Opinion ID: 1614851
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Heading: Is the Theory of Promissory Estoppel Available in an At-Will Employment Context?

Text: A. Parties' positions. The parties appear to agree that Schoff was an at-will employee of Combined. See generally Foote v. Simmonds Precision Prods. Co., 158 Vt. 566, 613 A.2d 1277, 1280 (1992) (holding that even where employment contract has been modified by the law of promissory estoppel, employees for an indefinite term are still considered at-will employees, who may be discharged for any number of reasons not prohibited by the modifications). They disagree on whether this at-will relationship could be modified by alleged oral promises made by Combined to Schoff. The plaintiff contends that the district court erred in holding that the doctrine of promissory estoppel cannot apply in the context of an employment-at-will relationship. He maintains that this theory is just another method of establishing contract rights and, therefore, is not necessarily inconsistent with Iowa's employment-at-will doctrine. In response, Combined argues that the promissory estoppel theory upon which the plaintiff relies should be rejected for the same reasons that our court has previously refused to allow a claim for negligent misrepresentation in the employment-at-will context. B. Iowa's employment-at-will doctrine. Our court has not previously considered the viability of a claim of promissory estoppel arising out of an employment relationship. Therefore, we begin our discussion with a brief review of the status of employment at will in Iowa. In Iowa, employment relationships are presumed to be at will. See Phipps, 558 N.W.2d at 202. The modern formulation of employment at will permits termination at any time for any lawful reason, that is, a reason that is not contrary to public policy. Lockhart v. Cedar Rapids Community Sch. Dist., 577 N.W.2d 845, 846 (Iowa 1998). We have recognized, however, that the employer and employee can contractually alter the at-will employment relationship. When an employer's handbook or policy manual guarantees that discharge will occur `only for cause or under certain conditions,' the employer is bound by this guarantee. Anderson v. Douglas & Lomason Co., 540 N.W.2d 277, 283 (Iowa 1995) (quoting French v. Foods, Inc., 495 N.W.2d 768, 770 (Iowa 1993)). Because the plaintiff analogizes his promissory estoppel claim to the contractual alteration of the employment-at-will relationship permitted by our cases, we discuss this contract theory in more detail. Liability of the employer based on promises made in an employee handbook is based on the legal theory of unilateral contract. See id. at 282 (noting that employee handbooks that meet the requirements for a unilateral contract are an exception to the rule that employment relationships are presumed to be at will). A unilateral contract consists of an offeror making a promise and an offeree rendering some performance as acceptance. Id. at 283. Accordingly, an employee who seeks to recover under this theory must show three elements: (1) the handbook is sufficiently definite in its terms to create an offer; (2) the handbook is communicated to and accepted by the employee so as to constitute acceptance; and (3) the employee provides consideration. Id. With this background, we now turn to the plaintiff's claim. B. Theory of promissory estoppel. The theory of promissory estoppel allows individuals to be held liable for their promises despite an absence of the consideration typically found in a contract. 4 Samuel Williston, Williston on Contracts § 8.4, at 41 (1992). [C]ourts have applied the principle of estoppel in effect to form a contract, when the promisee suffered detriment in reliance on a ... promise. Id.; see also Friedman v. BRW, Inc., 40 F.3d 293, 296 (8th Cir.1994) (stating that the effect of the doctrine of promissory estoppel is to imply a contract in law where none exists in fact); Miller v. Lawlor, 245 Iowa 1144, 1152, 66 N.W.2d 267, 272 (1954) (`Promissory estoppel' is now a recognized species of consideration.); Huhtala v. Travelers Ins. Co., 401 Mich. 118, 257 N.W.2d 640, 647 n.16 (1977) (stating that in promissory estoppel claims, detrimental reliance on one side will suffice as consideration). When this court adopted the doctrine of promissory estoppel, we relied on the principles of law found in the Restatement of Contracts section 90 (1932). See Miller, 245 Iowa at 1152-53, 66 N.W.2d at 272-73. Because the Restatement (Second) of Contracts contains a nearly identical statement of these principles, we quote from the latter Restatement: A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. Restatement (Second) of Contracts § 90, at 242 (1981). We have set forth the following elements as essential for recovery under a theory of promissory estoppel: (1) a clear and definite oral agreement; (2) proof that plaintiff acted to his detriment in reliance thereon; and (3) a finding that