Sabetay v. Sterling Drug, Inc.

CourtNew York Court of Appeals
Citation514 N.Y.S.2d 209,69 N.Y.2d 329,506 N.E.2d 919
Parties, 506 N.E.2d 919, 2 IER Cases 150 Alexander SABETAY, Appellant, v. STERLING DRUG, INC., Respondent.
Decision Date26 March 1987


Plaintiff asserts he was wrongfully discharged from employment because he refus to participate in certain improper, unethical and illegal activities, and because he "blew the whistle" on these alleged activities. He was employed by a division of the defendant corporation without a written contract, and alleges that his dismissal was in violation of two contractual obligations: the first arising from the "Corporate Employee Relations Policy" manual and the second arising from Sterling's Code of Corporate Conduct and Internal Control Guide (together referred to as the "Accounting Code").

The issue is whether plaintiff stated a cause of action by alleging that a statement in a corporate personnel policy manual created an enforceable contractual promise not to terminate him on any ground not mentioned in the manual, or by alleging that various corporate accounting policies constituted an employment agreement precluding plaintiff's terminati for refusing to participate in allegedly improper activities.

From June 1972 to December 1984 plaintiff, a director of financial projects, was employed by Sterling International Group, a division of Sterling Drug. He had been administering the dissolution of Sterling's Greek manufacturing facility. The liquidation was completed in June 1983. In February 1984, plaintiff was recalled to New York and was notified of his discharge in July, when no job within Sterling or any of its subsidiaries could be found for him.

Plaintiff alleges that he was discharged because he refused to participate in certain illegal activities (i.e., tax avoidance schemes and maintenance of slush funds) arising out of the liquidation of Sterling's Greek manufacturing facility, and because he disclosed these activities to his supervisor in compliance with what plaintiff believed to be corporate policy. His complaint alleges four contract and three tort causes of action, all based on wrongful discharge from employment.

Defendant Sterling moved, pursuant to CPLR 3211(a)(7), to dismiss the complaint on the ground that none of the seven causes of action stated a cognizable claim. Supreme Court dismissed the tort actions but denied the motion as to the four contract causes of action. The Appellate Division, 114 A.D.2d 6, 497 N.Y.S.2d 655, affirmed the dismissal of the causes of action sounding in tort and also dismissed the four claims based on a breach of an implied contract of employment. Although the complaint was dismissed in its entirety, plaintiff, on appeal to this court, challenges only the dismissal of the four contract causes of action. We agree with the Appellate Division that plaintiff has failed to state a cognizable cause of action for breach of any implied contract rights.

As the basis for the first breach of contract claim, Sabetay contends that Sterling's personnel manual, which enumerates seven grounds for termination, establishes an implied promise that those are the only grounds for termination and that plaintiff's termination without cause amounted to a breach of that implied contractual agreement.

The three remaining contract claims (plaintiff's second, fourth and sixth causes of action) are based on Sterling's written policies, which plaintiff contends require an employee to refrain from certain illegal or unethical activities and impose a duty on the employee to report such activities to senior management officials. Sabetay argues that these policies, coupled with a statement on the employment application that all Sterling employees are to comply with company rules and regulations, create an implied agreement not to dismiss an employee for activity in accordance with these very policies.

It is still settled law in New York that, absent an agreement establishing a fixed duration, an employment relationship is presumed to be a hiring at will, terminable at any time by either party (Martin v. New York Life Ins. Co., 148 N.Y. 117, 121, 42 N.E. 416). The original purposes of the employment at-will doctrine were to afford employees the freedom to contract to suit their needs and to allow employers to exercise their best judgment with regard to employment matters.

