Sands Appliance Services, Inc. v. Wilson

• Citation: 615 N.W.2d 241,463 Mich. 231
• Decision Date: 31 July 2000
• Docket Number: Docket No. 113125, Calendar No. 2.
• Parties: SANDS APPLIANCE SERVICES, INC., Plaintiff-Appellee, v. Christopher WILSON, Defendant-Appellant.
• Court: Supreme Court of Michigan

615 N.W.2d 241

463 Mich. 231

SANDS APPLIANCE SERVICES, INC., Plaintiff-Appellee, v. Christopher WILSON, Defendant-Appellant.

Docket No. 113125, Calendar No. 2.

Supreme Court of Michigan.

Argued May 3, 2000.

Decided July 31, 2000.

Thomas H. O'Connor and Mary Jo Diegel, Troy, for plaintiff-appellee.

Dean Koulouras, Livonia and John A. Lydick, Detroit, of counsel, for defendant-appellant.

Jennifer M. Granholm, Attorney General, Thomas L. Casey, Solicitor General, and Christine A. Derdarian, Assistant Attorney General, Detroit, for Labor Division.

Opinion

MARILYN J. KELLY, J.

The issue in this case is whether the "TUITION CONTRACT" that plaintiff-employer, Sands Appliance Services, Inc., required defendant, Christopher Wilson, to sign before he began employment was void and unenforceable. Defendant asserts that plaintiff violated subsection 8(1) of the wage and fringe benefits act (WFBA)¹ and the accompanying administrative rule, 1982 AACS, R 408.9011. The district and circuit courts found for the defendant. The Court of Appeals reversed in a split decision. 231 Mich.App. 405, 421, 587 N.W.2d 814 (1998). We hold that the contract did violate the statute and administrative rule and, accordingly, reverse the Court of Appeals and reinstate the judgments of the district and circuit courts.

I. Facts and Procedural Background

The undisputed facts of this case were established entirely through the testimony of Ralph Parry, the sole owner of plaintiff and sole witness at the district court bench trial.

Defendant, when nineteen years old, responded to plaintiff's newspaper advertisement seeking entry-level appliance repair people. He was employed at that time and had acquired limited experience in appliance repair. In speaking with Mr. Parry, defendant indicated a desire to leave his current employment and work for plaintiff, so that he could become a "full-fledged, on-the-road appliance technician." On May 11, 1992, plaintiff hired defendant at an hourly wage of $7.00.

Plaintiff required defendant to sign the following document before beginning his employment:

TUITION CONTRACT

I Christopher Wilson in consideration for job training, either formal or informal; either instructed or non-instructed; either learning by doing or observing, (at the sole discretion of Sands Appliance Service management) agree and promise to pay to Sands Appliance Service the sum of $50.00 per week, beginning the 11th day of May, 1992; and continuing each week for a period of three years, (a total of 156 weeks at $50.00 per week) at the end of the three year training period. It is agreed by Sands Appliance Service that each week of continued employment by Christopher Wilson will serve as payment for one week of the previous training period.

Therefore, at the end of six years total employment, (both as a trainee and as a graduate of training), this training shall be considered paid for in full. In the event of the termination of employment of Christopher Wilson for any reason, the tuition payments owed at that time are to be paid in full in U.S. Currency within a period of 7 days from the termination date.

Sands Appliance Service, as employer, accepts the Tuition Contract to help educate, formally or informally, the employee in the business of appliance service and/or sales. The term of this contract shall be as set forth above. However, at any time the employer may review the status of the employee and upon determination by the employer, in its sole and uncontrolled discretion [, that] the best interest of the employer would be served by a termination of this contract, then the employer may terminate this agreement upon written notice to the employee.

Mr. Parry testified that his intended purpose in having defendant sign the contract was to ensure that defendant stay in his company's employ for at least six years:

[T]he reason I have this contract, which was started in 1985, is because I would train people and they would turn right around and either become my competitor, and a lot of them—after a couple of years, it was—it was going to break me trying to train people.

And I decided I needed something to—to make sure people were in earnest about wanting to learn the job and be willing to at least work there long enough where I could recoup my expenses in so doing.

Two and a half years later, defendant quit plaintiff's employ. By then, he was earning approximately $50,000 a year. Plaintiff filed a lawsuit for breach of the tuition contract, seeking $6,500 in damages ($50 × 130 weeks) from defendant.

