do with the personal, or individual intent of the parties. A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent. If, however, it were proved by twenty bishops that either party, when he used the words, intended something else than the usual meaning which the law imposes upon them, he would still be held.... Hotchkiss v. National City Bank, 200 F. 287, 293 (S.D.N.Y.1911), aff'd sub nom. Ernst v. Mechanics' & Metals Nat'l Bank, 201 F. 664 (2d Cir.1912), aff'd sub nom. National City Bank v. Hotchkiss, 231 U.S. 50, 34 S.Ct. 20, 58 L.Ed. 115 and aff'd sub nom. Mechanics' & Metals Nat'l Bank v. Ernst, 231 U.S. 60, 34 S.Ct. 22, 58 L.Ed. 121 (1913); see also Embry v. Hargadine, McKittrick Dry Goods Co., 127 Mo.App. 383, 105 S.W. 777, 778 (1907) (In so far as their intention is an influential element, it is only such intention as the words or acts of the parties indicate.). The standard is what a normally constituted person would have understood [the words] to mean, when used in their actual setting. New York Trust Co. v. Island Oil & Transp. Corp., 34 F.2d 655, 656 (2d Cir.1929) (Hand, J.); cf. Deitrick v. Sinnott, 189 Iowa 1002, 1010, 179 N.W. 424, 428 (1920) (cannot avoid contract because merely jesting if conduct and words were such as to warrant a reasonable person in believing that he was in earnest). We adopt the following analysis: The test for an offer is whether it induces a reasonable belief in the recipient that he can, by accepting, bind the sender. Architectural Metal Sys., Inc. v. Consolidated Sys., Inc., 58 F.3d 1227, 1229 (7th Cir.1995). When objectively examining the handbook to determine intent to create an offer, we look for terms with precise meaning that provide certainty of performance. Cf. Gildea v. Kapenis, 402 N.W.2d 457, 459 (Iowa App.1987). This is a definiteness inquiry: if an offer is indefinite there is no intent to be bound. See Architectural Metal Sys., Inc., 58 F.3d at 1229 (A lack of essential detail would negate such a belief, since the sender could not reasonably be expected to empower the recipient to bind him to a contract of unknown terms.... [T]he recipient of a hopelessly vague offer should know that it was not intended to be an offer that could be made legally enforceable by being accepted.). B. DLC's handbook is too vague to constitute an offer. Here the issue is how a reasonable employee would construe DLC's handbooka promise of progressive disciplinary procedures or mere guidance? The question resolves to whether the handbook's text was sufficiently definite to constitute an offer to apply certain procedures for discharge. See Falczynski v. Amoco Oil Co., 533 N.W.2d 226, 235 (Iowa 1995). That is a question of law. French, 495 N.W.2d at 770; Fogel, 446 N.W.2d at 456. DLC asserts the handbook was not definite enough to constitute an offer for two reasons: It claims there are no guarantees that the company will always follow the progressive discipline procedures, and the handbook includes a written disclaimer that expressly states there is no intent to create a contract. Therefore, DLC contends no offer existed for Anderson to accept. 1. Handbook language. When considering whether a handbook is objectively definite to create a contract we consider its language and context. Our analysis of case law reveals three factors to guide this highly fact-intensive inquiry: (1) Is the handbook in general and the progressive disciplinary procedures in particular mere guidelines or a statement of policy, or are they directives? See Boulay v. Impell Corp., 939 F.2d 480, 482 (7th Cir.1991) (language that was suggestive rather than mandatory lead to conclusion of no promise); Johnson v. McDonnell Douglas Corp., 745 S.W.2d 661, 662 (Mo.1988) (en banc) (The handbook was merely an informational statement of McDonnell's self-imposed policies); (2) Is the language of the disciplinary procedures detailed and definite or general and vague? See Hunt v. I.B.M. Mid America Employees Fed. Credit Union, 384 N.W.2d 853, 856-58 (Minn.1986) (vague language fails to provide any detailed or definite disciplinary procedure); Mecurio v. Therm-O-Disc, Inc., 92 Ohio App.3d 131, 634 N.E.2d 633, 637 (Ohio App.), overruled on other grounds, 68 Ohio St.3d 1410, 623 N.E.2d 566 (1993) (From the plain terms of the [progressive discipline] policy ... reasonable minds could conclude that an implied contract was created.); and (3) Does the employer have the power to alter the procedures at will or are they invariable? See McDonnell Douglas Corp., 745 S.W.2d at 662 (handbook provided that the rules were subject to change at any time; thus, there was no contract); Martin v. Capital Cities Media, Inc., 354 Pa.Super. 