Lewis v. Equitable Life Assur. Soc. of the U.S.

Decision Date03 July 1986
Docket NumberNo. C8-84-1065,C8-84-1065
Citation389 N.W.2d 876
Parties, 105 Lab.Cas. P 55,625, 1 Indiv.Empl.Rts.Cas. (BNA) 1269 Carole LEWIS, et al., Respondents, v. The EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, petitioner, Appellant.
CourtMinnesota Supreme Court

Syllabus by the Court

1. Dismissal provisions in employer's personnel handbook meet the requirements for formation of a unilateral contract and are therefore part of plaintiffs' employment contracts.

2. The trial court's instruction to the jury that a covenant of good faith was implied in plaintiffs' employment agreements was erroneous but not prejudicial.

3. In an action for defamation, the publication requirement may be satisfied by facts showing plaintiff was compelled to publish the defamatory statement to a third person if it was foreseeable to defendant that plaintiff would be so compelled.

4. In an action for defamation, an employer's communication to an employee of the reasons for employee's discharge presents a proper occasion upon which to recognize a qualified privilege.

5. Punitive damages are not available in a defamation action based upon compelled self-publication.

John R. Kenefick, Kevin A. Berg, St. Paul, Robert M. Wattson, Scott M. Jefferson, Andrew W. Horstman, Minneapolis, for appellant.

James W. Kenney, Timothy R. Murphy, St. Paul, for respondents.

Heard, considered, and decided by the court en banc.

AMDAHL, Chief Justice.

Plaintiffs, Carole Lewis, Mary Smith, Michelle Rafferty, and Suzanne Loizeaux, former employees of defendant, the Equitable Life Assurance Society of the United States (company), all hired for indefinite, at-will terms, were discharged for the stated reason of "gross insubordination." They claim that they were discharged in breach of their employment contracts, as determined by an employee handbook, and that they were defamed because the company knew that they would have to repeat the reason for their discharges to prospective employers. A Ramsey county jury awarded plaintiffs compensatory and punitive damages. The Minnesota Court of Appeals affirmed the award but remanded on the issue of contract damages for future harm. We affirm in full the award of compensatory damages but reverse the award of punitive damages.

In spring 1980, the company hired plaintiffs as dental claim approvers in its St. Paul office. During the application process, a manager or supervisor of the company interviewed plaintiffs and assured them that if hired, their employment would continue as long as their production remained at a satisfactory level. Plaintiffs did not execute written contracts of employment. They were employed for an indefinite time pursuant to oral agreements, and each received a copy of the company's employee handbook. Among other topics, the handbook discussed policies regarding job security, dismissals, and severance pay. 1

In fall 1980, the company's Pittsburgh office requested assistance from its St. Paul office. Claim approvers from St. Paul were sent to Pittsburgh beginning in September. In October, plaintiffs, who had never traveled on company business before, were among two groups of employees sent to assist the Pittsburgh office for 2-week periods.

At the time plaintiffs departed for Pittsburgh, the company had written policies concerning travel expenses. Guidelines were set forth on the back of company expense report forms and in management manuals, and the company's St. Paul office manager was responsible for instructing prospective travelers regarding the company's policies. Because he was out of the office at the time the first group departed, the office manager delegated the responsibility to his secretary. A supervisor in the St. Paul office was given responsibility for advising the second group. Neither the secretary nor the supervisor had performed such duties prior to instructing plaintiffs. As a result, they did not review available written guidelines, they did not give plaintiffs any written instructions, and they did not tell plaintiffs that expense reports would have to be filed. Plaintiffs were only orally given information on the company's daily allowances for meals and maid tips and they were told to keep receipts for hotel bills and airfare. In addition, each received a $1,400 travel advance which, having no instruction to the contrary, they spent in full.

