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Bar Journal - Fall 2004

Ambiguous Language in Communications to Employees Can Deny NH Employers the Benefits of At-Will Status

By:
 

INTRODUCTION

New Hampshire’s law of at-will employment has been recently refined by the recent New Hampshire Supreme Court opinion in Dillman v. N.H. College.1 In an employment at-will situation, either the employer or the employee is free to end the relationship at any time with or without cause.2 In New Hampshire, the at-will status of an employment relationship is "one of prima facie construction."3 It is applied when the parties’ contract for employment is silent as to duration.4 Many employers prefer this arrangement because they are able to end the relationship without having the burden of terminating the employee for cause.

However, this relationship can be modified by formation of a new, unilateral contract if the employer makes any sort of communication that could be construed as an offer to modify the employment terms.5 New Hampshire employers have frequently guarded against this problem through the use of disclaimers and acknowledgments in employee handbooks that specifically state that the language in the handbook does not express or imply any sort of contract for employment. The New Hampshire Supreme Court upheld this approach a decade ago in Butler v. Walker Power.6 In that case, the Court found that the language in the disclaimer evinced the employer’s obvious intention to maintain the at-will status.7

This landscape may have changed. The Dillman decision indicates that an employer’s reliance on disclaimers, acknowledgments and waivers in employee handbooks may be misplaced if there is imprecise language in other employment documents, particularly subsequent communications extending or changing terms of employment. Practitioners in New Hampshire should be aware of the refinements that this case brings to this vital employment law issue.

FACTS IN DILLMAN

David Dillman was hired as the audio-visual director at New Hampshire College (now known as Southern New Hampshire University) in December of 1988. Beginning in 1991, the college and Mr. Dillman executed annual "letters of reappointment." These letters contained the terms of employment for the upcoming year and identified the nature of the services that Mr. Dillman was to provide, the duration of employment and the compensation to be received.

The College terminated Mr. Dillman without cause in May of 1999. The letter of reappointment in effect during this period provided:

This letter is written to confirm New Hampshire College’s intent to employ you as Director of AV Studio which is a ten/twelve (please circle one) position. For the period commencing September 1, 1998 and continuing through August 31, 1999 your salary will be . . . to be paid in 12 installments . . .This is a non-contracted staff appointment which is covered under the policies and procedures outlined in the New Hampshire College Unified Handbook.8

After being terminated, Mr. Dillman sued the college for breach of contract. He contended that that he could only be terminated for good cause and that the college arbitrarily refused to hire him for the next academic year. At trial, New Hampshire College moved for a directed verdict at the close of evidence arguing that, as a matter of law, Dillman was an at-will employee. The directed verdict was denied and the jury returned a verdict in favor of Dillman.9

On appeal, the college argued that the trial court erred by denying its motion for a directed verdict. It took the position that Dillman was at an at-will employee who could be terminated without cause and that the letters of reappointment and disclaimers in the handbooks further supported its argument. In other words, New Hampshire College contended that "non-contracted" means employee at- will and the handbook did nothing to alter this employment status because of its express disclaimer. The disclaimer in the college’s 1994 handbook stated: "[t]his Handbook shall not be considered a contract of employment." 10 Additionally, the college pointed to a signed receipt for the handbook which stated: "[t]his Handbook is not intended to be a contract or part of a contractual agreement between you and the College."11 The college further contended that the Court’s previous holding in Butler controlled this case and that the holding in Butler allowed employers to escape contractual liability for handbook terms through the use of disclaimers.

