Newberry v. Allied Stores, Inc.

• Decision Date: 01 May 1989
• Docket Number: No. 17712,T-B,17712
• Citation: 1989 NMSC 24,773 P.2d 1231,108 N.M. 424
• Parties: , 4 IER Cases 562 John NEWBERRY, Plaintiff-Appellee and Cross-Appellant, v. ALLIED STORES, INC. d/b/aird Home Centers, a New Mexico Corporation, and Derrell Ballard, individually and agent for Allied Stores, Inc., Defendant-Appellant and Cross-Appellees.
• Court: New Mexico Supreme Court

Page 1231

773 P.2d 1231

108 N.M. 424, 4 IER Cases 562

John NEWBERRY, Plaintiff-Appellee and Cross-Appellant, v. ALLIED STORES, INC. d/b/a T-Bird Home Centers, a New Mexico Corporation, and Derrell Ballard, individually and agent for Allied Stores, Inc. Defendant-Appellant and Cross-Appellees.

No. 17712.

Supreme Court of New Mexico.

May 1, 1989.

[108 N.M. 425] S. Thomas Overstreet P.C., Alamogordo, for defendant-appellant and cross-appellees.

Eric Isbell-Sirotkin, Albuquerque, for plaintiff-appellee and cross-appellant.

OPINION

STOWERS, Justice.

Defendants-appellants, Allied Stores, Inc. d/b/a T-Bird Home Centers (T-Bird) and Derrell Ballard, appeal the verdict entered in favor of plaintiff-appellee, John Newberry. Newberry cross-appeals the granting of defendants' motion for a directed verdict on punitive damages for the breach of contract claim, on punitive damages for the claim about his trustworthiness, and on the emotional distress claim. We affirm the judgment of the district court on the cross-appeal, and reverse the verdict in favor of Newberry against defendants, except we remand the appeal for a new trial, limited to the issue of damages (compensatory and punitive) against defendant Ballard for the statement, "he was fired for stealing."

Newberry was employed by T-Bird from 1977 until he was terminated on December 19, 1984, by its general manager, Ballard. At the time of the discharge, Newberry managed a T-Bird store in Artesia, New Mexico. During the trial, Ballard testified he discharged Newberry because on two occasions Newberry had failed to timely fill out the appropriate charge slips for merchandise purchased from T-Bird, and these actions violated three company regulations: theft of company property or any form of dishonesty; gross insubordination; and flagrant violation of company policy.

On June 2, 1986, Newberry filed a complaint for damages alleging breach of an implied contract of employment, retaliatory discharge, defamation and intentional or reckless infliction of emotional distress. During the jury trial, the court granted defendant's motion to dismiss the claim of retaliatory discharge, and it is not a subject of this appeal.

At the conclusion of plaintiff's case, the trial court granted defendants' motion for a directed verdict on punitive damages for an implied contract, on punitive damages for the defamatory statement about Newberry's trustworthiness, and on the emotional distress claim. The jury in special interrogatories entered a verdict in favor of Newberry on the breach of an implied contract of employment in the amount of $77,811, and on the defamation claims in the amount of $36,818 for compensatory damages and $5,000 for punitive damages. The jury found that Newberry's employment was not terminable at will, but instead was subject to an implied contract requiring "good cause" for termination, and there was no good cause to discharge Newberry. The jury also found defendants had defamed Newberry during his termination and afterwards at a social function. The trial court denied defendants' motion for remittur and motion for judgment notwithstanding the verdict. All parties appeal.

1. Implied Contract of Employment

Defendants claim that, since Newberry had no express agreement of employment with T-Bird, Newberry was an employee at-will whose employment could be terminated with or without cause unless the termination violated some public policy. To bolster this contention, defendants argue the company policy manual has no specific procedures for termination that could give rise to an implied employment contract like the ones in Forrester v. Parker, 93 N.M. 781, 606 P.2d 191 (1980) and Lukoski v. Sandia Indian Management Co., 106 N.M. 664, 748 P.2d 507 (1988).

The common-law rule regarding the termination of an at-will employment contract is that if the employment is not for a definite term, and if there is no contractual or statutory restriction on the right of discharge, an employer may lawfully discharge an employee whenever and for whatever cause, without incurring liability for wrongful discharge. In recent years, however, there has been a growing trend toward a restricted application of this rule in order to comport with express and implied public policy, as well as statutory concerns.

* * * * * *

* * * [A] number of jurisdictions have held or recognized that under particular circumstances, the right of an employer to freely discharge at-will employees may be contractually restricted as a result of the promulgation of corporate employment policies specifying the procedures or grounds for discharge or termination of employees.

