Pine River State Bank v. Mettille, C8-82-543.

• Decision Date: 29 April 1983
• Docket Number: No. C8-82-543.,C8-82-543.
• Citation: 333 NW 2d 622
• Parties: PINE RIVER STATE BANK, Appellant, v. Richard E. METTILLE, Sr., Respondent.
• Court: Minnesota Supreme Court

333 N.W.2d 622 (1983)

PINE RIVER STATE BANK, Appellant, v. Richard E. METTILLE, Sr., Respondent.

No. C8-82-543.

Supreme Court of Minnesota.

April 29, 1983.

Meagher, Geer, Markham, Anderson, Adamson, Flaskamp & Brennan, Robert E. Salmon, O.C. Adamson II and J. Richard Bland, Minneapolis, Lundrigan, Hendricks & Lundrigan and Wilbert E. Hendricks, Pine River, for appellant.

Van Drake & Van Drake and Stephen R. Van Drake, Brainerd, for respondent.

Heard, considered and decided by the court en banc.

SIMONETT, Justice.

An employee hired for an indefinite, at-will term claims his discharge was in breach of his employment contract as subsequently modified by an employee handbook. A jury awarded the employee damages and the employer appeals from a denial of its post-trial motions. We affirm.

In early 1978 respondent Richard Mettille, then unemployed, nearly 48 years of age, married and living in St. Paul, sent his resume to the appellant Pine River State Bank. After an interview, the bank offered Mettille a job at a salary of $1,000 a month or $12,000 a year. Mettille accepted, moved to Pine River, and started work as a loan officer on April 10, 1978. The employment agreement was entirely oral. Nothing was said as to the position being permanent or for any specific term. Mettille conceded that he felt free to leave the bank and to take a better job elsewhere if he wished to do so.

Mettille survived his 6-month probationary period and was shortly given the title of loan officer. His duties were to lend, procure insurance on loan collateral, file UCC financing statements, and prepare reports on student loans.

Late in 1978 the bank distributed to its employees, including Mettille, a printed Employee Handbook. The handbook had been drafted by the bank's president, E.A. Griffith, who relied heavily on a model handbook he had received at a recent seminar on employee relations sponsored by the Minnesota Bankers Association. The handbook contained information on the bank's employment policies, including such matters as working hours, time off, vacations, and sick leave. With respect to employee responsibilities, the handbook discussed such matters as punctuality, confidentiality of the work, personal appearance and conduct, and telephone courtesy. The handbook also contained sections on "job security" and "disciplinary policy." According to Griffith, the handbook was intended as a source of information for employees on bank procedures and as a guideline within the bank so that people would know when vacations would be available and how many days the employee would be allowed for vacations. Griffith testified that he never intended the handbook to become part of an employee's employment contract with the bank.

In April 1979 Mettille received his annual performance review and with it a 7% raise. Apparently, about this time he also took out a home improvement loan with the bank. The following September state bank officials conducted an unannounced examination of the Pine River State Bank, and after reviewing the loan portfolio, reported to Griffith that some "technical exceptions" existed, i.e., failures to comply with the applicable law and regulations. Griffith then ordered his own independent review of the 85 files noted in the examiner's report. This investigation disclosed that 58 of the 85 files contained "serious" technical exceptions and that Mettille was responsible for the serious technical exceptions in 57 of these 58 files. Thus, 28 files showed no vehicle certificate of title; 33 files showed no insurance covering the secured collateral; 4 files showed inadequate insurance; 6 files showed failure to record financing statements properly (although here the bank disagreed with the examiner that the financing statement filings had been improper); and 4 files showed expired financing statements. Characterization of these deficiencies as "serious" was made by the bank officers, because those errors created possible loss to the bank. They testified that the defective files involved loans totaling over $600,000.

Mettille was home ill at the time of the audit by the bank examiners and the subsequent review of the files by the bank. On September 28, 1979, Mettille returned to work. The president called Mettille into his office and fired him. The parties at this time did not review the list of technical exceptions. The disciplinary procedures outlined in the handbook were not followed, nor was the handbook even mentioned. Mettille was given 2 months' severance pay.