ANALYSIS BY THE SUPREME COURT

The Court began by applying basic contract principles. The interpretation of a contract is an issue of law for the Court to resolve.12 However, if disputed issues of fact are present as to the existence and terms of the contract, they should be resolved by the jury.13 Furthermore, if contract terms are ambiguous, the trial court may properly look to extrinsic evidence to determine the intent of the parties.14 The determination of the meaning of ambiguous terms should be left to the discretion of the jury unless the extrinsic evidence is so clear that a reasonable person could only arrive at one conclusion.15 Prior to the case being submitted to the jury however, the trial court must determine whether there is any evidence by which a reasonable jury could find that the parties had formed a contract.16

The Court used this approach and ultimately found that sufficient evidence had been presented to the trial court to enable the jury to find for the plaintiff, David Dillman. First, both parties signed the applicable letter of reappointment. Additionally, the letter contained all of the elements of contract: offer, acceptance, consideration and a meeting of the minds. Significantly, the letter was not silent as to the term of the appointment. It clearly stated that the letter of reappointment covered a term of twelve months. The Court pointed out that when an employee is not hired for a definite term he is considered to be an employee at-will. However, where an employment agreement does specify a certain term, the implication is that the employee may only be discharged for cause. In the Court’s view this evidence allowed a reasonable jury to conclude that the letter of reappointment in question was an employment contract for a definite term. At the very least, the letter of reappointment created an ambiguity as to the nature of Dillman’s employment status. The letter of reappointment did not define "non-contracted" to mean at-will, nor did the handbook and the Court was not willing to substitute a definition for the parties.17

There were provisions in the handbook that tended to show that Dillman was not an at-will employee. During the trial, Dillman relied on the reappointment rights subsection of the handbook that stated: "[t]hat the College shall not arbitrarily or capriciously refuse to issue a letter of re appointment to continuing professional employees."18 There was also a section in the handbook governing professional employees that dealt with termination for cause. It stated: "[t]he College may suspend, discharge or otherwise discipline a professional employee during the term of his/her appointment for just cause."19 The college conceded that these provisions in the handbook did apply to the plaintiff, but denied that it was contractually obligated to follow them due to the disclaimer and signed handbook receipt. The Court rejected this contention because the letter of reappointment expressly provided that David Dillman’s non-contracted position was "covered under the policies and procedures outlined in the New Hampshire College Unified Handbook."20 Therefore, the jury could reasonably have inferred that the handbook provisions were incorporated in the later contract and governed both Dillman’s appointment and termination.

STATE OF THE LAW PRIOR TO DILLMAN

The Dillman decision may indicate a shift in the amount of weight the Court is willing to give waivers and acknowledgments that are meant to negate any inference of a contractual obligation. The New Hampshire College administration likely thought that it had a strong defense based on the reasoning in Panto v. Moore Business Forms, Inc. and Butler. However, its disclaimer was notably weaker that that in Butler, and any disclaimer is vulnerable to subsequent conflicting communications.

At issue in Panto was whether the employer’s unilateral promulgation to at-will employees of a written statement of intent to pay certain severance benefits was an offer to modify their existing contractual relationship under a unilateral contract theory.21 The plaintiff, Anthony Panto worked as an equipment engineer for Moore Business Forms, Inc. at its Dover, New Hampshire, factory. Operating losses in 1985 forced Moore to reduce the work force in Dover. Subsequently, Moore promulgated to some or all of the employees a written policy statement which was entitled "Layoffs and Returns." By the policy statement’s terms, it applied "[w]hen a reduction in the work force is necessary."22 The statement contained language that could be read to promise all laid-off employees severance benefits of three months of the same salary and medical coverage they had during employment. The policy statement also assumed that certain employees whose positions were being eliminated would be presented with a choice to take other jobs within Moore or to leave ("If an employee refuses to accept an available job, he/she will be laid off").23 Four months later, Panto was offered a position with different responsibilities but chose not to accept it and resigned. He then claimed that the language in the policy circulated by Moore entitled him to the severance benefits.

The Court used basic unilateral contract principles to determine whether a binding agreement had been formed. The Court stated that Moore’s promulgation of the provisions regarding severance benefits could be seen as an offer subject to the employee’s acceptance by the continued performance of his duties.24 The Court noted that compensation and fringe benefits are usual incidents of the employment relationship, and a statement regarding incidents of employment by the party who pays the compensation can generally be viewed to be part of a binding agreement.25 Additionally, continued service by an employee who is free to leave his job at any time is sufficient consideration for an employer’s offer to modify employment terms favorably to the employee.26 The Court simplified the contract analysis by making the analogy that the modification of an existing contract by adding an obligation to pay severance benefits arises the same way the obligation to pay simple wages does. "[T]he employer in effect tells the employee that someone who works will be paid so much, and the employee works on that assumption."27 The Court ultimately found that Moore had modified the existing contract by offering to pay severance benefits, and Panto accepted by continuing to work after the policy terms were announced.28