Annotation, Right to Discharge Allegedly "At-will" Employee As Affected By Employer's Promulgation of Employment Policies As To Discharge, 33 A.L.R. 4 th 120, 123-24 (1984).

New Mexico recognizes an exception to at-will employment for an implied contract based on the words and conduct of the parties, Kestenbaum v. Pennzoil Co., 108 N.M. 20, 766 P.2d280 (1988), including provisions in a personnel manual or a handbook, Forrester, 93 N.M. at 782, 606 P.2d at 192, and Lukoski, 106 N.M. at 665-67, 748 P.2d at 508-10. Where a manual or a handbook exists, it will not always change the at-will employment relationship if the manual or handbook is not sufficiently specific. Sanchez v. The New Mexican, 106 N.M. 76, 738 P.2d 1321 (1987). In Sanchez this court upheld the employer's contention that "the handbook lacked specific contractual terms which might evidence the intent to form a contract." Sanchez, 106 N.M. at 79, 738 P.2d at 1324.

Under New Mexico law, a personnel manual gives rise to an implied contract if it controlled the employer-employee relationship and an employee could reasonably expect his employer to conform to the procedures it outlined. Forrester, 93 N.M. at 782, 606 P.2d at 192. However, whether an employee handbook has modified the employment relationship is a question of fact to be discerned from the totality of the parties' statements and actions regarding the employment relationship. Lukoski, 106 N.M. at 666, 748 P.2d at 509; accord Boudar v. E.G. & G., Inc., 106 N.M. 279, 283, 742 P.2d 491, 495 (1987).

Evidence relevant to this factual decision includes the language used in the personnel manual as well as the employer's course of conduct and oral representations regarding it. We do not mean to imply that all personnel manual[s] will become part of employment contracts. Employers are certainly free to issue no personnel manual at all or to issue a personnel manual that clearly and conspicuously tells their employees that the manual is not part of the employment contract and that their jobs are terminable at the will of the employer with or without reason. Such actions ... instill no reasonable expectations of job security and do not give employees any reason to rely on representations in the manual. However, if an employer does choose to issue a policy statement, in a manual or otherwise, and, by its language or by the employer's actions, encourages reliance thereon, the employer cannot be free to only selectively abide by it. Having announced a policy, the employer may not treat it as illusory.

Lukoski, 106 N.M. at 666-67, 748 P.2d at 509-10 (quoting Leikvold v. Valley View Community Hosp., 141 Ariz. 544, 548, 688 P.2d 170, 174 (1984) (en banc)); see also Kestenbaum. Thus, this court held in Lukoski that a handbook distributed to all employees, signed and verified by each, and requiring warning and suspension procedures for termination gave rise to an employment contract.

Thereafter in Kestenbaum, this court's latest pronouncement on the issue of an implied employment contract, we stated that the totality of the parties' relationship, circumstances, and objectives will be considered to overcome the presumption that the employment contract was terminable at will. Notwithstanding the lack of a manual or handbook, we held in that case there was substantial evidence to support a jury finding of an implied employment contract allowing discharge only for good reason. This holding was based on the following evidence: a supervisor during the initial employment negotiations made it clear that the employment would be long term and permanent if plaintiff did his job; plaintiff would not have considered the job if offered on a short term basis; other employees testified that the employer required good cause for dismissal and did not maintain a "fire-at-will" management practice; and testimony was presented that the insurance benefits policy and severance pay plan made no mention of a termination without cause. Kestenbaum, 108 N.M. at 113, 766 P.2d at 285.

In line with Forrester, Lukoski, and Kestenbaum we hold there is substantial evidence in the instant case to support the jury's finding of an implied contract of employment between Newberry and T-Bird permitting termination only for good cause.

In the case at bar the court instructed the jury on the applicable law of employment contracts as follows: "An implied contract is an agreement in which the parties by a course of conduct have shown an intention to be bound by such agreement." SCRA 1986, 13-803 (emphasis added). Thus, to find an implied contract of employment, the jury was to consider evidence of all the parties' conduct, including their words and the policy manual. Newberry testified that when he took the job with T-Bird he understood he would have a great future there; during his training as a manager he was told that the company policy manual was "his bible," which he had to follow. Evidence indicated that this policy manual applied to hourly and salaried employees and the employees understood that termination from their jobs would be only for a good reason. Although the manual covered a variety of personnel-type matters, it also included a section on termination, as well as one on rules and regulation, a violation of which was "sufficient grounds for...