Employee terminated despite manual’s assurances against retaliation

March 2016
Ryan B. Frazier
Utah Employment Law Letter

It is often said that “a promise is a promise,” but what does that adage mean? A promise is a statement or declaration that a person will or will not do something. In most cases, a promise is not enforceable under the law unless there is an exchange of mutual promises in the form of a contract.

In addition, employment in Utah is generally considered at will, meaning the employer or the employee can end the relationship at any time for any reason whatsoever. Of course, an explicit contract can modify the at-will nature of the employment relationship. The question is whether an assurance of continued employment or a promise that an employee will not be terminated for engaging in certain conduct modifies the at-will nature of the employment relationship—especially when the assurance is in an employee manual that affirms the employer’s position that its employees are at will. Read on to find out when a promise of continued employment may be more than a promise—and when it may be a contract.

Promises, promises

Gentry Finance Corporation and Royal Management (collectively, Gentry) hired Lucinda D. Reynolds in June 2009. At the time she was hired, Gentry gave her two employee manuals. The manuals were meant to provide employees an understanding of Gentry’s personnel policies.

Both manuals require managers to report wrongdoing. In fact, the manuals state that failing to report wrongdoing constitutes a violation of company policy. In numerous places, the manuals assure Gentry’s employees that they will not suffer any consequences for reporting wrongdoing or filing complaints.

One of the manuals specifically provides in boldface italic type: “NO EMPLOYEE WILL BE TERMINATED OR HAVE ANY ADVERSE ACTION TAKEN AGAINST THEM FOR BRINGING A COMPLAINT TO THE ATTENTION OF THE HOME OFFICE.” Similar assurances appear throughout the manuals, often printed in boldface italic type and set apart in text boxes. They are written in all capital letters and punctuated with exclamation points. In addition, they are prominently displayed at the top of a page or on a separate page entirely.

On page 5 of one manual, a disclaimer buried in the body of the text states that the handbook “is not an employment contract and is not intended to create contractual obligations of any kind. Neither the employee nor the company is bound to continue the employment relationship if either chooses, at its will, to end the relationship at any time.”

In February 2010, Gentry promoted Reynolds to a management position in the St. George office. She signed an employment agreement that contained a statement confirming that she was an at-will employee. The agreement also contained an integration clause providing that it set out all the terms of the employment contract between Gentry and Reynolds.

Between the date she was hired and December 17, 2010, Reynolds received 17 evaluations with a mix of positive and negative appraisals of her job performance. Then, in January 2011, her supervisor issued a memorandum noting that her delinquent loan rate was too high for the lack of growth in her office. The supervisor stated in the memorandum that Reynolds had a negative attitude when discussing these issues.

Not long after that, the supervisor instructed Reynolds to call former borrowers, including those whose accounts had been closed for more than 14 months. Reynolds refused on the grounds that the calls would violate  Gentry policy. He then asked her to call former borrowers whose accounts had been closed for more than 18 months. She again refused, but this time she claimed the calls would violate federal and state law.

Reynolds reported the supervisor’s requests that she make the questionable calls to a Gentry executive on January 12, 2011. The executive agreed that the calls violated company policy, but he also instructed Reynolds to be more subtle in the way she communicated disagreements with her supervisor.

A week later, Gentry suspended Reynolds pending an investigation. After performing the investigation, her supervisor recommended the termination of her employment. Some of the reasons for the discharge included a lack of growth in her office, her poor collection practices, a poor attitude, and poor performance. Gentry terminated her employment on January 25, 2011, less than two weeks after she reported her supervisor.

Judgment in favor of the employer

Reynolds brought a lawsuit against her former employer. The district court granted judgment in favor of Gentry on her claims. The court ruled that the termination was proper and didn’t violate any law because Reynolds was an at-will employee. She appealed the judgment in favor of Gentry.

On appeal, Reynolds argued that her termination breached Gentry’s employee manuals, which contain numerous assurances that the company will not terminate any employee for filing a complaint or reporting wrongdoing. She added that the employee manuals create an implied-in-fact contract that modified her at-will employment status. She also argued that she was fired in violation of public policy.

At-will employment

Generally, an employer may terminate an at-will employee for any reason whatsoever unless the reason is prohibited by law. However, Utah has recognized that an employee’s at-will status can be modified by contract, including an implied-in-fact contract. Further, Utah courts have recognized that an employee manual may create a unilateral contract modifying the at-will-employment relationship. Nevertheless, an implied-in fact contract will not be created by an employee manual that contains clear and conspicuous language stating that it does not constitute a contract or modify an employee’s at-will status.

