Diggs v. Pepsi-Cola Metropolitan Bottling Co., Inc., PEPSI-COLA

CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)
Citation861 F.2d 914
Docket NumberNo. 86-1480,PEPSI-COLA,86-1480
Parties, 110 Lab.Cas. P 55,977, 3 Indiv.Empl.Rts.Cas. 1601 Sidney DIGGS, IV, Plaintiff-Appellee, v.METROPOLITAN BOTTLING CO., INC., Defendant-Appellant.
Decision Date26 January 1989

Page 914

861 F.2d 914
57 USLW 2359, 110 Lab.Cas. P 55,977,
3 Indiv.Empl.Rts.Cas. 1601
Sidney DIGGS, IV, Plaintiff-Appellee,
No. 86-1480.
United States Court of Appeals,
Sixth Circuit.
Argued July 31, 1987.
Decided Nov. 15, 1988.
Rehearing and Rehearing En Banc Denied Jan. 26, 1989.

Page 915

James M. Gecker, Ross & Hardies, Richard E. Lieberman (argued), Margaret M. Fiorenza, Chicago, Ill., for defendant-appellant.

M.T. Thompson, Jr. (argued), Saginaw, Mich., for plaintiff-appellee.

Before ENGEL, Chief Judge, * and MERRITT and KRUPANSKY, Circuit Judges.

ENGEL, Chief Judge.

Pepsi-Cola Metropolitan Bottling Co., Inc. appeals a judgment entered against it after a bench trial in the United States District Court for the Eastern District of Michigan on plaintiff's wrongful discharge claim under Toussaint v. Blue Cross & Blue Shield of Michigan, 408 Mich. 579, 292 N.W.2d880 (1980). This appeal raises important issues concerning both the application of Toussaint where the finder of fact (here the trial judge) finds a promise not to discharge without just cause and the award of front pay in such cases.

Sidney Diggs, IV was a district sales manager for Pepsi-Cola Metropolitan Bottling Company, Inc. from 1977 until his discharge on September 23, 1983. During this time, he was subject to a formal written

Page 916

evaluation each year that included a graded performance evaluation. The possible grades, from highest to lowest, were: distinguished, superior, commendable, fair and marginal. In 1978, after Diggs had learned about the termination of another district sales manager, he asked his supervisor, Mr. Haslam, about the company's policy on job security. The testimony is disputed as to the response. Diggs claims that he was told that "as long as your performance is satisfactory, you won't have to worry about [termination]." Pepsi-Cola claims that Diggs was told that his job was secure as long as he continued to receive a performance rating of commendable or above.

Diggs was terminated after Pepsi-Cola received customer complaints regarding his performance. His last two evaluations had been a "commendable" minus and a "fair," both below Pepsi-Cola's alleged performance requirements. Diggs disputes the objectivity of these evaluations.

Diggs brought a six-count complaint in the circuit court for Saginaw County, Michigan, which Pepsi-Cola removed on diversity grounds to the United States District Court for the Eastern District of Michigan. Diggs' complaint challenged his discharge and denial of promotion opportunities on theories of race discrimination, breach of an implied employment contract, negligence, promissory estoppel, and unjust enrichment. After the district court granted summary judgment to defendant on all counts except race discrimination and breach of contract, the case proceeded to trial on the latter two issues. The district judge held for Pepsi-Cola on the race discrimination claim, but entered a judgment for Diggs on the Toussaint claim. The district judge awarded Diggs $36,167 in back pay, $133,483 in front pay and $48,124 in prejudgment interest, for a total of $217,774.

The district judge found that representations made by Diggs's supervisor regarding job security created a "just cause" termination contract within the meaning of Toussaint. He also found that a term of the contract provided that the plaintiff would be evaluated by defendant in a fair and objective manner. The judge concluded that this contract had been breached when Diggs was discharged without good cause and before an objective evaluation had been made of his performance. He held that the contract had been breached because the defendant bore the burden of proving just cause, and no evidence was provided regarding whether the plaintiff was performing satisfactorily at the time of discharge. The district judge was not persuaded by defendant's testimony regarding Diggs's ability to mitigate his losses, and therefore awarded front pay, which was discounted to its present value as of the date of judgment at a rate of 5%, while prejudgment interest was assessed from the date of the filing of the complaint at a rate of 12%. Pepsi-Cola filed a motion to alter or amend the judgment, which was denied. This appeal followed.

On appeal, Pepsi-Cola argues that the district court erred in (1) finding that the employment contract permitted only just cause dismissal under Toussaint; (2) placing upon it the burden of proof on the existence of just cause; (3) ruling that the customer complaints did not constitute just cause; (4) awarding front pay; and (5) improperly calculating the discount rates for the damage award.


