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Dr. Pasquale De Petris v. Union Settlement Ass'n, 86 N.Y.2d 406 (October 24, 1995).

EMPLOYMENT LAW - AT WILL EMPLOYMENT - RELIANCE ON EMPLOYEE HANDBOOK

ARTICLE 78 - NOT-FOR-PROFIT CORPORATION - EMPLOYMENT TERMINATION

TERMINATION OF EMPLOYMENT AT WILL IN VIOLATION OF PERSONNEL MANUAL WILL NOT SUPPORT EITHER AN ARTICLE 78 OR BREACH OF CONTRACT ACTION IN ABSENCE OF RELIANCE

[SUMMARY] | [ISSUE & DISPOSITION] | [AUTHORITIES CITED] | [COMMENTARY]

SUMMARY

Petitioner Dr. Pasquale De Petris began working for the James Weldon Johnson Counseling Center ("the Center") in 1972 as a staff psychologist. In 1982, Respondent Union Settlement Association assumed control of the Center. In 1988, Petitioner became the Center's Administrative Director, responsible for overseeing the finances of the Center. After Petitioner had been in this position for two years, the Center began to operate at a loss. Respondent discussed the problematic finances of the Center with Petitioner on several occasions between December 1991 and April 1992. Petitioner proposed various solutions to the deficit, but Respondent maintained that there was no evidence that these measures were being implemented. On April 14 1992, Respondent's Board of Directors met to discuss the Center's continuing financial problems. On April 20, concluding that Petitioner had failed to take any action to remedy the financial problems, Respondent terminated his employment effective that day.

Petitioner claimed that his termination letter did not comply with Respondent's personnel manual, because the letter gave no reason for the termination and there were no warnings preceding it. The employee manual in question was originally distributed by Respondent in 1978. The manual stated that although employees could be terminated for just cause, they would first "be informed of the problems in job performance and given a period to improve. . .. Upon completion of this period, the employee shall be notified whether he passed or failed the trial, and if failed, the reason thereof." The manual also contained a provision allowing for periodic revision of the terms of the manual. Respondent claimed that it had stopped distributing the manual in December 1991, and informed employees that the manual was being revised.

The trial court held that although Article 78 relief could be sought against a private corporation for violation of its internal rules, the employee manual in question did not constitute an internal rule. The Appellate Division affirmed, holding that while Article 78 was the appropriate claim to raise, there was no proof that the manual had been violated.

[ANALYSIS]

ISSUES

1. Whether an at-will employee claiming wrongful termination due to the employer's failure to comply with procedures set forth in an employee manual can pursue an action under Article 78, which forbids arbitrary and capricious conduct with respect to internal rules.

2. Whether, absent a valid independent Article 78 claim, an at-will employee can demonstrate reliance on the terms of the employee manual as required to recover for a breach of contract claim.

DISPOSITION

The Court of Appeals affirmed the order of the Appellate Division, holding the technical availability of Article 78 in such cases should not allow a plaintiff to circumvent the well- settled at-will employment law doctrine which limits recovery based upon an employee handbook to those cases where the plaintiff can demonstrate reliance.

CASES CITED

OTHER SOURCES CITED

COMMENTARY
1. Availability of an Article 78 procedure to compel not-for- profit private corporation to adhere to internal termination procedures does not limit an employer's right to discharge an employee at will as allowed under traditional doctrines of employment law.

