Court Opinion

ID: 9790459
Source: CourtListenerOpinion
Date Created: 2023-08-31 01:53:19.071157+00
Date Added: 2024-06-11T07:37:29.673047
License: Public Domain

Justice MULLARKEY
dissenting:
The majority adopts the after-acquired evidence defense for employers and holds that Susan Weissman’s claims for breach of implied contract and promissory estoppel are thus barred. See maj. op. at 542-543. I dissent from the majority’s conclusion that the approach set forth in McKennon v. Nashville Banner Publishing Co., 513 U.S. 352, 115 S.Ct. 879, 130 L.Ed.2d 852 (1995), does not apply to Weissman’s breach of contract and promissory estoppel claims. For the reasons I discuss in part I below, I would apply the McKennon rationale to all of the claims brought by Weissman.
The majority also finds that Weissman has failed to state a cognizable claim for wrongful discharge in violation of public policy. See maj. op. at 543. For the reasons I discuss in part II below, Weissman has alleged a claim of wrongful discharge sufficient to withstand a motion for summary judgment. I therefore dissent from the majority on this issue as well, and I would remand the case for further findings on the wrongful discharge claim.
I.
A.
First, I am not persuaded that the traditional contract principle of fraud-in-the-in-dueement justifies barring an employer from liability because contract theory has not been, and cannot be, strictly applied in the employment context. The majority applies the contract principle that “[a] party that has *554been fraudulently induced to enter into a contract may rescind the contract to restore the status quo,” maj. op. at 547, and, without considering the unique attributes of the employment relationship, summarily concludes that “an employer that has been fraudulently induced to hire an employee may rescind the employment agreement.” Id. The majority bases its analysis on the fraud-in-the-inducement principle of the Restatement (Second) of Contracts, section 164 (1981), but that authority does not address employment at-will contracts. My research uncovered no mention of at-will contracts in the Restatement and no indication that the Restatement was intended to cover this type of dispute. This omission is not surprising in light of the fact that at-will contracts are not truly contracts at all. An at-will contract is a contract devoid of terms, and at-will employees do not have any contract rights. See 3 Dan B. Dobbs, Law of Remedies § 12.21(1), at 478 n. 7 (2d ed.1993).
Strict application of contractual principles is particularly inappropriate for breach of contract or promissory estoppel claims arising from employee handbooks. As the Michigan Supreme Court recognized in Toussaint v. Blue Cross & Blue Shield of Michigan, 408 Mich. 579, 292 N.W.2d 880 (1980), these handbooks do not create contracts in the traditional sense. Although we have applied some basic concepts of contract law in recognizing a handbook’s binding effect, there is no “meeting of the minds.” See Toussaint, 292 N.W.2d at 892. See also Richard J. Pratt, Comment, Unilateral Modification of Employment Handbooks: Further Encroachments on the Employment-At-Will Doctrine, 139 U. Pa. L.Rev. 197, 208 (1990) (noting that “the doctrines of consideration and mutuality prove fatal to any interpretation of handbook manuals as implied contracts under a traditional analysis”).
Specifically, with regard to implied contracts arising from employee handbooks and modification of those handbooks, the Michigan Supreme Court has noted, that “[ujnder circumstances where ‘contractual rights’ have arisen outside the operation of normal contract principles, the application of strict rules of contractual modification may not be appropriate.” In re Certified Question, 432 Mich. 438,443 N.W.2d 112,116 (1989).
There is no doubt that implied contract claims based on employee handbooks are not classic contracts, but rather are hybrids arising from the application of contract and equitable principles, as well as common sense. Handbook promises have been found to be enforceable because of their importance to both employers and employees in governing the workplace, not because they meet the technical definition of contracts. See generally Pratt, Unilateral Modification of Employment Handbooks, 139 U. Pa. L.Rev. at 208. Given the evolution of the law in this area, it is apparent that this court has not generally applied strict rules of contractual construction to such instruments and should not do so in the circumstances of this case.
I would note that the majority’s approach becomes problematic when other “basic principles” of contract law are considered in this context. The concept of contract rescission justified by fraudulent inducement seems much more applicable to contracts involving the sale of goods than to employment contracts. If a sale of goods contract is fraudulently induced, it can be rescinded and the parties restored to the positions they held before entering into the contract. Allowing the employer to declare the contract void ab initio logically could lead to a claim by the employer for reimbursement of wages previously paid. Such a result, however, would be highly inequitable given the work completed by the employee and the benefit received by the employer. Moreover, that result would be prevented by the application of federal and state wage laws as well as quantum meruit. See Hansen v. GAB Business Servs., Inc., 876 P.2d 112, 114 (Colo.App.1994).