Near the end of the Panto opinion, however, the Court left open a window of opportunity for employers who do not want to meet the same peril as Moore. Moore had argued that it could not possibly have intended to be bound to pay three months of severance benefits to an employee who voluntarily resigned, and that finding such an agreement would lead to uncertainty in the law. To this the court responded with dicta that many employers, including New Hampshire College, took to heart: " . . . Moore could simply have avoided the entire issue by announcing in the written policy itself that it was not an offer, or a policy enforceable as a contractual obligation."29

The Court addressed such a disclaimer in Butler v. Walker Power, Inc. It held that Walker Power’s disclaimer, although not as plain as it could have been, was "sufficiently clear to negate any inference that the handbook alters the presumptively at-will nature of the employment relationship."30 After being constructively discharged, the plaintiff in Butler had sued the defendant employer claiming breach of implied contract and breach of the implied covenant of good faith and fair dealing. The case was tried before a jury and the defendant successfully moved for a directed verdict after the plaintiff rested his case.31

The central issue on appeal was whether the plaintiff was an employee at-will or a tenured employee entitled to damages for improper discharge. The plaintiff relied on procedures laid out in the employee handbook to establish that he was not an employee at-will. The handbook contained a very specific discharge procedure. The subsection entitled "Employee Dismissal" stated: "[a]ll employees will be given a fair and equitable warning as to their performance and conduct which might lead to their dismissal."32 It then laid out a step-by-step procedure leading up to dismissal. After the first incident the employee was to receive a verbal warning. If a second incident occurred, a written warning was to be issued and signed by both the employee and the supervisor. The third incident would result in dismissal with written notice stating the reason for termination.33

The plaintiff’s position was that the three-step discipline process created a tenured employment relationship and that the employer was contractually obligated to follow the discipline process. The defendant employer admitted that it did not use the three-step discipline process when it terminated the plaintiff. However, it characterized the employment relationship as purely at-will and it disclaimed any intent to be bound by the terms of the handbook due to a disclaimer and signed acknowledgment. Each of the defendant’s employees, including the plaintiff, had signed a page in the handbook that stated:

"THIS CERTIFIES that I have received, read and understand the Employee Handbook outlining Walker Power, Inc.’s policies, rules and general information. I understand that this handbook is not an expressed or implied contract of employment, but rather an overview of working rules and benefits, which can be changed at the discretion of the company."34

Using the contract formation principles discussed in Panto, the Court began its analysis. The Court noted that it had held in Panto that an employer’s promulgation to its employees of a severance package policy may be recognized as an offer to modify the contractual relationship. It was careful to note, however, the all-important dicta at the end of Panto that stated that the defendant in that case could have avoided contractual liability by using a disclaimer or acknowledgment stating its intention not to be bound. Ultimately, the Court followed the dicta in Panto and held that the express language in the disclaimer was clear enough to preserve the employer’s presumptive right to discharge at will despite the termination process provided in the handbook.35

This did not mean there was no contract, nor that the handbook had no effect. The Court distinguished the effects of the disclaimer on the durational status of employment and on other incidents of employment. It did not read the disclaimer as applying to all provisions in the handbook. The Court stated that the incidents of employment must be considered separately from duration. The language of the disclaimer only said that the handbook was not a "contract of employment;" not that there was no contract at all. Although the disclaimer reserved the right to change the rules and benefits, this obviously could not be done retroactively. Therefore, the incidents of employment in the handbook could be enforceable.36 The Court stated that the step discipline process was "enforceable subject to the effect of the disclaimer."37 The Court mentioned that Plaintiff employee could have made out a case for damages for not following the multi-step discipline process as an incident to employment, but that it would have been of little consequence. The parties had an employment contract, presumptively at-will for lack of a specified term. The handbook did not change the duration of that bare employment contract due to express disclaimer. Therefore, the Plaintiff was an at-will employee and the employer retained the right to discharge him at any time, absent a public policy violation. This made damages for refusing to follow the step discipline prior to termination highly unlikely, and, as the plaintiff had not offered any evidence of damages due to the technical breach, the directed verdict was affirmed.38

THE STATE OF THE LAW FOLLOWING DILLMAN

Given the reasoning of the opinions in Panto and Butler the Dillman decision may seem perplexing to many New Hampshire labor lawyers. New Hampshire College presumably felt confident that its disclaimer and acknowledgment would achieve the same results as those in Butler.

