Toussaint v. Blue Cross & Blue Shield of Michigan

• Decision Date: 10 June 1980
• Docket Number: 4,Docket Nos. 60917,60907,Nos. 5,s. 5
• Citation: 115 L.R.R.M. (BNA) 4708,408 Mich. 579,292 N.W.2d 880
• Parties: Charles TOUSSAINT, Plaintiff-Appellant, v. BLUE CROSS & BLUE SHIELD OF MICHIGAN (formerly Michigan Hospital Service), a Michigan Corporation, Defendant-Appellee. Walter EBLING, Plaintiff-Appellee, v. MASCO CORPORATION, a Michigan Corporation, Defendant-Appellant. Calendar408 Mich. 579, 292 N.W.2d 880, 115 L.R.R.M. (BNA) 4708, 109 Lab.Cas. P 55,888
• Court: Michigan Supreme Court

Page 880

292 N.W.2d 880

Charles TOUSSAINT, Plaintiff-Appellant, v.BLUE CROSS & BLUE SHIELD OF MICHIGAN (formerly Michigan

Hospital Service), a Michigan Corporation,

Defendant-Appellee.

Walter EBLING, Plaintiff-Appellee, v.MASCO CORPORATION, a Michigan Corporation,

Defendant-Appellant.

Docket Nos. 60917, 60907.

Calendar Nos. 5, 4.

408 Mich. 579, 292 N.W.2d 880, 115 L.R.R.M. (BNA) 4708,

109 Lab.Cas. P 55,888

Supreme Court of Michigan.

Argued Dec. 5, 1978.

Decided June 10, 1980.

Gottlieb & Goren, P. C. by Charles Gottlieb, Detroit, for Charles toussaint.

Long, Preston, Kinnaird & Avant, Grady Avant, Jr., Joseph F. Page III, Detroit, for Blue Cross & Blue Shield of Mich.

Harry Riseman, Detroit, for Walter Ebling.

Cross, Wrock, Miller & Vieson by W. Robert Chandler, Michael A. Holmes, Detroit, for Masco Corp.

Dwight H. Vincent, Beaumont, Smith & Harris, Detroit, for amicus curiae.

William B. Daniel, Chrysler Corp., Detroit, amicus curiae.

LEVIN, Justice(for reversal in Toussaint and affirmance in Ebling ).

Charles Toussaint was employed in a middle management position with Blue Cross and Walter Ebling was similarly employed by Masco.After being employed five and two years, respectively, each was discharged.They commenced actions against their former employers, claiming that the discharges violated their employment agreements which permitted discharge only for cause.A verdict of $72,835.52 was rendered for Toussaint and a verdict of $300,000 for Ebling whose discharge left him ineligible to exercise a stock option.Different panels of the Court of Appeals reversed Toussaint and affirmed Ebling.

In Toussaint we reverse the judgment of the Court of Appeals and reinstate the jury verdict; we affirm Ebling.

I

In Lynas v. Maxwell Farms ¹this Court said that "(c)ontracts for permanent employment or for life have been construed by the courts on many occasions.In general, it may be said that in the absence of distinguishing features or provisions or a consideration in addition to the services to be rendered, such contracts are indefinite hirings, terminable at the will of either party."(Emphasis supplied.)

The Court of Appeals in Toussaint read Lynas as requiring reversal and said "a contract for permanent employment or employment for life is a contract for an indefinite period and terminable at the will of either party" and "cannot be made other than terminable at will by a provision that states that an employee will not be discharged except for cause."²(Emphasis supplied.)

Another panel held that Ebling's bargaining for an agreement that he would not be discharged if he was doing his job removed his case "from the general rule that a contract for indefinite employment is terminable at will," and brought it within the exception mentioned in Lynas ³ for "distinguishing features or provisions or a consideration in addition to the services to be rendered."⁴

Lynas indicates, our colleague states, and we agree, that the "general" rule there set forth concerning the terminability of a hiring deemed to be for an indefinite term is not a substantive limitation on the enforceability of employment contracts but merely a rule of "construction".

In Ebling our colleague concludes that the evidence presented an issue for the jury whether the parties made an oral contract that was not terminable at will but only for cause.In Toussaint, he concludes that it did not.

These cases are not factually distinguishable.Both Toussaint and Ebling inquired regarding job security when they were hired.Toussaint testified that he was told he would be with the company "as long as I did my job."Ebling testified that he was told that if he was "doing the job"he would not be discharged.Toussaint's testimony, like Ebling's, made submissible to the jury whether there was an agreement for a contract of employment terminable only for cause.⁵

Toussaint's case is, if anything, stronger because he was handed a manual of Blue Cross personnel policies which reinforced the oral assurance of job security.It stated that the disciplinary procedures applied to all Blue Cross employees who had completed their probationary period and that it was the "policy" of the company to release employees "for just cause only."

