AMERICAN LANTERN COMPANY v. HAMILTON (1997)

This case is about whether the strong presumption of at-will employment in Texas can be modified by an employer's oral representation to an employee that he can keep his job as long as he performs satisfactorily. We hold that the presumption of at-will employment is so firmly rooted in Texas law that it cannot be overcome by an employer's oral representations that do not manifest an intent to modify the at-will relationship. We also hold that in this contract case, fraud damages are not recoverable. Accordingly, we reverse and render.

Factual and Procedural Background

American Lantern Company (“ALC”) hired Leroy Hamilton (“Hamilton”) in 1987 to fill the general manager's position in a new manufacturing plant being built by ALC in Nuevo Laredo, Mexico. Hamilton was hired by ALC's acting president, Ron Alexander (“Alexander”), who told him that “as long as [he] did well and did a good job [he] had nothing to worry about.” Before the new plant was completed, Hamilton worked a year in ALC's Newport, Arkansas facility. While in Arkansas, Hamilton considered leaving ALC to return to the shipyard business he owned in Brownsville, Texas.¹ Hamilton approached Alexander about this, who told him that his real opportunity was with ALC and discussed the contemplated management incentive program whereunder key employees would be receiving stock in ALC. Based on these assurances, Hamilton sold his shipyard business.

Sometime after Hamilton took over the Nuevo Laredo plant, ALC began experiencing problems at the plant. Alexander testified that employee turnover was the primary problem and attributed it to poor supervision. Don Little, the President and Chief Executive Officer of ALC at the time of trial (“Little”), testified that Alexander knew the plant would “outgrow” Hamilton when he was hired, and that ALC's board of directors often asked Alexander whether the problems in Nuevo Laredo were because of Hamilton. Alexander further testified that in February 1993 the plant superintendent and the plant engineer told him they were thinking of quitting. At that time, a decision was made by Little and Alexander to demote Hamilton to administrative manager.

Upon arriving in Nuevo Laredo in March 1993 to implement this decision, Alexander found out Hamilton had been engaged in an affair with a production line employee who had given birth to his baby. Alexander further discovered Hamilton had made unauthorized payments to three pregnant employees, including the production line employee with whom he had the affair, contrary to ALC's policy. Alexander discussed this new information with Little and the decision was made to terminate Hamilton.

Hamilton testified that when Alexander told him he was fired he was not given any reason for the termination, although he subsequently received a letter from ALC indicating that he was terminated because his position was being eliminated.² Little and Alexander both testified Hamilton had been terminated for poor performance, for having an affair with and impregnating a production line employee, and for paying three pregnant women for maternity leave contrary to company policy. According to Little and Alexander, the actual reasons for the termination were not set forth in the termination letter to prevent Hamilton any further embarrassment.

The jury found that Alexander and Hamilton had entered into an oral employment contract whereby Hamilton would only be discharged for cause and that Alexander had the authority to bind ALC to the contract. The jury further found that Hamilton had been discharged without good cause and awarded him $37,000 for ALC's failure to comply with the agreement. In addition, the jury found that Alexander committed fraud regarding the circumstances of Hamilton's employment and that such fraud was committed within the scope of Alexander's employment. The jury awarded Hamilton $4,000 in actual damages and $50,000 in exemplary damages on the fraud claim.³

The Standard of Review

ALC and Alexander attack the legal sufficiency of the evidence to support the jury's finding that an enforceable oral satisfaction contract was formed by the parties to limit ALC's right to terminate Hamilton's at-will employment. We review a legal sufficiency, or “no evidence,” point of error in accordance with well-established standards, considering only the evidence and inferences that, when viewed in their most favorable light, tend to support the finding, and disregarding all evidence and inferences to the contrary. Davis v. City of San Antonio, 752 S.W.2d 518, 522 (Tex.1988). The point of error will be overruled if there is more than a scintilla of evidence to support the finding, Sherman v. First Nat'l Bank, 760 S.W.2d 240, 242 (Tex.1988); however, the point of error will be sustained if the evidence offered to prove a vital fact is so weak that it raises no more than mere surmise or suspicion of its existence. Kindred v. Con/Chem, Inc., 650 S.W.2d 61, 63 (Tex.1983).