The majority avoids confronting the difficulties which arise from the logical consequences of rescission by opining that fraud-in-the-indueement is a defense and nothing more. See maj. op. at 547 n. 11. Significantly, the majority cites no authority for this proposition. The majority’s need to so limit fraudulent inducement merely emphasizes how poorly a strict contract analysis works in this context. What benefit would rescission *555be to the employee if Crawford had made a material misrepresentation to induce Weiss-man to become its employee? The answer is none because rescission benefits only the employer. I therefore find strict reliance on basic contract principles unjustified in this case. Reliance on the defense of fraud-in-the-inducement is nothing but a legal fiction in the employment setting.
In In re Certified Question, 432 Mich. 438, 443 N.W.2d 112 (1989), the Michigan Supreme Court addressed a question certified to it by the United States Court of Appeals for the Sixth Circuit. The supreme court was called upon to provide an answer to whether an employer can unilaterally change the policies in an employee handbook which is otherwise legally enforceable as an implied contract. See In re Certified Question, 443 N.W.2d at 113. In reaching its affirmative answer, the court stated:
Without rejecting the applicability of unilateral contract theory in other situations, we find it inadequate as a basis for our answer to the question as worded and certified by the United States Court of Appeals. We look, instead, to the analysis employed in Toussaint which focused upon the benefit that accrues to an employer when it establishes desirable personnel policies. Under Toussaint, written personnel policies are not enforceable because they have been “offered and accepted” as a unilateral contract; rather, their enforceability arises from the benefit the employer derives by establishing such policies.
Id. at 119. I would follow the logic of the Michigan Supreme Court and find that the traditional fraud-in-the-inducement principle of contract law is an inadequate basis for determining the applicability of after-acquired evidence to claims based on an employer’s obligation arising from its own handbook.
B.
Second, I do not find it persuasive to decline to follow McKennon solely because common law claims are not grounded in statute. Simply put, however, that seems to be the basis for the majority’s rejection of McKennon. The majority states that Weiss-man’s breach of contract and promissory es-toppel claims “do not raise any public-policy concerns, other than the general interest society has in the integrity of the employment relationship between employer and employee.” Maj. op. at 549. We previously have noted, however, the critical importance of the employment relationship.
In Decker v. Browning-Ferris Industries, 931 P.2d 436 (Colo.1997), we discussed the parallels between employment and insurance contracts. We stated that “[a]n employment contract is of even greater significance to an employee because it provides the means for the employee to meet his or her basic needs.” Decker, 931 P.2d at 444. Justice Herd of the Kansas Supreme Court also persuasively addressed this topic in a concurring opinion. Urging the adoption of the implied covenant of good faith and fair dealing in the performance and enforcement of employment-at-will contracts, Justice Herd stated:
Employment contracts are the most sensitive of all contracts. They determine the standard of living and the quality of education for children, and affect the general welfare of all the people in this country. It is ludicrous that the covenant of good faith and fair dealing has been adopted pertaining to commercial transactions ... but has not been adopted for transactions involving human working conditions.
Morriss v. Coleman Co., Inc., 241 Kan. 501, 738 P.2d 841, 851-52 (1987) (Herd, J. and Prager, C.J. concurring). Because the employment relationship is of such public importance, I find the majority’s distinction of McKennon unpersuasive.
C.
Third, the McKennon approach would best accommodate the realities of the workplace. Far from providing a windfall to an otherwise wrongdoing employee, the Supreme Court’s decision in McKennon severely limits an employee’s remedies. Although the Supreme Court noted that proper remedial relief should be determined on a case-by-case basis, it nonetheless concluded that, as a general rule, neither reinstatement nor front pay is an appropriate remedy in such cases. See McKennon, 513 U.S. at 361-62,115 S.Ct. *556at 886. In addition, the Court found that backpay should be limited to the period from the date of the unlawful discharge to the date the after-acquired evidence was discovered. See id. at 362,115 S.Ct. at 886. Because the McKennon approach thus seeks to balance the equities of the employer’s and employee’s wrongdoing by limiting an employee’s remedies while still holding the employer liable, such an approach would fairly prevent both parties from benefitting from their wrongdoing. See id.