A. State of the Law Before De Petris.

Article 78 claims are valid against non-public, not-for-profit corporations. Although the language of the statute and its general application involves a review of administrative agencies as well as governmental or private bodies subject to their rules, "[a]n incorporated private not-for-profit corporation may be a 'body or officer' (CPLR [sic] 7802 [a]) subject to mandamus . . . especially . . . where petitioner alleges that respondent did not follow its own internal rules contained in respondent's employee rules and regulations in firing him. Sines v. Opportunities For Broome, Inc., 550 N.Y.S.2d 99, 100 (App. Div. 1989) (holding that a worker's Article 78 claim was proper procedure despite its failure to prevail on the merits). The procedural vehicle of Article 78 is appropriate when it is argued that "the corporation violated its own rules and regulations as set forth in its employee handbook." Mitchell v. Dowdell, 569 N.Y.S.2d 291, 292 (App. Div. 1991) (reversing a lower court dismissal of an employee's Article 78 mandamus proceeding against employer despite a loss on the merits). The rationale behind this application of Article 78 is that "[t]hese corporations, having accepted a charter and having thus become a quasi-governmental body, can be compelled in an [A]rticle 78 proceeding to fulfill not only obligations imposed upon them by State or municipal statutes but also those imposed by their internal rules." Gray v. Canisius College, 430 N.Y.S.2d 163, 165 (App. Div. 1980) (citations omitted) (holding that the special role of tenure limits educational institutions' power to discharge faculty).

Article 78 claims are not generally available to enforce basic contractual relations. Courts often distinguish between pure procedural claims and private rights established by contracts, especially with regard to termination of employees, holding that Article 78 proceedings are "not the proper vehicle to resolve contractual rights." Automated Ticket Sys., Ltd., v. Quinn, 416 N.Y.S.2d 864, 865 (App. Div. 1979) (holding that a lower court should not have converted a motion to vacate a contractual determination to an Article 78 proceeding because it is inappropriate for settlement of contract rights).

Article 78 claims regarding an employer's requirement to follow internal termination procedures have been narrowly applied to situations involving educational institutions. The development of the Article 78 action against public and private educational institutions is discussed at length in Geraci v. NY State Dep't of Correctional Serv., 456 N.Y.S.2d 63, 74 (App. Div. 1982) (enforcing an award of money damages against New York state or its agencies for age discrimination in an Article 78 proceeding).

B. Effect of De Petris on Current Law.

The De Petris court held that the availability of an Article 78 claim does not lessen the substantive requirements of the underlying employment law claim. To hold otherwise, the court argued, would allow Petitioner a means to circumvent the common law requirements of Weiner v. McGraw Hill, 57 N.Y.2d 458 (1982). As a result of De Petris, future plaintiffs alleging wrongful termination based upon the failure of a private employer to follow provisions of an employee manual will be unable to raise an Article 78 claim. The court distinguished this Article 78 action, involving termination procedures within a private corporation, from its line of cases applying article 78 to the internal termination procedures of educational institutions. Thus, although purely private claims involving termination procedures will not be allowed to stand independent of a claim in contract, the line of education cases which allow independent Article 78 claims remain good law.

C. Unanswered Questions.

De Petris does not address whether all future plaintiffs will be required to fulfill these dual requirements. Specifically, the Court does not stat that all future plaintiffs will have to satisfy the substantive requirements of an underlying common law claim in addition to the more procedural requirements of the Article 78 claim. The court merely states that Article 78 cannot be used to circumvent the well-settled requirements of this specific type of claim. Thus, a future Article 78 claim which has a different underlying common law pedigree from that in De Petris might not be required to meet all of the requirements of that common law claim. However, the court's holding could be read in a more general fashion, which would mean that substantive law should never be circumvented by the technical availability of Article 78. Such a reading leaves open the possibility that the court will find De Petris controlling in Article 78 cases involving a wide range of underlying common law claims.

Although the court does not answer this more general question, previous Article 78 case law offers a hint about when substantive common law elements need to be satisfied. Geraci characterized the authorization for an Article 78 mandamus action as one grounded in either of two sources: "a common-law, statutory or other rule of general application so enjoining the officer or board as invoked by a petitioner coming within its express terms," or in the form of "a rule of limited application laid down in the form of a legislative, judicial or administrative determination or a corporate charter or contract with a public dimension fixing petitioner's right to such performance." Geraci, 456 N.Y.S.2d at 72 (citations omitted). This distinction between sources might explain the differing treatment given to the educational cases, which fit best in the later category as forms of corporate charters or public contracts. De Petris might best fit in the former category, thus including the added requirement of having to come within the "express terms" of that common law rule of general application. This distinction may offer guidance on the future application of Article 78.

