ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, June 13, 2018

Employees Beware: You are Contractually Presumed to be At-will

A new case out of Minnesota and subsequently the United States Court of Appeals for the Eighth Circuit once again confirms what we suspect already: if there is any doubt about an employee’s status, he or she is likely to be held to be an at-will employee.  Consider this:

Daniel Ayala is hired as an at-will employee in 2006 to serve as a vice president for CyberPower.  In 2012, Ayala and CyberPower agree to convert his position to executive vice president for sales and general manager for Latin America. The written contract details his salary and compensation status, stating that the agreement “outlines the new salary and bonus structure to remain in place until$150 million USD [sic] is reached.  It is not a multiyear commitment or employment contract for either party” (emphasis added).  Ayala is fired before sales could reach $150.  He claims breach of contract, contractual fraud, and unpaid wages, arguing that he was no longer an at-will employee, but rather should have been allowed to remain with the company at least until, as stated in the contract, the sales reached $150 million.  CyberPower also relies on the contractual language, arguing that it unambiguously did notmodify his status as an at-will employee as contained the phrase that it was “not a multiyear commitment or employment contract.” Unknown

The appellate court agreed with CyberPower, highlighting the fact that the text of the agreement indicates that it governed compensation only.  In Minnesota, there is a “strong presumption of at-will employment” which was applied here. The court also pointed out that Ayala did not produce any evidence supporting his claim that the company defrauded him by promising a definite term of employment and then firing him before the completion of the term.

Fair enough, it seems… until you consider the following as well: Ayala performed very well in his first sales position, bring the company’s annual sales from “virtually nothing” to almost $50 million by 2012.  He aspired to become the company’s president when the original president, Robert Lovett, decided to retire.  Lovett allegedly assured Ayala that he would be considered for that position but - surprise! - chose his son Brent as his successor when he retired in 2012.  Ayala then expressed his desire to leave the company, but was persuaded to stay to mentor Brent (thus expecting Ayala to train his own replacement, in effect.). Ayala was assured that if he stayed, he would receive “better compensation, a promotion and a written contract ensuring Ayala long-term employment.”  He was indeed promoted and, per the contract, promised to be able to stay “until” sales reached a certain amount, if the contractual language had been weighed that way.  Further, the contract does not say that his position was in fact at-will.  His previous contract had, in contrast, specifically said so. Images

Because of the parol evidence rule and, probably, the lack of written evidence of the negotiation statements, Ayala lost.  The presumption about at-will employment may have been correctly applied.  Not all court cases are resolved in a fair way for the employees.  But the case clearly reeks of nepotism, luring an employee to stay with a company under false pretenses, and broken oral promises. True, Ayala did not have evidence of the oral negotiations, but neither did CyberPower.

Why is it apparently so darned important in U.S. society to treat employees as mere objects that can be disposed of at will, by definition?  Why would it be so horrible to have to give employees a decent amount of notice and perhaps even a reasonable reason for being let go?  Many other highly developed nations around the world – especially those in Europe – do not employ such law.  These nations do very well.  Companies there make good profits.  Employees have more job security.  They are equally, if not more, productive than American workers.  What’s so bad about that?! 

Clearly, cultural factors play a role in this context. That’s unlikely to change.  In the meantime, employees in the U.S. should continue to be critical towards oral promises made by their employers and get every important term in writing.  Of course, that is easier said than done in today’s often difficult job market and resulting reasonable fears of losing or not getting a coveted position. Employees such as Ayala should not be seen as mere impersonal chess pieces that can be manipulated and moved around for employer benefits only.  But they often are.

The case is Daniel Ayala v. CyberPower Systems (USA), Inc., 2018 WL 2703102.

https://lawprofessors.typepad.com/contractsprof_blog/2018/06/employees-beware-you-are-contractually-presumed-to-be-at-will.html

Commentary, Labor Contracts, True Contracts | Permalink

Comments

Nice case, thanks. On your normative questions, the idea that anyone is "owed" a job by anyone else is foreign to a lot of Americans; we lack the nobles-are-supposed-to-take-care-of-the-serfs notions popular in Europe. (And out experience with it, to the extent we had it, involved slave owners "taking care" of their slaves.). Why should anyone who has taken the time and effort to build a business be forced to give money to people who they don't believe are providing value?

The practical reason is that job security isn't free. It makes hiring workers more expensive, thus depressing overall employment and the wages of the workers who are actually working. Thus, Americans have lower unemployment and higher average wages than EU citizens.

Posted by: Frank Snyder | Jun 14, 2018 6:47:46 PM

Thanks for the comment. I did not advocate for companies not ever being able to let people go. I was advocating for longer notice periods _with pay_ and potentially even more scrutiny in reasoning for letting people go (which could be achieved via trade unions instead of wasting court resources). Thanks for allowing me to emphasize/clarify that.

If you look at the overall unemployment rates of EU, your factual assertions may be right. However, as the "EU" is many different nations and the USA just one, I don't know that that is an apples-to-apples comparison. If comparing the USA to the more comparable nations there such as, perhaps, Germany and Denmark (sorry Greece, Portugal and others!), then you are wrong: they have both employment rules that are much more favorable to workers AND comparable or lower unemployment as well as higher wages. I think we could both have our cake and eat it too, but as also stated, I think that here are cultural barriers preventing that from happening.

Have a great summer!

Posted by: Myanna Dellinger | Jun 14, 2018 10:12:08 PM

- I forgot to note that it often takes employees several months these days to find comparable employment... maybe not so unfair to ask a company to include that cost in the consideration of letting a person go these days.

Also, I recognize the fact that other nations such as France might, granted, have taken the entire job protection/trade union theory a little too far... adjustments are on the way via Macron, I've heard...

Posted by: Myanna Dellinger | Jun 14, 2018 10:24:39 PM

Again, this is a philosophical/cultural things. Some people think that somebody owes them a job; others don’t. We’ve always had a higher percentage of the latter, going all the way back to Tocqueville. The thing works two ways. A valuable employee who quits without notice can cause all kinds of disruption for a business; we don’t make them stay until the right replacement is found, which can also take months. Employers here are also taxed so that the government (not the employers) will provide unemployment benefits.

The question is also one on which reasonable people can disagree: are people better off when politicians and judges set employment terms or when the market does? Lawyers, of course, will generally favor the first approach.

I’m not sure where you’re getting your data. Here’s mine.
Countries with highest average wage:
https://en.wikipedia.org/wiki/List_of_countries_by_average_wage
Countries with the highest GDP per capita:
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html
Household income:
https://www.oecdbetterlifeindex.org/topics/income/

If you’ve got other data, I’d be happy to see it. Wishing you a great summer, too. It’s a pretty good time to be in South Dakota, isn’t it?

Posted by: Frank Snyder | Jun 15, 2018 3:01:26 PM

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