Promises, Promises:
Statements that Come Back to Bite
You
Betsy J. Beck
Kramer Rayson LLP
WHERE ARE THE ISSUES?
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Hiring
Day to Day Communication
Formal Communication
Wage and Benefit Communication
Promissory Estoppel
• In Tennessee, “a promise which the promisor
should reasonably expect to induce action or
forbearance of a definite and substantial character
on the part of the promisee and which does induce
such action or forbearance is binding if injustice
can be avoided only by enforcement of the
promise.”
Alden v. Presley, 637 S.W.2d 862 (Tenn. 1992)
Hiring Statute in Tennessee
• T.C.A. § 50-1-102: “It is unlawful for any person to induce,
influence, persuade or engage workers to change from one place
to another in this state, or to bring workers of any class or calling
into this state to work in any type of labor... through or by means
of false or deceptive representations, false advertising or false
pretenses, concerning the kind and character of the work to be
done, or amount and character of the compensation to be paid for
such work, or the sanitary or other conditions of the
employment...".
• Damages:
– Class B misdemeanor
– Damages, reasonable attorney’s fees, costs
Handbooks
• A contract?
– Reflect intent to be bound
– Unequivocal commitment to provide particular
benefit
– Use of problem language
• “entire agreement of employment”
• “promise and agree”
Handbooks, etc.
• Hamby v. Genesco, 627 S.W.2d 373 (Tenn. Ct.
App. 1981)
– Plaintiffs filed suit alleging breach of contract
based on seniority roll-down rights, guaranteed
hours, etc.
– “These shall be the Guaranteed Policies, Practices
and Procedures of GENERAL SHOE
COMPANY.”
Tips on Handbooks
• What is the purpose of your handbook?
• The Good
– At-will employment language
– Unilateral right by employer to amend
• The Bad
– Guarantee
– Agreement of Employment
– “These policies will not change”
Continued Assurances of Offer
• Richardson v. Goodall Rubber Co., 1986 Tenn. App.
LEXIS 3237 (Tenn. Ct. App. 1986)
• Offer for a position with Goodall, to begin in January
1985
• Called in December to confirm before resigning former
employment – assured there was no problem
• Called later in December to confirm start date – moved
back start date
• Offer revoked on later start date
Goodall, cont’d
• Court held for Plaintiff under promissory
estoppel theory:
– Promise induced action because it was clear
Plaintiff would resign her other employment
– Reliance by Plaintiff justifiable based on continued
assurances
– Irreparable damage
If it Walks Like a Duck. . .
• Risher v. Cherokee Buick, et al., 2003 Tenn.
App. LEXIS 519 (Tenn. Ct. App. 2003)
• Recruited from previous employment as
general sales manager for $66,000/year
• Plaintiff understood offer as $75,000/year plus
10% commissions
• After employment began, received checks of
$500/week
Risher, cont’d
• Court held in favor of Risher on contract claim
• Company’s problems:
– Continued assurances by Company representatives
that they would “catch up on all the back pay”
– Home refinancing
– Bad witnesses
– Measure of damages
The Annual Salary Problem
• Salvatore v. Baron Corp., 2003 Tenn. App.
LEXIS 690 (Tenn. Ct. App. 2003)
• Written contract of $39,000 per year plus 2%
of net profit of sales
• Employee worked over 1 year and then was
terminated
• No agreement on settlement of accounts
Salvatore, cont’d
• Salvatore sued, claiming salary, fees, and
commissions due under contract
• Court held the employment contract was for 1
year because in Tennessee, “a contract providing
for payment of compensation for a term is a
contract for that period of time unless other
evidence shows the contract to be for another
specific period of time.”
• Contract renewal
Promise Must be Reasonably Certain
• Rice v. NN, Inc., Ball & Roller Division, 210
S.W.3d 536 (Tenn. Ct. App. 2006)
• Rice recruited from a competitor
• Presented with “term sheet” listing which
included “Profit Trust (Estimated)
$165,000/age 65”
• After his hire, Company created 401k plan for
employees
Rice, cont’d
• At retirement, Rice told Company he expected
$165,000 on his 65th birthday
• Company cited their plan to create a retirement
plan and the subsequent 401k plan
• Court held for the Company for 2 reasons:
– Other advantages to employment at the Company/not
sole reason for leaving previous employment
– Not justifiable to rely on estimated figure
ERISA “Promises”
• ERISA makes clear that employers who make
statements about future ERISA-covered benefits
(whether answering a question or on own
initiative) will be held liable for inaccurate
information when:
– The statement is materially misleading when made; or
– The statement is true when made but becomes
inaccurate because of later decisions and the employer
fails to timely provide the correct information
Never Convey Information about the
Likely Future of Plan Benefits
• The Downsizing Scenario
• The Voluntary Separation Program Scenario
• The Golden Rule
The Downsizing Scenario
• In many downsizing exercises, employers try to encourage employees to
take voluntary layoffs and/or early retirements.
• James v. Pirelli Armstrong Tire Corp., 305 F.3d 439, 443 (6th Cir. 2002),
was about the most expensive way to address future benefit issues
(ability to change medical premiums after retirement) in a downsizing
exercise.
• The lesson to be learned:
– HR managers should never make any statement about any “future
benefit” without specific written authorization from the Plan
Administrator.
– Employees need to be directed to the SPD for all benefit information.
– Confine all statements to what is set out in the SPD. Don’t explain
the terms to the employees.
– If employees have benefit questions that HR cannot answer, HR
should pass on these questions to benefits personnel for official
written responses from the Plan Administrator.
The Voluntary Separation
Program Scenario
• Some employers choose to reduce employment by offering
generous separation benefits.
– The additional benefit can be an increased severance
benefit or an offer to “bridge” years of service so that the
employee may retire early but with a full pension.
• Berlin v. Michigan Bell Telephone Co., 858 F.2d 1154, 1164
(6th Cir. 1988), set the standard for imposing liability when an
employer seriously considers offering some type of benefit in
the future.
• When the employer started giving “serious consideration” to
implementing the second offering, the employer (who was also
the plan administrator) had a fiduciary duty to discontinue
telling employees that no additional offers of the generous
separation package would be made.
The Golden Rule
• An employer who makes any statement about
future benefits, whether in response to questions
or on the employer’s own initiative, will be held
liable for any inaccurate information:
– (a) when the statement is materially misleading when
made or
– (b) when the statement is true when made but turns out
to be inaccurate because of later decisions and the
employer fails to timely provide participants with the
correct information.
The Unique Problem of Silence
• “ERISA does not impose a general duty requiring
ERISA fiduciaries to ascertain on an individual
basis whether each beneficiary understands the
collateral consequences of his or her particular
election.”
• What violates an ERISA fiduciary duty is silence
in the face of knowing that the employee is
laboring under a misimpression regarding the
consequences of a specific benefit decision.