Oral Modification of Employment At–Will Status

“The long-standing rule in Texas provides for employment at will, terminable at any time by either party, with or without cause, absent an express agreement to the contrary.” Federal Express Corp. v. Dutschmann, 846 S.W.2d 282, 283 (Tex.1993); East Line & Red River R.R. v. Scott, 72 Tex. 70, 10 S.W. 99, 102 (1888). “A discharged employee who asserts that the parties have contractually agreed to limit the employer's right to terminate the employee-at-will has the burden of proving an express agreement or written representation to that effect.” Lee–Wright, Inc. v. Hall, 840 S.W.2d 572, 577 (Tex.App.—Houston [1st Dist.] 1992, no writ). The presumption of at-will employment may only be rebutted by an agreement that directly limits, in a “meaningful and special way,” the employer's right to terminate at will. Massey v. Houston Baptist Univ., 902 S.W.2d 81, 83 (Tex.App.—Houston [1st Dist.] 1995, writ denied). Modification of the at-will relationship may be by oral agreement. See Brown v. Montgomery County Hosp. Dist., 929 S.W.2d 577, 583 (Tex.App.—Beaumont 1996, writ granted); Morgan v. Jack Brown Cleaners, Inc. 764 S.W.2d 825, 826 (Tex.App.—Austin 1989, writ denied). However, oral agreements not capable of performance within one year are not enforceable under the statute of frauds. Schroeder v. Texas Iron Works, Inc., 813 S.W.2d 483, 489 (Tex.1991); Benoit v. Polysar Gulf Coast, Inc., 728 S.W.2d 403, 406 (Tex.App.—Beaumont 1987, writ ref'd n.r.e.).

Oral satisfaction contracts appear to have been recognized by a number of appellate courts. See Brown, 929 S.W.2d at 583–84; Massey, 902 S.W.2d at 84; Goodyear Tire & Rubber Co. v. Portilla, 836 S.W.2d 664, 667–68 (Tex.App.—Corpus Christi 1992), aff'd on other grounds, 879 S.W.2d 47 (Tex.1994); Lone Star Gas Co. v. Pippin, 620 S.W.2d 922, 925 (Tex.Civ.App.—Dallas 1981, writ ref'd n.r.e.). In many of these cases, however, the courts have either assumed the validity of the oral satisfaction contract or have not addressed the issue for one reason or another. See Brown, 929 S.W.2d at 584 (employer's oral assurance employee will not be fired except for good cause “routinely” held to be valid modification of at-will status); Massey, 902 S.W.2d at 84 (oral statement assumed to be valid contract for statute of frauds analysis); Portilla, 836 S.W.2d at 668 (satisfaction contract formed when employer represents to employee that he will not be discharged but for unsatisfactory performance); Pippin, 620 S.W.2d at 924 (existence of satisfaction contract not contested). Whether an oral satisfaction contract is sufficient to rebut the strong presumption of at-will employment has not been directly addressed by the supreme court. But see Portilla, 879 S.W.2d at 48, 51–52 n. 8 (court found it unnecessary to reach broad issue of whether oral assurance of job security can modify at-will relationship into contract requiring “good-cause” for termination); Schroeder, 813 S.W.2d at 489 (same). But assuming that an employer's oral assurance of job security to an employee is legally capable of overcoming the at-will presumption, principles of contract formation must still be applied in each case in an examination of whether the employer's oral representation rises to the level of an enforceable contract. See generally Rebecca Guerra, Comment, Oral Contracts to Fire for Good Cause Only: Texas Courts Putting the Cart Before the Horse, 47 Baylor L.Rev. 1181, 1183 (1995) (hereinafter “Guerra”). This is the approach taken in a number of other jurisdictions that have addressed the issue. See, e.g., Eales v. Tanana Valley Medical–Surgical Group, Inc., 663 P.2d 958, 960 (Alaska 1983) (finding assurance of keeping one's job if he performed his duties properly was part of employment contract regardless of mutuality of obligation since contract was formed by exchange of promise for performance); Barry v. Posi–Seal Int'l, Inc., 36 Conn.App. 1, 647 A.2d 1031, 1035 (1994) (permitting jury to determine whether employer's comment manifested intent to create contract); Rowe v. Montgomery Ward & Co., 437 Mich. 627, 473 N.W.2d 268, 273 (1991) (analyzing contractual status of employee by looking for mutual assent and intent of parties); see also McKenny v. John V. Carr & Son, Inc., 922 F.Supp. 967, 976–77 (D.Vt.1996) (oral assurance that employee would have continuing employment as long as his performance was satisfactory was too elusive to become contract and was merely expression of hope); Hayes v. Eateries, Inc., 905 P.2d 778, 783 (Okla.1995) (oral promise to retain employee if he performed well was insufficient to support contract); Darlington v. General Elec., 350 Pa.Super. 183, 504 A.2d 306, 312 (1986) (promise was too vague to overcome at-will presumption).

