The Connecticut General Assembly

OFFICE OF LEGISLATIVE RESEARCH

October 2, 1995 95-R-1066

TO:

FROM: Judith Lohman, Principal Analyst

You asked if it was illegal for an employer to require an employee, as a condition of a promotion or pay raise, to sign a waiver of his right to a for-cause termination under an implied employment contract based on an employee handbook. You also asked for information about a recent Connecticut Supreme Court ruling that may relate to this situation.

As you know, the Office of Legislative Research is not authorized to give legal opinions and this report should not be considered one.

SUMMARY

The practice you describe appears to be legal. The employer may be responding to several Connecticut Supreme Court rulings, beginning in 1987, stating that, under certain circumstances, provisions of employee handbooks that specify terminations may only be carried out for cause or that the employer will follow a specific termination procedure may be considered implied contracts. In addition, a 1995 decision also appears to require that, if an employer wants to change an implied contract requiring for-cause termination to an employment-at-will contract and it wants the new conditions to apply to current employees, it must do more than merely issue a revised handbook. This is because the court ruled that, although an employee who continues to work for an employer after a new handbook is issued may be presumed to have accepted any termination provision that is more favorable to him, when a change is unfavorable to the employee, a court may require additional evidence of acceptance beyond mere failure to quit. The 1995 decision could lead an employer who believes its handbook might constitute an implied contract limiting its authority to discharge employees and who wishes to introduce employment-at-will to ask employees to expressly accept the change. In order to get acceptance, it may offer employees pay raises or promotions.

It does not appear to be illegal for an employer to make pay raises or promotions a condition of the employee's agreement. “At-will” employment has not been ruled a violation of public policy by any Connecticut court. It is not only a legal employment condition in this state but is presumed to be the employment termination standard when there is no express or implied contract to the contrary. Likewise, it is not illegal to offer a new, less favorable employment contract to an employee and to offer him a price to accept it. As you describe the situation, an employer is offering inducements in the form of increased pay or promotion. Such inducements are presumably at least partly intended to offset the less favorable termination conditions. Whether the trade-off is worth it is a matter for the employee to decide. It appears the employees are free to refuse without any penalty other than not receiving the promotion or pay increase. Unless employees have contractual rights to those raises or promotions, apparently the employer may offer or withhold them on any legal grounds.

The General Assembly could prohibit such employer conduct by statute. A court could also bar such conduct by employers as a violation of public policy. Such a ruling would have to be based on the specific facts of the case but does not appear likely based on the facts you describe.

TOROSYAN V. BOEHRINGER INGELHEIM PHARMACEUTICALS, INC.

This case, decided by the Connecticut Supreme Court on July 4, 1995, concerned a chemist hired by a pharmaceutical company in 1982 and discharged in 1985. He sued his employer for violating a contract requiring that he be fired only for cause and for failing to grant him the right to take his case to the company's president before his discharge as promised in the employee handbook he received when he was hired. The trial court found that the employer had an implied contract with the plaintiff under which he could not be discharged without cause. The implied contract was based on (1) oral representations about job security made to the plaintiff by company representatives in job interviews, including a promise that the company would “take care of him” if he did a good job; and (2) express language in the company's 1981 employee manual that stated, among other things, that the company reserved the right to “discharge [employees] for cause.” In 1984, the company issued a new employee manual that eliminated the phrase “for cause” after the word “discharge.” The plaintiff maintained, and the trial court agreed, that he never accepted the change in his employment conditions and continued to work under the previous implied contract.

In ruling on the employer's appeal, the Connecticut Supreme Court refused to disturb the lower court's ruling in favor of the employee because it was “not clearly erroneous.” The trial court's decision was based on the particular facts of the case and the relative credibility of witnesses. Appeal courts rarely overturn trial court decisions concerning facts.

In its decision, the higher court began from the premise that all employer-employee relationships involve a contract of some sort, either express or implied. Unless an employer and an employee have made an enforceable bargain, the court said, the employee would not be working. Generally, employment contracts are implied rather than written and cover only such issues as wages, working hours, and job responsibilities. They do not typically limit the terminability of the employment. Thus, most permanent employment contracts are for an indefinite term and can be ended by either the employer or the employee “at will.” But, like any other contract, an employment-at-will contract can be modified by agreement of the parties.

In the Torosyan case, the court found that the explicit language of the employer's 1981 employee handbook transformed what would normally have been an at-will employment contract into a for-cause termination contract. In going to work for the employer, the employee relied on and accepted these terms. The court also ruled that the mere fact that the employee continued to work for the employer after it modified the employee handbook in 1984 to remove the for-cause termination language did not indicate, as a matter of law, that he accepted the new, less favorable terms (Torosyan v. Boehringer Ingelheim Pharmaceuticals, Inc., 234 Conn. 1 (1995)).

AT-WILL EMPLOYMENT IN RETURN FOR PROMOTION OR RAISE

The facts of the Torosyan case appear to be relevant to the situation you describe as confronting your constituent. The employee handbook under which your constituent has been working states that company employees may be terminated only for cause and through a specific, multi-step termination procedure. Connecticut courts have found, not only in Torosyan but in earlier cases, that, depending on the situation, an employment manual may constitute an implied employment contract and an employer may be held liable for violating it (for example, Finley v. Aetna, 202 Conn. 190 (1987) and Coelho v. Posi-Seal International, Inc., 208 Conn. 106 (1988)). Because of these rulings, many employers include wording in their employee manuals that expressly disclaims any intention to create contractual rights and require employees to sign the disclaimer to prove they knew of and accepted it.

But, as in the Torosyan case, the employment manual as an implied contract may still be invoked if, when an employee is hired, the manual contained express for-cause termination language and no disclaimer. Normally, in a contract, one party makes an “offer” and the other party accepts it for a “consideration” or a price bargained and paid in return for his promise. In Torosyan, the court said that, if a manual is a contract, an employer may not unilaterally change one provision, such as a for-cause termination condition, to a less favorable at-will condition unless the employee accepts the change. Furthermore, the court said that an employee's acceptance cannot be automatically assumed just because he fails to quit.

The Torosyan ruling may result in some employers asking current employees to expressly acknowledge their at-will status. If as a result of the Finley and subsequent rulings, an employer altered its employment manual to remove for-cause language and added a contract disclaimer, the change may protect them against breach of contract claims by employees hired under the terms of the revamped handbooks. But if an employer has employees hired under an old manual that could be construed as a contract, it may wish to ask those employees to indicate that they expressly accept the change in termination conditions since mere continued employment may no longer be enough.

Your constituent's employer appears to have adopted a strategy of requiring employees to expressly accept at-will status in return for a raise in pay or a promotion. If the employee fails to accept the new contract, he apparently remains under the old implied contract as stated in the employment manual. Such a requirement does not violate any statute nor does it appear to contravene any court ruling. The transaction the employer proposes appears to be a standard “offer” to modify its existing implied employment contract with the employee. The employee can accept and receive “consideration” (a pay increase or promotion).

This is not to say that the facts of a particular situation might not render such an agreement open to attack in court. If the employer uses threats to make an employee agree, for instance, a court might not recognize the resulting agreement as legal. But based on the facts you describe, the employer's conduct does not appear to violate the law.

JSL:pa