Because employee handbooks inure to the benefit of an employer, that employer gains a double reward if it may freely violate its own policies. The employer enjoys the benefits both of having a policy and of having the ability to violate that policy without facing liability. As the Michigan Supreme Court stated in Toussaint,
While an employer need not establish personnel policies or practices, where an employer chooses to establish such policies and practices and makes them known to its employees, the employment relationship is presumably enhanced. The employer secures an orderly, cooperative and loyal work force, and the employee the peace of mind associated with job security and the conviction that he will be treated fairly. No pre-employment negotiations need take place and the parties’ minds need not meet on the subject; nor does it matter that the employee knows nothing of the particulars of the employer’s policies and practices or that the employer may change them unilaterally. It is enough that the employer chooses, presumably in its own interest, to create an environment in which the employee believes that, whatever the personnel polices and practices, they are established and official at any given time, purport to be fair, and are applied consistently and uniformly to each employee. The employer has then created a situation “instinct with an obligation.”
292 N.W.2d at 892 (citations omitted).1 And, as the South Carolina Supreme Court recognized in Small v. Springs Industries, Inc., 292 S.C. 481, 357 S.E.2d 452, 454-55 (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, nonbinding 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.
Small, 357 S.E.2d at 454-55 (internal quotation marks and citations omitted).
By failing to adopt the McKennon approach to Weissman’s common law claims, the court unduly punishes the employee, while allowing the employer to completely avoid its self-imposed “obligation.” Under the majority’s holding, a wrongdoing employer is immunized by an employee’s resume fraud even though that fraud had nothing to do with the employer’s reason for terminating the employee. It becomes a shield to protect the employer from the consequences of its own misconduct. But as the California Court of Appeal recognized in refusing to adopt after-acquired evidence as an absolute bar to liability,
[n] either sound public policy nor the general law of contract dictates that an employee who can show that despite loyal and competent service he was fired without cause, in violation of a term of his employment contract — or because of his age, in violation of statute — nonetheless has forfeited all resulting legal remedies against his employer because of material misrepresentations he made years earlier in his employment application. Although resume fraud is a serious social problem, so is termination of employment in violation of antidiscrimination laws or in breach of contract.
Cooper v. Rykoff-Sexton, Inc., 24 Cal.App.4th 614, 29 Cal.Rptr.2d 642, 645 (1994).
*557D.
Finally, the majority’s decision fails to recognize the after-acquired evidence defense in employment cases for what it is: a novel theory of recent invention with no historic roots. While the majority places little weight on the rationale of the McKennon opinion, noting that the McKennon opinion does not govern this court’s decision, see maj. op. at 548, it fails to apply similar scrutiny to the very defense which the McKennon rationale was developed to address. The after-acquired evidence defense was developed in federal courts by employers seeking to defend against claims brought by employees alleging that they had been terminated in violation of a federal statute such as Title VII of the 1964 Civil Rights Act, 42 U.S.C. §§ 2000e-2000e-17 (1994 & Supp. I 1995). Summers v. State Farm Mutual Auto. Insurance Co., 864 F.2d 700 (10th Cir.1988), was the leading case to adopt this theory of defense, and it was decided less than ten years ago. See Mardell v. Harleysville Life Ins. Co., 31 F.3d 1221, 1221 (3d Cir.1994) (stating that the after-acquired evidence rule was “pioneered by the Tenth Circuit Court of Appeals in Summers ”); Jonathan T. Hyman, Note, Removing the Effect of Disclosures From Federal Employment Discrimination: Stripping Away the Last Vestiges of the After-Acquired Evidence Doctrine, 47 Case W. Res. L.Rev. 117,123-24 (1996) (“The seminal case in defining this doctrine and its role in employment discrimination litigation was Summers v. State Farm Mutual Automobile Ins. Co.”).
If this court recognizes this novel defense, it should recognize the need for a novel remedy. Viewing the after-acquired evidence defense as a matter of first impression, I would apply the McKennon analysis as a balanced approach to that defense regardless of the claim against which the defense is asserted. The majority reads McKennon as being dependent on the high public purpose being served by the federal statute at issue in McKennon. See maj. op. at 548. Because the majority finds that Weissmaris breach of contract and promissory estoppel claims do not implicate the “public policy interests protected by McKennon,” it concludes that the after-acquired evidence may serve as a complete bar to those claims. See id. at 549. This conclusion is based on a misreading of McKennon and a failure to give sufficient weight to the singular value most people place on their employment relationship. See e.g., Decker, 931 P.2d at 444; Morriss, 738 P.2d at 851-52.
McKennon emphasized the important public policy underlying the Age Discrimination in Employment Act2 because that was the case before it. It had no occasion to address state common law claims such as those now asserted by Weissman.3 By its ruling in McKennon, the Supreme Court overruled decisions like Summers and its progeny which had applied the after-acquired evidence defense in a draconian form to defeat completely employee claims based on alleged violations of federal statutes. For the reasons I have stated above, I would adopt the McKennon rationale for state common law claims as well.