the equities entitle the plaintiff to this relief. Johnson v. Pattison, 185 N.W.2d 790, 795 (Iowa 1971); accord National Bank v. Moeller, 434 N.W.2d 887, 889 (Iowa 1989); In re Estate of Graham, 295 N.W.2d 414, 418 (Iowa 1980). In the National Bank case, this court compared and contrasted our decisions in the Graham, Johnson, and Miller cases with respect to the element of a clear and definite agreement. National Bank, 434 N.W.2d at 889 (discussing In re Estate of Graham, 295 N.W.2d at 418-19, Johnson, 185 N.W.2d at 795-97, and Miller, 245 Iowa at 1151-56, 66 N.W.2d at 272-75). We observed that in the cases in which we found a clear and definite agreement, there was a clear understanding by the promisor that the promisee was seeking an assurance upon which he could rely and without which he would not act. Id. This previously unstated element is consistent with the Restatement's express requirement that the promisor should reasonably expect [the promise] to induce action or forbearance on the part of the promisee. Restatement (Second) of Contracts § 90, at 242 (1981). Given our historical reliance on the Restatement in our formulation of promissory estoppel and in the interest of unequivocally stating the elements of this theory, we conclude it is best to simply include the promisor's understanding as a separate element, rather than having it subsumed in the clear-and-definite-agreement requirement. Accordingly, we state the elements of promissory estoppel as follows: (1) a clear and definite promise; (2) the promise was made with the promisor's clear understanding that the promisee was seeking an assurance upon which the promisee could rely and without which he would not act; (3) the promisee acted to his substantial detriment in reasonable reliance on the promise; and (4) injustice can be avoided only by enforcement of the promise. [1] Having reviewed the theory of promissory estoppel, we find little to distinguish it from a unilateral contract claim with respect to its compatibility with employment at will. We certainly cannot reject a promissory estoppel claim simply because it creates an exception or obstacle to the employer's ability to terminate an employee at will for that is precisely the effect of a unilateral contract, a theory we have embraced in the employment-at-will context. Promissory estoppel is simply another theory by which an employer may be held to his promise. The distinction in this theory is that detrimental reliance substitutes for the consideration present under a unilateral contract. We do not find anything in this difference that warrants allowing one theory in the employment-at-will context, but not the other. In conclusion, there is nothing about the employment-at-will relationship itself that precludes reliance on a theory of promissory estoppel. [2] We also reject the employer's reliance on our negligent misrepresentation cases as authority for the proposition that the theory of promissory estoppel is incompatible with the employment-at-will doctrine. In holding that a negligent misrepresentation claim was not viable in an employment-at-will situation, we held that the parties were dealing at arm's length and the employment relationship was `adversarial' in nature, not advisory. Fry v. Mount, 554 N.W.2d 263, 266 (Iowa 1996). Based on these facts, we concluded that the employer owed no duty to the employee under this court's interpretation of [the Restatement's formulation of the tort of negligent misrepresentation]. Id. That interpretation limits the tort of negligent misrepresentation to defendants who are in the business or profession of supplying information, and excludes defendants in an adversarial relationship with the plaintiff. See Freeman v. Ernst & Young, 516 N.W.2d 835, 838 (Iowa 1994); Haupt v. Miller, 514 N.W.2d 905, 910 (Iowa 1994); Meier v. Alfa-Laval, Inc., 454 N.W.2d 576, 581 (Iowa 1990). Thus, the tort of negligent misrepresentation has no application in an employment relationship, where representations are made to sell the company rather than to guide the employee with professional advice. Fry, 554 N.W.2d at 267; accord Thompson v. City of Des Moines, 564 N.W.2d 839, 844 (Iowa 1997); Alderson v. Rockwell Int'l Corp., 561 N.W.2d 34, 36 (Iowa 1997). In contrast to the theory of negligent misrepresentation, the theory of promissory estoppel has not been limited to relationships that are advisory in nature as opposed to adversarial. Therefore, the rationale for denying relief to an at-will employee under a theory of negligent misrepresentation does not apply to the doctrine of promissory estoppel. Having determined that the employment-at-will relationship of the parties does not bar recovery under a theory of promissory estoppel, we now consider the defendant's alternative argument. The defendant claims that, as a matter of law, the plaintiff cannot prove the elements of promissory estoppel. We begin our discussion with the requirement of a clear and definite promise.