The Court maintained that its decision in Dillman was not controlled by Panto and Butler because the underlying employment relationship was not at issue in those cases.39 The Court reasoned that the issue in those cases was whether or not a policy statement or handbook modified an otherwise at-will relationship. It is difficult to see this distinction when reading these cases however. The language in Butler implies that the dispute was about the underlying employment relationship. "The parties dispute whether the plaintiff was an employee at-will or a tenured employee entitles to damages for improper discharge."40 Although couched differently, this is the same issue presented in Dillman. If the letter of reappointment did not create a new employment relationship, wouldn’t David Dillman have been an at-will employee subject to discharge for any reason that did not violate public policy? Dillman must have begun as an at-will employee because the college did not start issuing these reappointment letters until 1991 and he started with the college in 1988. Therefore, somewhere along the line, the issue had to be whether the letter "modified" his employment status. That is essentially the issue presented in Butler: whether or not a handbook could modify the at-will relationship.

The distinction the Court was getting at in Dillman was that the plaintiff’s letters of reappointment created a certain employment relationship and the employee was not arguing that the handbook changed that employment status. He was merely arguing that as a result of the letter, he could only be discharged for cause and that the handbook provided him certain reappointment rights consistent with his employment status and incorporated by reference in the letter. In other words, it was not a question of whether the handbook alone modified Dillman’s employment status.

Whether or not a clear distinction can be drawn between the two cases, there are some valuable lessons for New Hampshire employers as a result of the Dillman decision. In order to afford themselves the benefits of at-will status, New Hampshire employers should avoid ambiguous language in offer or reappointment documents and employee handbooks. As the Court stated in Panto, "[i]t is the [employer] that has the option of certainty in the power to say only what it means . . ."41

PRESERVING AT-WILL STATUS

Prudent New Hampshire employers should be mindful of how easy it is to modify an employment relationship through unilateral contract formation. An at-will employee has no pre-existing duty to work; continued job performance is consideration for an employer’s offer to modify the employment relationship. Employers run the risk of losing the at-will relationship right from the onset if there is imprecise language in an offer letter or reappointment letter. Additionally, employers should avoid promulgating policy statements and handbooks that contain provisions that could be construed as offers of continuing employment.

There are at least four things to keep in mind to avoid these pitfalls. First, employers should refrain from mentioning any specific duration of employment. There is a presumption under New Hampshire law that when employment is for a specified term, the employee can generally only be terminated for cause.42 This was the principal problem for New Hampshire College. The fact that there was a term of twelve months mentioned in the letter of reappointment created at the very least an ambiguity as to the status of employment. If an employer wants to employ an individual for a specific period, but wants to maintain at-will status, they should say so with specificity. An example would be "terminable at will by either party, but in no case will employment be longer than 1 year without express written renewal or reappointment." Such a clause would allow the employer to hire for a term, but preserve the at-will relationship. The presumption that a term of employment creates a "terminable for cause" relationship is easily rebuttable due to the express language of the provision. The requirement of a written renewal or reappointment serves to protect against claims of subsequent oral modification.

Second, counsel should advise their employer clients not to invent their own terms for an employment status without defining them. Presumably, New Hampshire College meant "non-contracted" to mean at-will, but "non-contracted" was not defined in the letter or handbook. Further, "non-contracted" does not signify a specific employment relationship in New Hampshire employment law cases. "At-will" is the term that is consistently used and understood by the courts. Otherwise, employers run the risk of the Court allowing parole evidence to determine what the contract means, as occurred in Dillman.