In recent years, however, the unfettered power of employers to dismiss employees without cause has come under sharp scrutiny (see, Blades, Employment At Will vs. Individual Freedom on Limiting the Abusive Exercise of Employer Power, 67 Colum L Rev 1404 [1967]; and see generally, Note, Protecting Employees At Will Against Wrongful Discharge: The Public Policy Exception, 96 Harv.L.Rev. 1931 [1983] ). To offset the harsh effect of the at-will doctrine and to afford workers a measure of job security, other courts have carved out exceptions to the common-law employment at-will doctrine (see, Petermann v. International Bhd. of Teamsters, 174 Cal.App.2d 184, 344 P.2d 25; Trombetta v. Detroit, Toledo & Ironton R.R. Co., 81 Mich.App. 489, 265 N.W.2d 385; Novosel v. Nationwide Ins. Co., 721 F.2d 894 [3d Cir.]; Sheets v. Teddy's Frosted Foods, 179 Conn. 471, 427 A.2d 385 [recognizing claims of wrongful discharge based on dismissal for refusing to commit an unlawful act, or for performing a public obligation or for exercising a legal right]; see also, Toussaint v. Blue Cross & Blue Shield, 408 Mich. 579, 292 N.W.2d 880 [recognizing an implied-in-fact agreement limiting the employer's right to dismiss an at-will employee]; see also, Monge v. Beebe Rubber Co., 114 N.H. 130, 316 A.2d 549; Cleary v. American Airlines, 111 Cal.App.3d 443, 168 Cal.Rptr. 722 [recognizing an implied-in-law covenant of good faith and fair dealing in employment contracts which limits the right to discharge without just cause] ).

In Weiner v. McGraw-Hill, Inc., 57 N.Y.2d 458, 457 N.Y.S.2d 193, 443 N.E.2d 441, this court dealt with its long-standing acceptance of the common-law rule. The plaintiff, who had begun his career with another publishing house, was invited to join the staff of McGraw-Hill. As part of its recruitment effort, McGraw-Hill's representative assured the plaintiff that it was company policy not to terminate employees without just cause, and that employment at McGraw-Hill would bring the advantage of job security. Moreover, the application form Weiner signed specified that his employment would be subject to the provisions of the McGraw-Hill handbook on personnel policies. The handbook stated that "[t]he company will resort to dismissal for just and sufficient cause only, and only after all practical steps toward rehabilitation or salvage of the employee had been taken and failed. However, if the welfare of the company indicates that dismissal is necessary, then that decision is arrived at and is carried out forthrightly", id., at 460-461, 457 N.Y.S.2d 193, 443 N.E.2d 441. Weiner alleged that he had relied on these assurances when he left his former employer, forfeiting accrued fringe benefits and a proffered salary increase.

After eight years of employment, Weiner was advised that he was discharged for "lack of application", id., at 461, 457 N.Y.S.2d 193, 443 N.E.2d 441. He sued, alleging a breach of contract. McGraw-Hill countered that there was no contract contract of employment and that its promises of job security were not binding. While we found for Weiner, we adhered to our view that an employer has the right to terminate an at-will employee at any time for any reason or for no reason, except where that right has been limited by express agreement. The language in the McGraw-Hill handbook, coupled with the reference to the handbook in the employment application, amounted to an express agreement between those parties limiting the employer's otherwise unfettered right to terminate its employees. We also noted that to support his breach of contract claim, Weiner had alleged the following significant factors: "[F]irst, plaintiff was induced to leave Prentice-Hall with the assurance that McGraw-Hill would not discharge him without cause. Second, this assurance was incorporated into the employment application. Third, plaintiff rejected other offers of employment in reliance on the assurance. Fourth, appellant alleged that, on several occasions when he had recommended that certain of his subordinates be dismissed, he was instructed by his supervisors to proceed in strict compliance with the handbook and policy manuals because employees could be discharged only for just cause. He also claims that he was told that, if he did not proceed in accordance with the strict procedures set forth in the handbook, McGraw-Hill would be liable for legal action." Id., at 465-466, 457 N.Y.S.2d 193, 443 N.E.2d 441.

Not surprisingly, because of the explicit and difficult pleadi burden, post-Weiner plaintiffs alleging wrongful discharge have not fared well (see, O'Connor v. Eastman Kodak Co., 65 N.Y.2d 724, 492 N.Y.S.2d 9, 481 N.E.2d 549; Murphy v. American Home Prods. Corp., 58 N.Y.2d 293, 461 N.Y.S.2d 232, 448 N.E.2d 86; Collins v. Hoselton Datsun, 120 A.D.2d 952, 503 N.Y.S.2d 203; Citera v. Chemical Bank, 105 A.D.2d 636, 481 N.Y.S.2d 694; Patrowich v. Chemical Bank, 98 A.D.2d 318, 470 N.Y.S.2d 599 [claim dismissed because the language relied on was not sufficient to establish an express agreement]; Rizzo v. International Bhd. of Teamsters, 109 A.D.2d 639, 486 N.Y.S.2d 220 [claim dismissed because employee failed to establish detrimental reliance on the assurance of job security] ).

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