When plaintiffs returned to St. Paul, each received a personal letter from management commending them on their job performance while in Pittsburgh. Upon their return, and after they had spent their travel advances, they were also informed for the first time that they would have to submit expense reports detailing their daily expenditures while in Pittsburgh. Plaintiffs complied with the company's request and prepared expense reports in which they attempted to reconstruct their expenses. Upon submission, however, they were asked to change the reports with respect to maid tips because the initial instructions had been erroneous. Plaintiffs complied with this second request. However, plaintiffs were yet again told to change their reports to reflect lower overall totals. Apparently, the company sought to recoup from each plaintiff approximately $200. 2

Not until late November 1980 did plaintiffs receive written guidelines for completing the expense reports. The guidelines differed from the instructions given prior to their departures. At this point, the company asked plaintiffs to make additional changes in their expense reports. Plaintiffs this time refused to make further changes, maintaining that the expenses shown on their original reports had been honestly and reasonably incurred and were submitted based upon the instructions they had received prior to leaving for Pittsburgh. The company did not dispute the claims that these expenses were honestly incurred.

Nevertheless, in January 1981, plaintiffs each received a letter from the office manager requesting again that they revise their expense reports. The letter set out still another, different set of guidelines to be followed. Additionally, three plaintiffs met individually with a manager from the company's Chicago office. At the meetings they were once again asked to change their expense reports to conform to company policies. They refused and were told that they were being put on probation. They were also warned, for the first time, that termination might be considered. At trial, company managers testified that the "probation" imposed on the three plaintiffs was not given in reference to the company's dismissal policies, but was primarily for the benefit of company management, to provide time to decide whether to terminate plaintiffs.

A week later, the office manager received orders from Chicago to obtain from two of the plaintiffs monies they had agreed to refund to the company and then to fire all four. The office manager called the two to his office and had them refund the money, saying nothing of the fact that they were to be terminated later that day. Late in the afternoon, he called each plaintiff to his office individually and again asked them to change their reports. When they stated that they were standing by their reports, he terminated them for "gross insubordination." 3 Another employee involved in the expense-account dispute was not terminated because she agreed to change her report and to refund $200 to the company.

Because they were fired for "gross insubordination," plaintiffs received no severance pay. Had they been fired for other reasons they would have been entitled to as much as one month's severance pay.

The company admitted that the production and performance of plaintiffs was at all times satisfactory and even commendable. Company managers acknowledged that plaintiffs should have been given more thorough instructions and that the company's written guidelines should have been reviewed prior to their departures for Pittsburgh. Management also admitted that the problems could have been avoided had plaintiffs been given proper guidelines prior to their departures.

In seeking new employment, plaintiffs were requested by prospective employers to disclose their reasons for leaving the company, and each indicated that she had been "terminated." When plaintiffs received interviews, they were asked to explain their terminations. Each stated that she had been terminated for "gross insubordination" and attempted to explain the situation. The company neither published nor stated to any prospective employer that plaintiffs had been terminated for gross insubordination. Its policy was to give only the dates of employment and the final job title of a former employee unless specifically authorized in writing to release additional information.

Only one plaintiff found employment while being completely forthright with a prospective employer about her termination by the company. A second plaintiff obtained employment after she misrepresented on the application form her reason for leaving the company. She did, however, explain the true reason in her interview. A third plaintiff obtained employment only when she left blank the question on the application form requesting her reason for leaving her last employment; the issue never arose in her interview. The fourth plaintiff has been unable to find full-time employment. All plaintiffs testified to suffering emotional and financial hardship as a result of being discharged by the company.

Breach of Contract Claim

On appeal, the company argues the following concerning plaintiffs' claims for breach of contract: (1) that the employee handbook did not affect the company's contractual relationship with plaintiffs; (2) that even if the handbook were found to contain provisions enforceable in contract, the company did not commit a breach; and (3) that the trial court prejudicially erred in its jury instructions.

1. Did employee handbook become part of plaintiffs' employment contracts?

It is...

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