The reason for Mettille's dismissal and whether that dismissal was for good cause were sharply contested. The bank claimed that the only reason given for the dismissal was the existence of loan errors, although excessive sick leave and a reduction in force were also factors. Mettille alleged that he was fired because of a personality dispute with his superiors. He argued that no problems were discovered in the course of previous bank examinations, that the exceptions in the 1979 audit were correctable and, in fact, were corrected within a month after he was fired. He disputed that the exceptions were "serious." There was also testimony that Mettille had never received any reprimands or complaints as to his performance prior to September 1979 and that he was loyal and "tried hard." At the time of trial Mettille was still unemployed.

In November 1980 the bank sued Mettille on two notes on which he was in default. Mettille counterclaimed, alleging that the bank had breached his contract of employment by dismissing him without cause and in violation of required disciplinary procedures. The case was tried in January 1982 and the jury found: (1) that the parties had a contract under which the defendant could not be terminated without good cause; (2) that the bank terminated Mettille without good cause; and (3) that Mettille sustained damages of $27,675. The trial judge deducted from the damages award the amount owed on the notes and ordered judgment in favor of Mettille and against the bank for $24,141.07. Both parties moved for a new trial. The bank's main argument was that Mettille's employment contract was at-will and that it was free to terminate him as it did. Mettille argued that he should have been permitted to show mental anguish to recover more damages. The trial judge denied both motions. Only the bank appeals.

The issues may be broadly stated: (1) Can a personnel handbook, distributed after employment begins, become part of an employee's contract of employment? (2) If so, are job security provisions in the handbook enforceable when the contract is of indefinite duration? and (3) In this case, was the employee's summary dismissal without following the job termination procedures of the handbook a breach of contract by the employer? Other issues to be discussed briefly relate to evidentiary rulings and damages.

I.

Whether a handbook can become part of the employment contract raises such issues of contract formation as offer and acceptance and consideration. We need first, however, to describe the Pine River State Bank's handbook. It contains, as we have said, statements on a variety of the bank's employment practices or policies, ranging from vacations and sick leave to personal conduct and appearance. Our inquiry here, however, concerns only the job security provisions. A section entitled "Performance Review" provides for at least an annual review of the employee's work.¹ Another section entitled "Job Security" speaks in general, laudatory terms about the stability of jobs in banking.² The key section, central to this case, is entitled "Disciplinary Policy." This section provides for what appears to be a three-stage procedure consisting of reprimands for the first and second "offense" and thereafter suspension or discharge, but discharge only "for an employee whose conduct does not improve as a result of the previous action taken." The section concludes with the sentence, "In no instance will a person be discharged from employment without a review of the facts by the Executive Officer."³

Generally speaking, a promise of employment on particular terms of unspecified duration, if in form an offer, and if accepted by the employee, may create a binding unilateral contract. The offer must be definite in form and must be communicated to the offeree. Whether a proposal is meant to be an offer for a unilateral contract is determined by the outward manifestations of the parties, not by their subjective intentions. Cederstrand v. Lutheran Brotherhood, 263 Minn. 520, 532, 117 N.W.2d 213, 221 (1962). An employer's general statements of policy are no more than that and do not meet the contractual requirements for an offer. Thus, in Degen v. Investors Diversified Services, Inc., 260 Minn. 424, 110 N.W.2d 863 (1961), where the employee was told he had a great future with the company and to consider his job as a "career situation," we said these statements did not constitute an offer for a lifetime employment contract.

If the handbook language constitutes an offer, and the offer has been communicated by dissemination of the handbook to the employee,⁴ the next question is whether there has been an acceptance of the offer and consideration furnished for its enforceability. In the case of unilateral contracts for employment, where an at-will employee retains employment with knowledge of new or changed conditions, the new or changed conditions may become a contractual obligation. In this manner, an original employment contract may be modified or replaced by a subsequent unilateral contract. The employee's retention of employment constitutes acceptance of the offer of a unilateral contract; by continuing to stay on the job, although free to leave, the employee supplies the necessary consideration for the offer. We have so held in Stream v. Continental Machines, Inc., 261 Minn. 289, 293, 111 N.W.2d 785, 788 (1961), and Hartung v. Billmeier, 243 Minn. 148, 66...