199, 511 A.2d 830, 838-39 (1986) (because employer could alter plan at will, no contract). We ask these questions to determine whether an employee is reasonably justified in understanding a commitment has been made. See Bolling v. Clevepak Corp., 20 Ohio App.3d 113, 20 O.B.R. 146, 484 N.E.2d 1367, 1373 (1984). Here, the text of the disciplinary procedures contains language of command: The following action is prohibited, and the penalties for violation of these Shop Rules shall be as follows [progressive discipline steps are then listed]. (Emphasis added.) However, the introduction to the section of the handbook containing the disciplinary procedures states twice that the rules have been designed for the information and guidance of all employees. (Emphasis added.) Second, the procedures themselves are fairly specific. There are four categories that describe in detail the offenses included in each category. In addition, the discipline for each category is also specific: for unauthorized possession of company property, the first offense requires a written warning, the second offense a three day unpaid suspension and the third offense results in discharge. Finally, DLC retained the power to alter the procedures at will. We need not decide whether these factors alone result in a sufficiently definite offer, however, because we must also consider the effect of DLC's disclaimer. See Johnson v. Morton Thiokol, Inc., 818 P.2d 997, 1003 (Utah 1991) (procedures in the handbook for terminating an employee must be read in light of the language in the disclaimer which clearly reserved the right to discharge for any reason). 2. Handbook disclaimer. A disclaimer can prevent the formation of a contract by clarifying the intent of the employer not to make an offer. Befort Article, 13 Indus.Rel.L.J. at 349; Chagares Article, 17 Hofstra L.Rev. at 378. In the context of employee handbooks, the essential purpose of a disclaimer is to claim at-will status for the employment relationship by repudiating or denying liability for statements expressed in the handbook. Befort Article, 13 Indus.Rel.L.J. at 349. Although in theory disclaimers protect employers, many courts have imposed requirements that make it more difficult to give effect to them. Id. For example, many jurisdictions require the disclaimer be clear and conspicuous to be enforceable and negate any contractual relationship between an employer and employee. Chagares Article, 17 Hofstra L.Rev. at 380; see, e.g., Mace v. Charleston Area Medical Ctr. Found., Inc., 188 W.Va. 57, 63, 422 S.E.2d 624, 630 (1992) (employee handbook which contains a clear and conspicuous disclaimer of job security will preserve the at-will status). While we have never considered whether a disclaimer in an employee handbook must be clear and conspicuous, our court of appeals has implicitly endorsed a conspicuous requirement by holding a disclaimer [p]rominently displayed in the first page of a handbook prevented the formation of a contract. Palmer v. Women's Christian Ass'n, 485 N.W.2d 93, 95-96 (Iowa App.1992). The requirement that a disclaimer be conspicuous has given rise to much litigation. Compare cases holding disclaimer clear and conspicuous, Hein v. Kerr-McGee Coal Corp., 809 F.Supp. 84, 86-87 (D.Wyo.1990), aff'd, 956 F.2d 278 (10th Cir.1992) (disclaimer at beginning of handbook under heading INTRODUCTION which was one of two paragraphs on page, both of which were surrounded by open space); Chambers v. Valley Nat'l Bank, 721 F.Supp. 1128, 1131 (D.Ariz. 1988) (disclaimer prominently displayed in bold print in introductory paragraph); Nettles v. Techplan Corp., 704 F.Supp. 95, 98 (D.S.C.1988) (disclaimer of same type and color contained in separate paragraph on first page of manual); Butler v. Westinghouse Elec. Corp., 690 F.Supp. 424, 429 (D.Md.1987) (disclaimer in bold print at front of handbook); Investors Premium Corp. v. Burroughs Corp., 389 F.Supp. 39, 45 (D.S.C. 1974) (clause set out in separate paragraph in capital letters); Hanson v. New Technology, Inc., 594 So.2d 96, 99 (Ala.1992) (language found on first page of handbook); Chesnick v. Saint Mary of Nazareth Hosp., 211 Ill. App.3d 593, 156 Ill.Dec. 69, 71, 570 N.E.2d 545, 547 (1991) (disclaimer on separate page signed by plaintiff); Eldridge v. Evangelical Lutheran Good Samaritan Soc'y, 417 N.W.2d 797, 800 (N.D.1987) (explicit disclaimer in closing statement located directly above signature of employee) with cases holding disclaimer not clear and conspicuous, Durtsche v. American Colloid Co., 958 F.2d 1007, 1010 (10th