Opinion ID: 1259099
Heading Depth: 3
Heading Rank: 1

Heading: Implied Employment Contract

Text: The jury found that in firing Calleon, MTL had breached an implied contract of employment. In count IV of his complaint, Calleon specifically stated the theory of his implied contract claim: [MTL's] termination of Calleon's employment violated, and was a breach of, various written and unwritten personnel procedures (the Procedures), some of which are reflected in the MTL Employee Manual (Manual). Calleon was provided with a copy of the Manual and was aware of the Procedures because he was a management level employee. He was entitled to and did rely upon the Manual and the Procedures pursuant to the holding in Kinoshita v. Canadian Pacific Airlines, 68 Haw. [594], 724 P.2d 110 (1986). [MTL] did not follow either the Manual or the Procedures in the termination of Calleon's employment. [MTL] thereby materially breached the contract created by the Procedures and the Manual in the termination of Calleon's employment. In Kinoshita, two part-time passenger agents employed at-will by Canadian Pacific Airlines (CPA) were fired in 1982, after having been implicated in a drug smuggling conspiracy. Upon their firing, both employees were informed by CPA that they would not be allowed to appeal their discharges because of the seriousness of the charges against them. However, in 1978, CPA had voluntarily promulgated employee rules, which included the following specific provisions: 26.01 Employees who consider themselves unfairly treated shall have the right to file a grievance detailing the complaint and requesting a hearing. . . . . 26.05 Should no decision be given within the time specified, or the decision be unsatisfactory, the employee may appeal progressively to the Department Head, applicable Vice-President and, in turn, to the President or his designated representative. Id. at 598, 724 P.2d at 114. Moreover, in 1979, CPA had sent a circular to all its employees, stating that `our written employment arrangements with you ... constitute[] an enforceable contract between us under [the] labour law of the state in which you work. Thus your rights in your employment arrangement are guaranteed.' Id. (footnote omitted). Both fired employees filed suit, claiming, among other things, that CPA had breached an employment contract based on the promulgated employee rules. The lawsuit was removed to federal court, where the contract claim was dismissed. The employees appealed to the federal Ninth Circuit, which certified to this court the question whether the employee rules constituted a contract enforceable by CPA's employees. Id. at 597, 724 P.2d at 113. We began our discussion of the issue by stating that, contrary to a few other courts, [w]e were unwilling `to imply into each employment contract a duty to terminate in good faith [and thereby] subject each discharge to judicial incursions into the amorphous concept of bad faith.' Id. at 600, 724 P.2d at 115 (citation omitted). However, we noted that some courts in other jurisdictions have decided that the previously unfettered right of employers to discharge [at-will] employees `can be contractually modified and, thus, qualified by statements contained in employee policy manuals or handbooks issued by employers to their employees.' Id. at 601, 724 P.2d at 115-16 (citation omitted). Adopting the reasoning of the Washington Supreme Court in Thompson v. St. Regis Paper Co., 102 Wash.2d 219, 685 P.2d 1081 (1984), we ruled that if an employer promulgates employee rules that provide for ` specific treatment in specific situations and an employee is induced thereby to remain on the job and not actively seek other employment, those promises are enforceable components of the employment relationship[.]' Id. at 602-03, 724 P.2d at 116-117 (emphasis in original) (quoting Thompson, 102 Wash.2d at 230, 685 P.2d at 1088). Applying this rule in Kinoshita, we concluded that CPA's promulgated employee rules did, in fact, include promises of specific treatment in specific situations, and that CPA had also clearly encouraged its employees to rely on the promulgated rules. Id. at 603, 724 P.2d at 117. Consequently, we held that CPA's employee rules did constitute a contract under which CPA was bound to follow those provisions concerning specific treatment in specific situations set forth in the rules. We implicitly held that CPA had breached such contract when it refused to allow the fired employees to appeal their terminations as set forth in the rules. In the instant case, Calleon introduced into evidence a personnel policies and procedures manual promulgated by the executive office of MTL and specifically addressed to MTL's managerial staff. In the introduction to the manual, the managerial staff was informed that [i]n your management/supervisory position, you will find the guidelines in MTL's ... manual helpful as well as necessary. It is important to remember that these are guidelines meant to apply in all situations. Specific actions and procedures are at your discretion and direction in your capacity as a manager or supervisor. In short, the manual was meant to guide managers and supervisors in their work relationships with the employees under their supervision. However, there were very few specific procedures included in the manual; none specifically concerning employee termination. Despite the lack of such employee termination procedures, Calleon argued at trial that the manual created an implied employment contract between MTL and himself, which MTL breached when it fired him. Regarding the breach of implied contract claim, the trial court partially instructed the jury as follows: If an employer creates an atmosphere of job security and fair treatment with promises of specific treatment in specific situations, and an employee is induced thereby to remain on the job and not actively seek other employment, those promises are enforceable components of the employment relationship. An employer[']s manual and guidelines can give rise to contractual rights in employees