Our colleague acknowledges that, apart from an express agreement, an employee's legitimate expectations grounded in an employer's written policy statements have been held to give rise to an enforceable contract.He states, however, that the cases so holding are distinguishable because they concern deferred compensation (termination pay, death benefits and profit-sharing benefits) that "the employers should reasonably have expected would induce reliance by the employee in joining or remaining in the employer's service."He does not explain why an employer should reasonably expect that a promise of deferred compensation would induce reliance while a promise of job security would not.

Although the manual of personnel policies was handed to Toussaint in response to his inquiry regarding job security, our colleague concludes that the record is without "any evidence whatever that Mr. Toussaint relied" upon its provisions.

We hold that

1) a provision of an employment contract providing that an employee shall not be discharged except for cause is legally enforceable although the contract is not for a definite term the term is "indefinite," and

2) such a provision may become part of the contract either by express agreement, oral or written, or as a result of an employee's legitimate expectations grounded in an employer's policy statements.

3) In Toussaint, as in Ebling, there was sufficient evidence of an express agreement to justify submission to the jury.

4) A jury could also find for Toussaint based on legitimate expectations grounded in his employer's written policy statements set forth in the manual of personnel policies.

II

Masco and Blue Cross contend

1) It is settled Michigan law that employment contracts for an indefinite term are terminable at the will of either party unless the employee has furnished consideration to his employer other than his services.A promise by an employer to discharge only for an obviously determinable cause represents such a departure from firmly established doctrines of contract formation and the normal expectations accompanying an indefinite employment relationship that it should require separate and distinct consideration in order to be enforceable.⁶

2) Where a definite term of employment is specified, each party has furnished consideration by limiting his right to terminate the relationship at will, but where one party(the employer) obligates himself to continue the relationship as long as the other desires and the other (the employee) reserves the right to terminate at will, there is no mutuality of obligation and so the agreement must fail for lack of consideration.

So explained, the Lynas "rule" for which the employers contend appears to be a principle of substantive contract law rather than a rule of construction.

The enforceability of a contract depends, however, on consideration and not mutuality of obligation.⁷ The proper inquiry is whether the employee has given consideration for the employer's promise of employment.

The "rule" is useful, however, as a rule of construction.Because the parties began with complete freedom, the court will presume that they intended to obligate themselves to a relationship at will.

To the extent that courts have seen the rule as one of substantive law rather than construction, they have misapplied language and principles found in earlier cases where the courts were merely attempting to discover and implement the intent of the parties.

A

If no definite time is expressed, the court must construe the agreement.Early cases took several approaches.Some followed the English rule that the term was presumed to be a year.⁸ Others looked to the period of payment and designated that the term. ⁹ If payment was monthly, the contract was monthly, renewable each month as the relationship continued.Other courts, including the Michigan Court, assessed or allowed a jury to assess the evidence and determine the intent of the parties.¹⁰

In Franklin Mining Co. v. Harris ¹¹this Court concluded that the jury could find that the hiring, although for an indefinite term, was "for at least a year."

Shortly thereafter, Horace Gay Wood wrote in his treatise on master-servant relations:

"With us the rule is inflexible, that a general or indefinite hiring is prima facie a hiring at will, and if the servant seeks to make it out a yearly hiring, the burden is upon him to establish it by proof.A hiring at so much a day, week, month or year, no time being specified, is an indefinite hiring, and no presumption attaches that it was for a day even, but only at the rate fixed for whatever time the party may serve."¹²

Franklin Mining was one of the four American cases cited by Wood as authority.¹³To the extent the issue of the term of employment was even present in these cases, the juries were permitted to determine the duration of the contract from written or oral communications between the parties, usages of trade, the type of employment, and other circumstances.¹⁴Like many rules, however, Wood's rule was quickly cited as authority for another proposition.Some courts saw the rule as requiring the employee to prove an express contract for a definite term in order to maintain an action based on termination of the employment.The "rule" was applied in cases where the claim was one of "permanent" or lifetime employment, a term of employment inherently indefinite.

Perry v. Wheeler ¹⁵ concerned a minister who was elected permanent rector of a church.The minister became involved in a dispute with the congregation and almost all communication between the parties ceased.An ecclesiastical review board determined that the relationship should be...