Reynolds received at least two personnel manuals that described her employment as at will in four places. One of the four references specifically disclaims contractual liability, providing that the manual “is not an employment contract and is not intended to create contractual
obligations of any kind.” The provision adds: “Neither the employee nor the company is bound to  continue the employment relationship if either chooses, at its will, to end the relationship at any time.”

Although the Utah Court of Appeals recognized that the manuals contain disclaimers and statements confirming the at-will nature of Reynolds’ employment, the court also noted that the statements are not necessarily
“clear and conspicuous.” The disclaimers are not at the top of the manual, not prominent, not in bold, and not set apart by a text box.

Safe to report?

The appellate court also recognized that the manuals contain repeated assurances that employees will not be terminated for submitting complaints or grievances. The court noted that at least 10 such statements were
contained in the two agreements provided to Reynolds. It found those statements to be more conspicuous than the statements affirming at-will employment.

The court concluded the statements promising that Gentry would not terminate employees for making complaints created a question about whether the company intended to be contractually bound by the assurances.The court ruled that the case would have to go to trial to
resolve the question of whether the assurances changed the at-will nature of Reynolds’ employment.

Employment agreement vs. manuals

Reynolds also signed an employment agreement that unambiguously stated her employment could be terminated “at any time and without cause, notice or excuse for any reason.” An integration clause that prevented prior agreements and negotiations from contradicting the terms of the contract was included in the document. The appellate court recognized that Reynolds signed the employment agreement with Gentry after she received the manuals.

However, the court stated that Reynolds appeared to be offering the employee manuals to show that the parties altered the at-will nature of her employment agreement. The court found it relevant that although the manuals predated the employment agreement, Gentry continued to promulgate the same employee manuals and Reynolds continued to work for Gentry, which, according to the court, constituted a renewal of the unilateral contract set forth in the manuals.

The Utah Court of Appeals concluded that the employment agreement did not prevent Reynolds from relying on the employee manuals.

Public policy

Utah prohibits an employer from discharging an employee for a reason deemed to be in violation of a clear and substantial public policy. An employee terminated in violation of a clear and substantial public policy may sue for wrongful discharge.

Reynolds argued that Gentry terminated her employment in violation of public policy. Specifically, she contended that she was fired in retaliation for refusing to violate state and federal laws prohibiting certain phone calls and for refusing to violate company policy.

Courts have recognized four situations in which a termination violates public policy:

  1. Refusing to commit an illegal or wrongful act;
  2. Performing a public obligation, such as jury duty;
  3. Exercising a legal right or privilege, such as filing a workers' compensation claim; and
  4. Reporting criminal activities by the employer to the authorities.

The court concluded that Reynolds had not sufficiently shown that she was terminated for refusing to violate state and federal statutes and regulations prohibiting certain types of telemarketing calls. Although the court recognized the statutes and regulations, it did not believe that Reynolds sufficiently showed that protecting people from unwanted telemarketing calls was so important to the public that being terminated for refusing
to violate the statutes was in violation of a clear and substantial public policy.

The appellate court affirmed judgment in favor of Gentry on Reynolds’ claim that she was terminated in violation of public policy.

Pretextual reason for termination?

Gentry argued that it terminated Reynolds for failing to grow the office as expected. Reynolds countered that the factual evidence presented to the district court supported a logical inference that Gentry’s stated reason
was pretextual (false) and that the real reason was her refusal to make illegal calls to people on the national do-not-call registry or borrowers with accounts that were more than 18 months old.

The Utah Court of Appeals agreed with Reynolds that there was a dispute over whether the reason Gentry offered for ending her employment was pretextual. The court of appeals therefore sent the case back to the district
court for trial. Reynolds v. Gentry Finance Corporation, 2016 UT App 35.

Lessons learned

Although at-will employment is alive and well in Utah, statements in an employee manual that assure employees they will not be terminated for certain conduct may modify the at-will nature of the employment relationship. That could be the case even if the manual contains a contractual liability disclaimer and reaffirms the at-will-employment status of employees.

One message that clearly emerges from this case is that any provision in an employee manual disclaiming the employer’s liability must be prominently displayed in a conspicuous place. The court suggests that such statements should be at the top of the relevant policy, set apart in a text box, and emphasized in some way (e.g., in boldface or italic print). Employers should make disclaimers as prominent, clear, and conspicuous as possible.

Another lesson from this case is that employee manuals should be free of statements that conflict with the at will nature of employment unless the employer is willing to abide by those statements. In this case, statements
assuring employees that they would not be discharged for reporting wrongdoing were read to conflict with the at-will nature of the employment relationship. It’s clear that any statement that seems to promise employment protection could trump at-will employment.