without evidence that the parties mutually agreed that the policy statements would create contractual rights in the employee. This is the law even though the statement of policy is signed by neither party[,] can be unilaterally amended by the employer without notice to the employee, and contains no reference to a specific employee, his or her job description or compensation, and even though no reference was made to the policy statement in pre-employment interviews and the employee does not learn of its existence until after his hiring. The language of the aforementioned instruction is virtually identical to the language contained in Kinoshita. Accordingly, MTL could have no legitimate objection to this part of the court's implied contract instruction. Even though the manual at issue does not appear to meet the requirements of Kinoshita, it was proper for the jury to consider the manual and decide whether Calleon had proven his case. However, the trial court continued such instruction with the following language: A promise may be implied by the totality of the parties' relationship. In such case, the following factors may be considered: One, the duration of plaintiff[']s employment; two, commendations and promotions received by plaintiff; three, the lack of any direct criticism of plaintiff's work; four, assurances given to plaintiff; five, defendants' acknowledged policies; six, the prior practices of the company; seven, the treatment of fellow employees; eight, employee manuals or handbooks. MTL contends that this part of the court's implied contract instruction was erroneous because it is clearly not based on any applicable Hawai`i law. Calleon freely admits that the portion of the instruction at issue is based on a California case, Pugh v. See's Candies, Inc., 116 Cal.App.3d 311, 171 Cal.Rptr. 917 (1981). Calleon does not urge this court to adopt the principles of Pugh; instead, he simply states that [t]he law required the jury to consider the totality of circumstances of Calleon's employment. Because Pugh is obviously not the law in this jurisdiction, Calleon is simply mistaken. Moreover, Pugh concerns a different type of implied contract claim than the one we recognized in Kinoshita. In Pugh, a vice-president in charge of production (Pugh) at See's Candies (See's), who had worked his way up from his initial position as a dishwasher and had been employed by the company for thirty-two years, was abruptly fired with no notice and no reason given. He presented evidence at trial that he had received assurances over the years from several presidents of the company that his future was secure. He also claimed that he had never received anything but commendations for his work and that there had never been any complaints about him. After determining that Pugh's firing did not violate public policy, the court noted that according to applicable California law, `[i]t is settled that contracts of employment ... are terminable only for good cause if ... the parties agree, expressly or impliedly, that that employee could be terminated only for good cause.' Id. at 326, 171 Cal.Rptr. at 925 (citations omitted). The Pugh court then listed factors which would determine whether an implied-in-fact promise for some form of continued employment existed in a given case, including [1] the personnel policies or practices of the employer, [2] the employee's longevity of service, [3] actions or communications by the employer reflecting assurances of continued employment, and [4] the practices of the industry in which the employee is engaged. Id. at 327, 171 Cal.Rptr. at 925-26. The court also included as factors [5] the commendations and promotions received [and] [6] the apparent lack of any direct criticism of [the employee's] work. Id. at 329, 171 Cal.Rptr. at 927. Applying these factors to the case before it, the court held that Pugh had succeeded in establishing a prima facie case for the existence of an implied contract under which See's could not fire him without good cause. Id. Thus, the specific claim contained in Pugh is an implied contract according to which an employer cannot fire an employee for other than good cause. By contrast, the implied contract in Kinoshita merely provides that the employer must adhere to any specific procedures meant to apply to specific situations contained in an employer-promulgated manual or handbook upon which an employee has relied. Kinoshita does not provide that the firing must be for good cause, but only that any specific promulgated procedures must be followed. Consequently, because neither the specific claim nor the factors regarding that claim contained in Pugh have been adopted in this jurisdiction, that part of the trial court's instruction, based on Pugh, was manifestly erroneous. Although we could take this occasion to expressly adopt the holding and the reasoning of Pugh and recognize the possibility in this jurisdiction of an implied employment contract under which an employer could only discharge an employee for good cause, we decline to do so. We have expressly refused to follow a minority of other jurisdictions in implying a good faith requirement into every employment situation, [1] thereby `subject[ing] each discharge to judicial incursions into the amorphous concept of bad faith.' Kinoshita, 68 Haw. at 600, 724 P.2d at 115 (citation omitted). [2] We further believe that to adopt the principle of a good faith implied employment contract based on the Pugh factors would be tantamount to implying some kind of good faith requirement into every employment situation and would essentially mean the end of at-will employment. This is a result we cannot countenance. Because we decline to adopt the Pugh factors, which the trial court included as part of its jury instruction on the implied contract claim, such inclusion was manifestly erroneous and prejudicial to MTL. Accordingly, we must vacate the trial court's judgment on this issue and remand for a new trial with jury instructions restricted to the Kinoshita implied employment contract rule. [3]