We must therefore look at Alexander's statement to Hamilton in the context of whether it forms a binding contract. As previously noted, to effect a modification of the at-will relationship, an employer's oral statement must constitute an express agreement limiting, in a meaningful and special way, the employer's right to terminate the employee at-will. See Coté v. Rivera, 894 S.W.2d 536, 540 (Tex.App.—Austin 1995, no writ). A binding contract consists of an offer, an acceptance in strict compliance with the terms of the offer, a meeting of the minds, and each party's consent to the terms of the agreement. Buxani v. Nussbaum, 940 S.W.2d 350, 352 (Tex.App.—San Antonio 1997, no writ). Moreover, consideration is a fundamental element of every valid contract. Smith v. Renz, 840 S.W.2d 702, 704 (Tex.App.—Corpus Christi 1992, writ denied). The determination of whether there was a meeting of the minds, and thus an offer and acceptance, is based on objective standards of what the parties said and did and not on their alleged subjective states of mind. Argonaut Ins. Co. v. Allstate Ins. Co., 869 S.W.2d 537, 540 (Tex.App.—Corpus Christi 1993, writ denied); Adams v. Petrade Int'l, Inc., 754 S.W.2d 696, 717 (Tex.App.—Houston [1st Dist.] 1988, writ denied). In determining whether mutual assent is present, the court looks to the communications between the parties and to the acts and circumstances surrounding these communications. Wiley v. Bertelsen, 770 S.W.2d 878, 882 (Tex.App.—Texarkana 1989, no writ). The terms must be expressed with sufficient certainty so that there will be no doubt as to what the parties intended. Id.

The jury found that ALC breached an oral satisfaction contract with Hamilton. Considering only the evidence and inferences in support of the jury verdict, and disregarding everything to the contrary, we must determine whether there was some evidence of an express agreement limiting, in a meaningful and special way, ALC's right to terminate Hamilton at will.

The sum of the evidence favoring the jury verdict consists of Alexander's statement to Hamilton that he would not be fired from his job so long as he performed satisfactorily. We hold that in the context in which the statement was made, nothing in either the statement or the acts of the parties evinces an express agreement between ALC and Hamilton that would serve to rebut the presumption of at-will employment. There is no evidence, when viewed objectively, that the parties had a meeting of the minds and consented to modify their at-will relationship. Moreover, no consideration was given by Hamilton in exchange for a satisfaction contract. Alexander's statement to Hamilton added nothing to the basic principle existing between any employer and employee, which principle exemplifies the nature of the at-will doctrine in Texas, that, absent extraordinary circumstances, the employee may retain his job as long as the employer is pleased with his performance.

The public policy of this State heavily favors at-will employment, and employers and employees alike are entitled to settled rules of law for determining whether the status of their relationship is changed. As a consequence, the law does not permit the offhand word of encouragement or a simple reminder of company policy to so dramatically affect the employment relationship. See Portilla, 836 S.W.2d at 667 (noting employer claimed he was merely complimenting employee on quality of her job performance and not forming a contract not to fire her if she performed well). An oral statement merely reiterating well-understood employment policies cannot reasonably be construed to limit in any meaningful and special way an employer's right to terminate an employee at-will. See Figueroa v. West, 902 S.W.2d 701, 705–06 (Tex.App.—El Paso 1995, no writ).

In summary, we hold there is no evidence to support a finding that ALC and Hamilton entered into an oral satisfaction contract, or that ALC breached any such contract. Appellants' first point of error is sustained.

Fraud Damages

Appellants also attack the trial court's award of both fraud and contract damages to Hamilton because the fraud and breach of contract causes of action are based on the same operative facts and thus both recoveries cannot stand. Because we have set aside Hamilton's award for breach of contract, we must determine whether Hamilton is entitled to a fraud recovery.

The Texas Supreme Court has held that “if the defendant's conduct ․ would give rise to liability only because it breaches the parties' agreement, the plaintiff's claim ordinarily sounds only in contract.” Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex.1991). In other words, if, in order for the plaintiff to recover, he must prove the contents of his contract, the action is in contract alone. Id. at 496. (Gonzalez, J., concurring).

Hamilton's fraud claim is based on the fact that he was fired from his job after being promised he would not be fired if he performed satisfactorily. Because Texas is an at-will employment state, Hamilton was required to prove that his at-will employment status was changed by an agreement with ALC modifying the at-will presumption. Thus, in order to prove fraud, Hamilton had to first prove that ALC gave him a satisfaction contract. Quite clearly, then, the basis for Hamilton's fraud claim is the alleged breach of the satisfaction contract. Consequently, Hamilton's only claim was in contract; he is not entitled to a fraud recovery. Appellants' eighth point of error is sustained.

Conclusion

The presumption of employment at-will in Texas can only be overcome by an agreement expressly intending to modify the relationship. The statement allegedly made by Alexander that Hamilton has a job so long as he performs satisfactorily does not manifest an intent to modify the at-will relationship. And because this is a contract case, fraud damages are not recoverable. The judgment of the trial court is reversed and a take-nothing judgment is rendered in favor of ALC and Alexander. Because points of error one and eight are dispositive of this appeal, it is unnecessary to address the remaining points of error.

GREEN, Justice.

DUNCAN, J., concurring in the judgment only.