Third, employers would be well advised not to reference their handbook in any offer letter or letter of reappointment that could later be determined to be a binding agreement. Dillman teaches us that disclaimers and acknowledgments may be ineffective if a later employment agreement incorporates the handbook by reference. In Dillman, the letter of reappointment expressly stated that the non-contracted staff position was "covered under the policies and procedures outlined in the New Hampshire College Unified Handbook."43 Thus, the Court reasoned that the terms of the handbook were incorporated into the terms and conditions of the letter. Despite the college’s efforts through the use of a disclaimer and acknowledgment, it was bound by the terms in the handbook.

Finally, the language and limits of handbook disclaimers require attention. Butler and Panto teach that, while they will not easily overcome the at-will presumption, apparent promises in a handbook normally are binding until changed prospectively. A handbook full of work-rules, benefits, and other policies will not be turned into "mere gratuities"44 by the sort of disclaimers used in Butler and Dillman. Merely stating that a handbook is not a contract is not sufficient— there is a contract. The question is what are the terms and where are they to be found. At a minimum, the at-will language should be affirmatively included in the handbook.

The ultimate lesson that Dillman provides is that the protection afforded by handbook disclaimers may not be as extensive as many readers of Butler had envisioned. In order to enjoy the benefit of operating under an at-will relationship, employers need to be wary of the common employer mistakes highlighted in this recent New Hampshire Supreme Court decision.

ENDNOTES

  1. Dillman v. N.H. College, 150 N.H. ___, 838 A.2d 1274,(2003)
  2. Panto v. Moore Business Forms, Inc., 130 N.H. 730, 732 (1988); citing Cloutier v. A. & P. tea Co., Inc., 121 N.H. 915, 919 (1981). As the reference to Cloutier suggests, there are exceptions—statutes forbidding certain forms of discrimination (e.g. RSA 354-A, Law Against Discrimination) and certain forms of retaliation (e.g. RSA 275-E, Whistleblower’s Protection Act), as well as common law wrongful discharge under Cloutier and its progeny. None of the cases discussed in this article turned on such exceptions.
  3. Butler v. Walker Power, Inc., 137 N.H. 432, 435 (1993).
  4. Id.
  5. Panto, 130 N.H. at 735.
  6. 137 N.H. 432 (1993).
  7. Id. at 436.
  8. Dillman, 150 N.H. ___, 838 A.2d 1274 (2003).
  9. Id. at 1275.
  10. Id.
  11. Id. at 1275-76.
  12. Id. at 1276, citing Erin Food Servs., Inc. v. 688 Props., 119 N.H. 232, 235 (1979).
  13. Id., citing Maloney v. Company, 98 N.H. 78, 82 (1953).
  14. Id., citing Galloway v. Chicago-Soft, 142 N.H. 752, 756 (1998).
  15. Id., citing Galloway, 142 N.H. 752, 756 (1998).
  16. Id., citing Maloney, 98 N.H. 78, 82 (1953).
  17. Id.
  18. Id. at 1277.
  19. Id.
  20. Id.
  21. Panto, 130 N.H. at 732.
  22. Id. at 733.
  23. Id.
  24. Id. at 735.
  25. Id.
  26. Id.
  27. Id. at 740.
  28. Id.
  29. Id. at 742.
  30. Butler, 137 N.H. at 437.
  31. Id. at 433.
  32. Id. at 433-34.
  33. Id. at 433.
  34. Id. at 434-35.
  35. Id. at 437.
  36. Id.
  37. Id. at 436.
  38. Id. at 437.
  39. Dillman, 838 A.2d at 1277.
  40. Butler, 137 N.H. at 433.
  41. Panto, 130 N.H. at 742.
  42. Dillman, 838 A.2d at 1276.
  43. Id. at 1277.
  44. Characterization of benefits by the court in Mau v. Omaha National Bank, 299 N.S.2d 147 (Neb. 1980), a case cited in Panto but, in that respect, not followed.

Author

Jon N. Strasburger, Class of 2004, Franklin Pierce Law Center, Concord, New Hampshire

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