By: Mark A. Wagner, Employment and Litigation Attorney
February 13th, 2019
Prince Yeates employment lawyers Mark Wagner and John Chindlund recently completed a broad summary of Utah employment law for inclusion in an upcoming compendium of state labor and employment laws for Primerus, an exclusive international society of nearly 200 independent peer-reviewed law firms in more than 40 countries. Although the summary was generally intended to educate in-house counsel and other Primerus member law firms, we thought we would share it with you in a series of weekly FAQs over the next several months. Our fourth installment is below.
Question of the Week: Does Utah recognize implied employment contracts as an exception to the employment-at-will doctrine?
Over the last couple weeks, we discussed the statutory and public policy exceptions to the employment-at-will doctrine in Utah. In this post, we discuss the last of the three recognized exceptions to the employment-at-will doctrine in Utah: implied contracts.
It’s a deal.
Under Utah law, employment relationships are, at their base, contractual relationships. An employee agrees to perform certain work, and an employer agrees to compensate the employee for that work. The at-will doctrine is a presumption that, in the absence of an agreement between the parties to the contrary, either party may terminate the employment relationship at any time for any reason or no reason. Of course, the parties can agree to employment on other terms. For example, the parties can agree that the employment relationship may be terminated only after a specific period, only for specific reasons, only by following a specific procedure, or some combination of these terms.
Why didn’t you say so?
Ideally, any contract between the parties that limits the at-will nature of the employment relationship will be clearly stated in words. Better yet, it will be stated in written words. But, sometimes such an agreement is never put into expressly stated – or at least not in words in a document with the word “contract” or “agreement” in its title.
Sometimes parties reach agreements through actions and commonly understood interactions. Assume you call a plumber to fix a leak at your house. Assume further that you got the plumber’s number from a flyer that list’s the plumber’s regular rates for fixing the type of leak you have. If the plumber shows up and fixes your leak, a contract likely exists that you will pay the plumber the listed regular rate for the plumber’s services. This is true even though neither of you mentioned any payment for the services or any particular rate. A contract with those terms is implied by the facts of the situation. The same thing can happen in the employment context.
Implied employment contracts
Based on the above principles, the Utah Supreme Court has made clear that the at-will employment presumption may be overcome “by showing that the parties created an implied-in-fact contract, modifying the employee’s at-will status.” Hodgson v. Bunzl Utah, Inc., 844 P.2d 331, 333 (Utah 1992).
The employee bears the burden of establishing such an implied-in-fact contract provision. Johnson v. Morton Thiokol, Inc., 818 P.2d 997, 1001 (Utah 1991). To do this, an employee must present evidence that meets the requirements of an offer by an employer for a unilateral contract.” Id. at 1002. The key requirement in this is that an employer communicated to an employee in some fashion an intent to limit the at-will nature of the employment relationship in some definite way. If this is the case, then the employee can accept that offer by performing the job in a manner consistent with the promised limitation. Id.
Employee handbooks and policies
Employers can communicate an intent to limit the at-will nature of the employment relationship through such things as employee handbook and bulletins containing policies for employee termination that are distributed to employees. Id. at 1001; see also Rackley v. Fairview Care Ctrs., Inc., 2001 UT 32, ¶18 (citing Burton v. Exam Ctr. Indus. & Gen. Med. Clinic, Inc., 2000 UT 18, ¶ 6); Reynolds v. Gentry Finance Corp. 2016 UT App. 35, ¶ 10). This happens most readily when employee handbooks or policy statements contain language about limitations on termination that are unqualified. For example, statements that employees are fired after an oral and written warning that is not corrected. Or that employees are never fired for making complaints to management.
Implied contracts can be avoided by clear disclaimers that an employee cannot reasonably miss. For example, an employee handbook that “contains clear and conspicuous language disclaiming any contractual liability and stating [the employer’s] intent to maintain an at-will relationship with its employees” will prevent the formation of an implied contract. Johnson, 818 P.2d at 1003. This is because “Utah law allows employers to disclaim any contractual relationship that might otherwise arise from employee manuals.” Tomlinson v. NCR Corp., 2014 UT 55, ¶ 25; see also Glacier Land Co., LLC v. Claudia Klawe & Assocs., LLC, 2006 UT App 516, ¶ 19; Hamilton v. Parkdale Care Ctr., Inc., 904 P.2d 1110 (Utah Ct. App. 1995); Trembly v. Mrs. Fields Cookies, 884 P.2d 1306 (Utah Ct. App. 1994); Kirberg v. West One Bank, 872 P.2d 39 (Utah Ct. App. 1994). Thus, “when an employee handbook contains a clear and conspicuous disclaimer of contractual liability, any other agreement terms must be construed in the light of the disclaimer.” Hodgson, 844 P.2d at 334.
“The prominence of the text, the placement of the disclaimer, and the language of the disclaimer are all relevant factors in determining whether a disclaimer is clear and conspicuous.” Tomlinson, 2014 UT 55, ¶ 26. For example, in Tomlinson, a disclaimer “conspicuously located at the top of the relevant policy” and “prominently bolded and set apart by a text box” was “sufficiently prominent to put employees on notice of its terms.” Id. ¶ 28. In contrast, disclaimer made in wishy-washy language in small print in the middle of a lengthy employee handbook is unlikely to prevent an employee from making an argument to a jury that other terms in the handbook did not rise to the level of an implied contract.
Check back next week for more Utah Employment Law FAQs.
Mark A. Wagner concentrates his practice in employment law, homeowners association law, and health care law, and serves as Chair of the firm’s Employment and Labor Practice Group.