Court Opinion

ID: 9476581
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:59:43.996602+00
Date Added: 2024-06-11T17:45:23.924135
License: Public Domain

*470MERRITT, Circuit Judge,
dissenting.
The Court reaches an unjust result on the basis of faulty reasoning in this contracts diversity case. A multi-national corporation, Rockwell International, transferred the plaintiff employee to the parent corporation from a wholly-owned subsidiary. The jury found that he had made a contract for employment until retirement age with the subsidiary corporation. There was no relevant discussion of the terms of the contract at the time of the transfer to the parent which was at the will and direction of the subsidiary. The question is whether the old contract terms should govern the contract with the parent.
It seems to me that the Court as well as our earlier opinion in this case and the parties are using the word “novation” loosely. What happened here is not really a “novation” but an assumption by the parent of the old employment contract. Call it what you will — a “delegation of performance of a duty,” or “substitute contract,” see Restatement (Second) of Contracts §§ 280, 318 (1981), or “equitable assignment,” or “implied contract” or simply a “contract” — the parent should be held to have assumed the employment undertaking of its subsidiary in the absence of proof that the parties intended a contract with different terms.
The parties and the Court have cited no similar parent subsidiary employment transfer cases and our hasty research has not uncovered cases on point. It seems clear to me, however, that fundamental principles of contractual fairness condemn the result reached by the Court. Are we going to say that every time a parent transfers an employee from one subsidiary to another that the employee loses the benefit of his old contract terms in the absence of any discussion? It seems to me that we should not permit corporate entities to abrogate their responsibilities to their employees merely by ordering their transfer to another member of the corporate group. The expectation of the parties in such a situation is that the old contract will govern unless there is a contrary agreement or a contrary practice in the company. Such a principle encourages stable employment and job security.
The question for us is whether, in the absence of a “novation” in its technical sense, we should presume that the contract is one for employment at will or is a continuation of the old contract. Stable employment policies are better served by continuity of employment terms than by converting the old contract into a new contract “at will.” I therefore dissent.