The trial judge's initial task was to determine what promise had been made to Diggs. In his supplemental findings of fact and conclusions of law he states:

Keith Haslam, as regional sales manager, promised the plaintiff that he would retain his position as district sales manager as long as his performance was maintained at a certain level. It is uncertain whether the promise was couched in terms of satisfactory performance, credible performance, or commendable performance, but it does not matter because, for all purposes relevant to the suit, the words are synonymous. Furthermore, it may fairly be inferred that the promise to him included a promise that the evaluation would be fairly and

Page 917

objectively determined in accordance with the practices of the defendant.

This statement reiterates and clarifies the more protracted remarks that the district judge made from the bench. The finding indicates that he found that Haslam promised Diggs that Diggs would not be fired so long as his performance was satisfactory. Satisfactory was found to mean receiving a rating of "commendable" or better on his Pepsi-Cola employee evaluation. However, the judge found that there was also an implicit duty on the part of Pepsi-Cola to make the rating determinations objectively and fairly. These findings represent a compromise between Diggs's claim that the promise was made independent of any performance criteria and Pepsi-Cola's claim that the only promise made was to employ Diggs so long as it determined that his performance appraisals were adequate. Our review of the record indicates that these findings were not clearly erroneous.

Pepsi-Cola argues that it was error for the district court to conclude that the agreement that it reached with Diggs included a just cause contract under Toussaint. It claims that Toussaint specifically excludes situations where a promise to employ is predicated on an employer's performance appraisal system. Pepsi-Cola cites several cases for the proposition that a nexus between a performance appraisal plan and job retention decisions cannot form the basis for a Toussaint just cause contract. However, this authority is not persuasive.

Dzierwa v. Michigan Oil Co., No. 84-34558-Ck, slip op. (Cir.Ct., Jackson City, Mich. May 22, 1985), aff'd 152 Mich.App. 281, 393 N.W.2d 610 (1986), did not involve a specific promise by an employer to alter a terminable-at-will employment contract. Instead, in Dzierwa, the employee was offered benefits, told that the company expected him to remain for a long time and told that ratings of "marginal" or "unsatisfactory" for two consecutive years would lead to his dismissal. Dzierwa, slip op. at 3.

Similarly, in Kay v. United Technologies Corp., 757 F.2d 100 (6th Cir.1985), we refused to find a Toussaint contract when plaintiff's evidence consisted of: a letter to him from the president of the company stating that "[m]aximum effort ... is the surest way we can contribute to ... our own job security."; an employee appraisal program; and deposition testimony stating that the evaluations were undertaken not for job security but to improve employee performance. Kay, 757 F.2d at 101-02.

Rouse v. Pepsi-Cola Metropolitan Bottling Co., 642 F.Supp. 34 (E.D.Mich.1985) and Copeland v. Pepsi-Cola Metropolitan Bottling Co., No. 84-CV-1180-DT, slip op. (E.D.Mich. April 17, 1985), are also cited by Pepsi-Cola as evidence that the performance evaluation plan in question here has previously been found to be an insufficient basis for finding a Toussaint contract. However, Pepsi-Cola fails to point out the fact that in Rouse the plaintiff attempted to rely on the evaluation program without any other evidence of a contractual promise of continued employment. Also, in Copeland, the only evidence in addition to the plan was a promise that the plaintiff had a "future" with the company. Pepsi-Cola's reliance upon Rouse and Copeland is unpersuasive. This litigation involves an oral promise that is tied to a performance evaluation system. This is quite different therefore from cases based merely upon the presence of an evaluation system or from cases where an oral agreement was not reliably established as a matter of fact.

Pepsi-Cola also asserts that the district court's faithfulness to the Toussaint decision was misplaced, in light of the generally narrow construction that recent courts have given to Toussaint, calling particular attention to our recent decision in Grant v. Rockwell International Corp., 811 F.2d 605 (6th Cir.1986). Pepsi-Cola claims more from that decision than its language will support. The result in Grant turned upon the absence of a clearly credible and established promise enforceable under Toussaint. Essentially, Grant holds that such a promise may not be inferred merely from an employer's establishment of a grievance procedure, or from the creation of probationary status.

Page 918

In Carpenter v. American Excelsior Co., 650 F.Supp. 933 (E.D.Mich.1987), plaintiff testified that he was told that he could work for the company as long as he performed "properly." He then signed an employment application which included a clause stating that he knew he could be terminated at the will of his employer. The...

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