Defendant moved for a "directed verdict,"² on the ground that the "tuition contract" was void because it violated M.C.L. § 408.478(1); MSA 17.277(8)(1). Defendant argued that the contract also violated the parallel administrative rule, 1982 AACS, R 408.9011.³

Plaintiff countered that the only purpose of the tuition contract was to recoup costs of training new appliance service technicians. Hence, these provision were inapplicable.

The district court granted defendant's motion, stating:

The end result of this contract was solely to keep somebody there with this hanging over his head. It's a debenture of $6,500.00. It's void. It's illegal. I find no cause for action. The case is dismissed.

On appeal from the circuit court affirmance, the Court of Appeals reversed, rejecting plaintiff's argument that defendant's failure to cite the statute and regulation in its affirmative defenses precluded their being considered. It found that plaintiff's rejection of the trial court's offer of additional time and its failure to show prejudice waived the issue.

In interpreting the language of the statute and regulation, the Court of Appeals relied on the history of § 351 of the California Labor Code. It concluded that the Michigan Legislature's intent in enacting subsection 8(1) of the WFBA mirrored the California Legislature's intent in its 1929 enactment of an antecedent to § 351.

The Court of Appeals found that, even assuming that the reimbursement plaintiff sought under the tuition contract constituted "remuneration or consideration" under the statute, the tuition contract did not run afoul of the statute. The statute by its wording clearly applied to prospective or current employees, not former employees.

Moreover, the Court of Appeals found that the tuition contract did not differ from other permissible provisions frequently agreed to by employees, such as an employee's obligation (1) to reimburse the employer for personal telephone calls or (2) to reimburse an employer for tools the employer provided if the employee left employment and took the tools with him.

The dissenting judge would have affirmed the lower courts' ruling that the contract was void and unenforceable. He reasoned that the statute's broad language evidenced "a legislative intent that the prohibition should apply to any occasion where an employee must, in any fashion, make payment or provide some sort of consideration to an employer for the privilege of employment." Sands, supra at 421, 587 N.W.2d 814. Although the dissenter agreed with the majority that his interpretation might represent bad public policy, he found that the language of the statute required it. He rejected as inapposite the majority's reliance on California precedents construing a similar provision in the California Labor Code.

After initially denying defendant's application for leave to appeal, we granted leave to appeal on reconsideration. 461 Mich. 944, 602 N.W.2d 577 (2000).

II. Standard of Review

Contract interpretation and statutory interpretation involve issues of law that are subject to de novo review by this Court. Morley v. Automobile Club of Michigan, 458 Mich. 459, 465, 581 N.W.2d 237 (1998); Alex v. Wildfong, 460 Mich. 10, 21, 594 N.W.2d 469 (1999). We reverse a trial court's findings of fact only if they are clearly erroneous. DiFranco v. Pickard, 427 Mich. 32, 58-59, 398 N.W.2d 896 (1986).

III. Analysis

A. Should the Late Filing of an Affirmative Defense Have Been Allowed?

During proceedings before the trial court, defendant sought dismissal on the basis of the statute and regulation. Plaintiff objected, arguing that they constituted affirmative defenses and that the failure to plead them in the answer to the complaint constituted a waiver.⁴ The court allowed the amendment but offered plaintiff additional time to research and respond. Plaintiff rejected the offer, saying it would be useless, because no cases interpreted the provisions. Plaintiff is correct that MCR 2.111(F)(3) provides that affirmative defenses must be stated in a party's responsive pleading, either as originally filed or as amended in accordance with MCR 2.118. However, MCR 2.118(A)(2) states that the court may grant leave to a party to amend a pleading and that, when justice requires it, leave shall be given freely.

We find that justice required allowance of the amendment here, because courts have a duty to refuse to enforce a contract that is contrary to public policy. Manning v. Bishop of Marquette, 345 Mich. 130, 133-134, 76 N.W.2d 75 (1956).⁵ If the contract violated the statute, it violated Michigan public policy.

Moreover, even absent the compelling public policy concern, a motion to amend ordinarily should be granted, unless one of the following particularized reasons exists:

"[1] undue delay, [2] bad faith or dilatory motive on the part of the movant, [3] repeated failure to cure deficiencies by amendments previously allowed, [4] undue prejudice⁶ to the opposing party by virtue of allowance of the amendment, [and 5] futility...." [ Ben P. Fyke & Sons v. Gunter Co., 390 Mich. 649, 656, 213 N.W.2d 134 (1973)

.]

These conditions are not found here, nor does plaintiff claim that they exist. Thus, we agree with the Court of Appeals conclusion that permitted the affirmative defenses to be raised belatedly.

B. Does the Tuition Contract Violate the Statute?

The key question in this case is whether the ...