Cir.1992) (disclaimer buried in glossary definition and no effort to highlight existence or effect of disclaimer); Jimenez v. Colorado Interstate Gas Co., 690 F.Supp. 977, 980 (D.Wyo.1988) (disclaimer not set off in any way to attract attention, was placed under heading GENERAL INSTRUCTIONS and subheading CONTENTS, was indistinct in print and type and had no border setting it apart from any other paragraph on page); Hicks v. Methodist Medical Ctr., 229 Ill.App.3d 610, 170 Ill. Dec. 577, 579-80, 593 N.E.2d 119, 121-22 (1992) (disclaimer located on page thirty-eight of thirty-nine page manual; not highlighted, printed in capital letters nor in any way prominently displayed; was not entitled Disclaimer, but was located in section headed Revisions); Kumpf v. United Tel. Co., 311 S.C. 533, 429 S.E.2d 869, 872 (App. 1993) (disclaimer located in conclusion section of handbook and not capitalized, in bold type, set apart with distinctive border nor in contrasting type or color). While the factual nature of the definiteness inquiry is partially to blame, too often such litigation is the product of illusory judicial standards. See Sanchez v. Life Care Ctrs. of Am., Inc., 855 P.2d 1256, 1260 (Wyo.1993) (This is yet another case to come before us in which an employer has tried to satisfy the court's secret concept of an adequate disclaimer in an employee handbook.) (Cardine, J., dissenting). We think such uncertainty is unnecessary. A disclaimer should be considered in the same manner as any other language in the handbook to ascertain its impact on our search for the employer's intent. Therefore, we reject any special requirements for disclaimers; we simply examine the language and context of the disclaimer to decide whether a reasonable employee, reading the disclaimer, would understand it to mean that the employer has not assented to be bound by the handbook's provisions. Cf. Bolling, 484 N.E.2d at 1373 (the employees ... must be justified `in understanding that a commitment has been made.') (citations omitted); Payne v. Sunnyside Community Hosp., 78 Wash.App. 34, 894 P.2d 1379, 1384 (1995) (crucial question is whether the employee has a reasonable expectation the employer will follow the discipline procedure, based upon the language used). Similar to our consideration of handbook language in general, we believe two factors guide our inquiry. First, is the disclaimer clear in its terms: does the disclaimer state that the handbook does not create any rights, or does not alter the at-will employment status? Second, is the coverage of the disclaimer unambiguous: what is the scope of its applicability? Here the disclaimer appears on page fifty-three, the last page of the handbook, two inches below the preceding paragraph: This Employee Handbook is not intended to create any contractual rights in favor of you or the Company. The Company reserves the right to change the terms of this handbook at any time. When examining the disclaimer we first consider the text employed. In no uncertain terms DLC's disclaimer states the handbook is not intended to create any contractual rights. (Emphasis added.) See Smoot v. Boise Cascade Corp., 942 F.2d 1408, 1411 (9th Cir.1991) (the written materials also contain explicit disclaimers that preclude their forming the basis of an employment agreement); Shapiro v. Wells Fargo Realty Advisors, 152 Cal.App.3d 467, 199 Cal.Rptr. 613, 616 (1984) (agreement stated that it did not confer a right to continued employment); Tilbert v. Eagle Lock Co., 116 Conn. 357, 165 A. 205, 207 (1933) (death benefit plan said it constitutes no contract with any Employee or any beneficiary, and confers no legal rights on any party). We believe DLC's disclaimer is clear in its disavowal of any intent to create a contract. Second, we examine the scope of the disclaimer. There is nothing about the location of DLC's disclaimer or the language used to suggest that the disclaimer does not apply to the progressive discipline policies. The disclaimer is found in the handbook itself and unequivocally applies to the entire employee handbook. We think a reasonable person reading the handbook could not believe that DLC has assented to be bound to the provisions contained in the manual. See Smoot, 942 F.2d at 1411 (finding employment at will as a matter of law: Although [employer's] termination policies contain promises of specific treatment in specific situations, the written materials also contain explicit disclaimers that preclude their forming the basis of an employment agreement.). Thus, we hold DLC's handbook is not sufficiently definite to constitute a valid offer.