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In Klein v. HP Pelzer Automotive Systems, Inc., the Michigan court of appeals reversed the lower court's grant of summary disposition on the claim that the employer breached an express contract to pay severance [an enhanced version of this opinion is available to lexis.com subscribers]. It vacated an award of damages and remanded for entry of an order dismissing the case.
The case arose during the economic downturn in the automotive industry. In a letter dated 11/2/09, the plaintiffs were advised in writing that a reorganization would be taking place but that their jobs would not be at risk. They were also told that if their employment "is terminated or ended in any manner in the future," they would be entitled to a minimum of severance pay equal to one full year compensation. In a letter dated 6/7/11, the then president of the employer advise them in writing that the 11/2 letter and the severance terms outlined in it were rescinded effective immediately. The plaintiffs who were husband and wife. They responded the next day in writing rejecting the attempted rescission and shortly thereafter resigned and sued. In reversing the lower court, the court of appeals held that the phrase ended in any manner in the future rendered the promise a gratuity and not a unilateral offer of a contract. The plaintiffs were not required to keep working after receiving the letters, and according to the plain language of the letter, the plaintiffs could resign immediately and collect the severance pay offered. Without sufficient consideration, the promise of severance pay was not legally binding. According to the court, the policy arguably continued until the letter revoking it was sent, ending the policy. The court addressed the claims of breach of implied contract and promissory estoppel which had not been addressed by the lower court since the interpretation of the first letter was a question of law. It rejected both claims. When hired, the plaintiffs signed personnel forms stating that changes in compensation, employment, and benefits could be modified or eliminated at any time with simple written notice which was in fact received. The 2009 letter articulated a severance pay policy what could be changed at will and did not articulate a promise. The decision will certainly cause bother employee and employer attorneys to reflect on their drafting of similar policies and responses to policies in the future. It remains to be seen whether the phrase ended in any manner in the future will be adopted in light of this decision. It would have been helpful if the court would have explained in greater detail why the phrase made the promise a gratuity and not a unilateral offer of a contract. I would expect in the future employees will not be content to rely on similar representations but will press the employer for a written agreement that is no longer able to be unilaterally modified or ended.
For additional Labor and Employment law insights from John Holmquist, visit the Michigan Employment Law Connection.
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