II.
The majority holds that Weissman has not stated a cognizable claim for wrongful discharge in violation of public policy. See maj. op. at 552. Weissman alleges that she was *558terminated for contacting the Division of Labor regarding her rights as a worker to take certain breaks. The majority, however, states that it does “not view Weissman’s claim that she was terminated for exercising a right either to call the division or to take rest breaks as one that truly impacts the public.” Maj. op. at 552. I dissent from the majority’s decision on this issue because the very right to inquire about one’s protected rights without fear of retaliation is an important public policy concern.
An employee states a claim for wrongful discharge in violation of public policy where the employee has been terminated for exercising “an important job-related right or privilege,” and the employer’s action “undermine[s] a clearly expressed public policy relating to ... the employee’s right or privilege as a worker.” Martin Marietta Corp. v. Lorenz, 823 P.2d 100, 109 (Colo.1992). The majority cautions that “[n]ot all potential sources of public policy are of sufficient gravity to outweigh the precepts of at-will employment.” Maj. op. at 553. However, the majority appears to confuse Weissman’s right to inquire about her statutory and administratively protected rights as a worker with the statutory and administrative rights about which she seeks information.
The majority determines that the right to report violations of the Wage Order to the Director of the Division of Labor pursuant to section 8-6-115, 3B C.R.S. (1986), is not implicated because Weissman’s call to the Division did not lead to an investigation, and that Weissman’s potential right to rest breaks pursuant to Colorado Minimum Wage Order Number 19, while an administrative regulation, “does not rise to the level of a public-policy mandate susceptible to private enforcement.” Maj. op. at 553.
Weissman alleges that she was fired for contacting the Division of Labor about her rights to breaks. Whether she actually has the rights about which she inquired is irrelevant to the issue of her right to inquire about those protections without fear of retaliation. I disagree with the majority’s conclusion that ‘Weissman’s claim that she was terminated for exercising a right either to call the division or to take rest breaks [does not] truly impact[ ] the public.” Maj. op. at 552. In my opinion, deterring employers from “discharging an employee with impunity,” id. at 552, for seeking information from a public agency about her rights as a worker is a “widely accepted and substantial public po-lic[y],” id., which “affects society at large rather than a purely personal or proprietary interest of the plaintiff or employer.” Id. The Division of Labor is part of the state government, and it exists to serve the public by enforcing certain state and federal laws. If an employee can be fired in retaliation for attempting to find out about her rights as a worker, the rights about which she inquires are rendered useless. Therefore, in my opinion, an employee’s right to seek information about her legally, statutorily, or administratively protected rights as a worker without fear of being terminated with impunity is of sufficient gravity to state a claim for wrongful discharge, and I respectfully dissent from the majority on this issue.
III.
Because I do not find the majority’s distinction between statutorily rooted public policy claims and state common law claims in the employment context to be persuasive, I dissent from its determination that after-acquired evidence may bar Weissman’s breach of contract and promissory estoppel claims. In addition, I disagree with the majority’s decision finding that Weissman has not stated a cognizable claim for wrongful discharge in violation of public policy. In my opinion, an employer’s retaliation against an employee for seeking information about her legally, administratively or statutorily protected rights as a worker is of sufficient public concern to state a cognizable claim for wrongful discharge in violation of public policy. Thus, I respectfully dissent from the majority’s opinion.

. We found the Toussaint rationale compelling in Continental Air Lines, Inc. v. Keenan, 731 P.2d 708 (Colo.1987). Indeed, it was key to the Keenan discussion. See Keenan, 731 P.2d at 710-12.

. 29 U.S.C. §§ 621 — 634 (1994 & Supp. I 1995).

. Cf. Duart v. FMC Wyoming Corp., 72 F.3d 117, 120 (10th Cir.1995). In Duart, the Tenth Circuit Court of Appeals considered whether to affirm a summary judgment for the employer on an employee’s state law claims including breach of contract and promissory estoppel. The court stated that:
We are uncertain whether Wyoming would adopt the rationale of McKennon and hold that a terminated employee’s claims for breach of contract and promissory estoppel ... are not totally barred because the employer later discovers material misrepresentations in the employee’s resume and application which would themselves justify termination. Such being the case, we will consider on their merits Duart’s claims....
Duart, 72 F.3d at 120. Reviewing the district court’s determination that the employer was entitled to summaiy judgment based on the merits, the court of appeals affirmed the summaiy judgment without reaching the issue of the application of after-acquired evidence to breach of contract and promissory estoppel claims. See Id.