Key Takeaway

An employer’s communications to employees may constitute an offer to contract if that offer contains a promise communicated in a way such that the promisee can justly expect performance and can justly rely on the promise.

Here, the handbook description of a separation pay plan clearly evinced an intention not to create an offer capable of acceptance. The manner of communication and the disclaimers did not create a situation in which the employee could justly expect performance and reasonably rely thereon. After reading the disclaimer at the end on the handbook the employee should have realized that further negotiations and not merely the acceptance of employment was necessary to create a contract for severance pay.

Kari v. General Motors Corp.

Kari v. General Motors Corp.

Kari v. General Motors Corp.

Kari v. General Motors Corp. 

261 N.W.2d 222 (1977)

(Meeting of the Minds)

Facts:

Plaintiff began working for defendant in 1955 as a process engineer. He continued in defendant's employ until March, 1972, when he requested an educational leave of absence from April to September, 1972. This leave was granted; its terms did not guarantee plaintiff his job upon his return. In September, 1972, plaintiff's leave was extended by mutual agreement until July 1, 1975. On that date, however, plaintiff's former position or one comparable to it was not available, and plaintiff was "separated" from defendant.

Plaintiff commenced the instant action in March, 1976, seeking recovery of a separation allowance allegedly guaranteed by defendant's employment handbook. This handbook, entitled "Working With General Motors", was issued to plaintiff at the time of his employment. It contains a section entitled "Separation Allowance", the first paragraph of which reads as follows:

"A Separation Allowance Plan has been established for the benefit of salaried employes laid off or separated from the payroll under certain circumstances. The primary purpose of this Plan is to provide a source of income to eligible employes beyond the date of their layoff or separation. The inclusion of a schedule of separation allowances in this booklet, together with the conditions governing their payment, however, is not intended nor is it to be interpreted to establish a contractual relationship with the employe. Where payments are made to a laidoff employe under this Plan, the term 'Separation Allowance' will include layoff payments under the Separation Allowance Plan."

On the last page of the handbook is a general disclaimer, italicized and outlined in red:

"The contents of this handbook are presented as a matter of information only. While General Motors believes wholeheartedly in the plans, policies and procedures described here, they are not conditions of employment. General Motors reserves the right to modify, revoke, suspend, terminate, or change any or all such plans, policies, or procedures, in whole or in part, at any time, with or without notice. The language used in this handbook is not intended to create, nor is it to be construed to constitute, a contract between General Motors and any one or all of its employes."

Plaintiff asserted that the provisions of the separation allowance plan constituted an offer by defendant of a unilateral contract, which offer was accepted by plaintiff's action of working for defendant. Defendant answered that due to the disclaimers, the separation allowance provisions could not possibly be construed as an offer that would reasonably be relied upon.

Issue:

Whether statements in an employment handbook may constitute an offer to contract for severance pay, despite the presence of express disclaimers in the handbook and in its description of the severance pay plan.

Reasoning:

The question of whether a contract exists is governed by ordinary principles of offer, acceptance, and consideration.

When the employer-employee communication fails to contain the elements of an offer, and when the requisites of promissory estoppel are not present, courts will not hesitate to find that no contract was ever formed. The following communications, for example, have been held not to constitute enforceable promises or offers capable of acceptance:

1. A booklet entitled "Know Your Company" which stated:

"'It has been customary, since 1937, for the company to make a year end payment to employees. The amount of such payment, if any, depends upon the earnings available from operations, and is entirely at the discretion of the Board of Directors.'"

2. A staff bulletin outlining a plan of renewal bonuses which provided:

"'This renewal bonus is a voluntary contribution on the part of the Company. It is agreed by you and by us that it may be withheld,increased, decreased or discontinued, individually or collectively, with or without notice.'"

3. A listing of "Suggestion System Rules" which included the following:

"'Each suggestion is submitted with the understanding that the Company shall have the right to publish, use or refuse it and that if it is published or used, the decision of the company shall be final and conclusive as to the amount of a cash award, if any, and the person or persons entitled thereto, and all other matters concerning the suggestion.'"

As with the above communications, General Motors' handbook description of a separation pay plan clearly evinced an intention not to create an offer capable of acceptance. In addition, the manner of communication -- couched in disclaimers -- to the employee did not create a situation in which the employee could justly expect performance and reasonably rely thereon. It is difficult to imagine what defendant could have done, short of not mentioning the plan, to prevent the reading of its statement as an offer. General Motors did not "adopt" a "policy" of severance payments as part of a drive to attract employees; instead, General Motors specifically stated that its separation pay schedule and conditions were not intended to establish a contractual relationship with the employee. An employee reading this language and that of general disclaimer at the end of the booklet should realize that further negotiations, and not merely the acceptance of employment with General Motors, are necessary to create a contract for severance pay.

Holding:

Under the facts of this case no offer or enforceable promise was made by the handbook.