Demasse v. ITT Corp.

• Decision Date: 17 April 1997
• Docket Number: No. 96-15520,96-15520
• Citation: 111 F.3d 730
• Parties: 134 Lab.Cas. P 58,272, 12 IER Cases 1313, 97 Cal. Daily Op. Serv. 2819, 97 Daily Journal D.A.R. 4962 Roger DEMASSE; Maria A. Garcia; Billy W. Jones; Viola Munguia; Greg Palmer; Socorro Soza, Plaintiffs-Appellants, v. ITT CORPORATION, a Delaware Corporation dba ITT Cannon, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 730

111 F.3d 730

134 Lab.Cas. P 58,272, 12 IER Cases 1313,

97 Cal. Daily Op. Serv. 2819,

97 Daily Journal D.A.R. 4962

Roger DEMASSE; Maria A. Garcia; Billy W. Jones; Viola Munguia; Greg Palmer; Socorro Soza, Plaintiffs-Appellants, v. ITT CORPORATION, a Delaware Corporation dba ITT Cannon Defendant-Appellee.

No. 96-15520.

United States Court of Appeals Ninth Circuit.

Decided April 17, 1997.

Jack Levine, Phoenix, AZ, for plaintiffs-appellants.

John Alan Doran, Bryan Cave, Phoenix, AZ, for defendant-appellee.

Before: BYRON R. WHITE, Associate Justice, Retired; ^* CANBY and RYMER, Circuit Judges.

ORDER

RYMER, Circuit Judge:

Former employees of ITT Corporation appeal from summary judgment on their claim that ITT breached an implied-in-fact promise to conduct layoffs according to the seniority provisions of superseded employee handbooks, rather than the "merits" policy contained in a new handbook issued shortly before they were laid off. The district court assumed that the old handbooks were part of the employees' contracts because they did not clearly disclaim contractual intent, but held in a published opinion that the seniority provisions of those handbooks could be changed by ITT and thus no longer applied. Demasse v. ITT Corp., 915 F.Supp. 1040 (D.Ariz.1995). The court also concluded in the alternative that summary judgment was appropriate because the employees were bound by the handbooks' grievance procedures, which the employees failed to exhaust.

The employees argue that while ITT was free to change its handbooks at any time, it could not change their employment contract; ITT maintains that the employees were employed at will notwithstanding the layoff provisions in the old employee manuals, and that it was entitled as a matter of law to revise its handbooks as well as its layoff policies. The employees further contend that exhaustion should only be required when grievance procedures are a condition for receiving the benefits which their contract of employment otherwise confers; ITT submits that employees cannot rely on handbooks to imply a seniority provision but refuse to follow the grievance procedure that the same handbooks prescribe.

There appears to be no controlling precedent under Arizona law, which we must apply in this diversity action, on the right of an employer unilaterally to revise handbook policies that have become part of the employment contract. Nor does there appear to be controlling Arizona law on the duty of an employee to exhaust internal grievance procedures before seeking relief for breach of an implied-in-fact contract arising from a handbook that also contains a complaint procedure. Because an answer to both questions may be determinative of this appeal, we certify each to the Arizona Supreme Court.

I

Roger Demasse, Maria A. Garcia, Billy W. Jones, Viola Munguia, Greg Palmer, and Socorro Soza were hired by ITT at various times between 1960 and 1979 as hourly workers. ¹ In 1990, ITT began laying off employees at its Phoenix facility, reducing the number of hourly production workers from 132 to 68 by the end of 1992, to 49 by the end of 1993, and to 36 by the end of 1994. Demasse, Soza, and Palmer were laid off on April 29, 1993; Munguia, on May 4, 1993; and Jones and Garcia, on January 10, 1994.

ITT published five handbooks over the years. Those issued before 1989 provide that layoffs within each job classification will be made in reverse order of seniority. Except for the first handbook, which was issued before 1971 and which did not give employees "bumping" rights outside of their own classification or department, the pre-1989 manuals also permit employees to use their seniority rights to "bump" less senior employees in other job classifications within the same job family (so long as they can do the work without training), and in different job families (so long as they once worked in that classification and are just as skilled as the bumped worker). ITT concedes that the pre-1989 seniority policy was enforceable while it lasted.

In 1989, a new handbook came out. Its layoff provisions are virtually identical to those in the 1973 handbook it replaced, but the 1989 version has a disclaimer on the first page which states:

Within the limits allowed by the law, ITT Cannon reserves the right to amend, modify, or cancel this handbook, as well as any or all of the various policies, rules, procedures, and programs outlined within it. Any amendment or modification will be communicated to affected employees, and while the handbook provisions are in effect, will be consistently applied.

The 1989 handbook also states:

In all cases, the specific provisions of policies, rules, procedures, and programs supersedes the contents of this handbook and nothing contained herein shall be construed as a guarantee of continued employment.... ITT Cannon does not guarantee continued employment to employees and retains the right to terminate or layoff employees.

The Demasse employees signed a receipt for the 1989 handbook acknowledging that they had received the handbook. Each read it and understood that ITT had the right to change or cancel its provisions.

On March 18, 1993, ITT gave notice of a revised layoff policy for hourly workers that would supersede the handbook and become effective April 19. From then on, layoff decisions for hourly workers would be based on criteria previously used only for salaried layoffs, primarily "abilities and documentation of performance," rather than seniority. The Demasse employees were advised of the policy, and were let go ahead of less senior employees pursuant to it.

Both the 1989 and the pre-1989 handbooks incorporate a complaint procedure. Under the 1989 handbook, an employee who feels that a "policy, rule, or procedure in this handbook has not been fairly administered" is first to talk to his supervisor, next to a higher level of management, then to the personnel department, and if still unsatisfied, may submit a formal complaint for resolution by a complaint committee or the Division General Manager.

Without following the grievance procedure, Demasse filed suit in federal district court for breach of the implied-in-fact contract provision requiring that layoffs be carried out according to seniority. ITT moved for summary judgment, which the Demasse employees opposed with affidavits stating that they had turned down other job opportunities because they didn't wish to lose the benefits of the seniority provisions in the handbook. The district court, following Leikvold v. Valley View Community Hospital, 141 Ariz. 544, 688 P.2d 170 (1984), denied summary judgment on the existence of an implied-in-fact contract because none of the handbooks (including the 1989 version) conspicuously stated that the manual is not part of the employment contract. However, relying on Chambers v. Valley National Bank, 721 F.Supp. 1128 (D.Ariz.1988), the court concluded that the terms of an employment contract created by one handbook can be superseded by a subsequent handbook. Thus, in its view, the 1989 handbook (which the Demasse employees knew about and continued to work at ITT after reading) allowed ITT to make any amendments to the handbook that it wanted to make so long as it told the employees about the change. Since the 1993 revised layoff policy states that it supersedes prior handbooks, the district court concluded that ITT fulfilled its contractual commitment to let the affected employees know about the change in policy. Therefore, the district court held, even assuming that the handbooks created an implied-in-fact contract, ITT did not breach it. The court also relied on federal courts' interpretation of Arizona law to grant summary judgment for ITT on the ground that Demasse failed to comply with the grievance procedures described in the employee handbooks. See Moses v. Phelps Dodge Corp., 818 F.Supp. 1287 (D.Ariz.1993) (handbook stated that grievance procedures were exclusive procedure for processing disputes for termination from employment); Thomas v. Garrett Corp., 744 F.Supp. 199 (D.Ariz.1989) (handbook provisions applied to layoff), aff'd, 904 F.2d 41 (9th Cir.), cert. denied, 498 U.S. 982, 111 S.Ct. 513, 112 L.Ed.2d 525 (1990). After unsuccessfully moving to alter or amend the judgment, Demasse timely appealed.

II

The Arizona Supreme Court has instructed that "[i]n order to establish a breach of contract claim based upon a violation of personnel rules a plaintiff must prove two things: the personnel manual actually became part of the employment contract and the terms of the manual were breached." Wagner v. City of Globe, 150 Ariz. 82, 86, 722 P.2d 250, 254 (1986) (en banc). ²

A

Relying on Leikvold and Wagenseller v. Scottsdale Memorial Hospital, 147 Ariz. 370, 710 P.2d 1025 (1985), Demasse argues that Arizona law treats handbook provisions upon which employees rely as implied-in-fact contract terms that limit the employer's right to discharge an at-will employee. While Demasse's argument overstates what Leikvold holds because its "handbook" exception does not turn entirely on reliance, see Wagner, 150 Ariz. at 85, 722 P.2d at 254, we nevertheless agree with the district court that Leikvold controls whether the seniority provisions of the old handbooks became part of the employment contract.

In Leikvold, the employee argued that the dismissal policy in a manual she was given constrained the hospital's right to discharge her except in conformance with the manual's procedures; the hospital contended that the manual was nothing more than a unilateral expression of policy. The Supreme Court held that handbook provisions can become part of employment contracts, and that whether any particular handbook modifies any particular at-will relationship depends on the language used in the manual as well as the employer's course of conduct and oral representations. As the Court explained:

Employers are certainly free to issue no personnel manual at all or...