D. Article 78 Claims in Other Jurisdictions.

Article 78 codifies the common law prerogative writs. Similar statutes in other states were meant to accomplish the same broad purpose, but differ greatly in their particulars. One common feature to almost all jurisdictions is that the scope of mandamus relief with respect to private or quasi-public defendants has narrowed considerably as statutory schemes have come to provide more specific causes of action for plaintiffs.

In Massachusetts, mandamus relief is only available when no other adequate form of relief exists. Callahan v. Superior Court, 570 N.E.2d 1003 (Mass. 1991)(holding that party can either directly appeal interlocutory decisions or appeal after entry of final judgment). See also, Mass. Gen. Laws Ann. ch. 249 § 5 (West Supp. 1995). At least one Massachusetts case addresses the applicability of mandamus to employee discharge situations. See Chartrand v. Registrar of Motor Vehicles, 198 N.E.2d 245 (Mass. 1964)(finding mandamus relief appropriate where the registrar of vehicles failed to observe the procedural directives of civil service law in the discharge of an employee). However, this case makes no statement about whether a privately employed person may sue through mandamus for the violation of a private employment contract.

Another Massachusetts equivalent to Article 78, Mass. Gen. Laws Ann. ch. 249 § 6 (West Supp. 1995), allows for suit against a corporation through a civil action for quo warranto. However, quo warranto has been infrequently discussed in case law and the claim has never been successfully asserted.

California's mandamus law can, at least theoretically, be used against a private organization. Salkin v. California Dental Ass'n, 176 C.A.3d 1118 (Cal. Ct. App. 1986) (discussing Cal. Civ. Proc. Code § 1085 (West 1982)). In Salkin, the court held that "'a private organization, . . . if tinged with public stature or purpose, may not expel or discipline a member adversely affecting substantial property, contract or other economic rights, except as a result of fair proceedings which may be provided for in organization by-laws, carried forward in an atmosphere of good faith and fair play,' and that a suit in mandamus may lie if these conditions are not met." Salkin, 176 C.A.3d at 1125 (quoting McCune v. Wilson, 237 So.2d 169, 173 (Fla. 1970)(injunction against realtor association approved)). However, this case appears to be an isolated decision. California case law over the past fifty years is otherwise silent about the susceptibility of private or quasi-public parties to mandamus suits.

The use of Illinois' mandamus law to compel actions by non-public entities has also been infrequent. The last reported successful use of mandamus against a private or quasi-public entity came in 1972, when a corporate shareholder sued for access to corporate books and records where such access had been blocked. Briskin v. Briskin Mfg. Co., 286 N.E.2d 571 (Ill. App. Ct. 1972) (addressing the applicability of Ill. Ann. Stat ch. 735 para. 5/14-101 (Smith Hurd 1992) to private organization).

2. Reliance on Employer Handbook in At-Will Employment.]

A. At-Will Employment Before De Petris.

The incorporation of employee handbooks into employment at-will contracts is a relatively recent exception to the common law employment at-will doctrine. In Weiner v. McGraw-Hill, the court created a totality of circumstances test to determine when employers are bound by the terms of their employee handbooks. 57 N.Y.2d 458, 467 (1982). Under Weiner, plaintiffs must satisfy four elements to bring a contract claim against an at-will employer: (1) reliance on an employer assertion that there would be no discharge without cause, (2) assurance of no discharge without cause incorporated into an employment agreement, (3) employee rejection of other offers of employment in reliance on an employer's assurances, and (4) evidence of an employer's prior compliance with the employment manual. Id. at 465-466. In finding for Weiner, the court adhered to its long-held position that without an express agreement, an employer has the right to terminate an at-will employee at any time for any reason or for no reason at all. See Sabetay v. Sterling Drug, Inc., 69 N.Y.2d 329, 334 (1987) (describing the limited applicability of the Weiner exception with respect to the overall doctrine of employment at-will). Even though it is a relaxation of prior law, the totality of circumstances test has proved a formidable challenge for post-Weiner plaintiffs. See, e.g., Sabetay, 69 N.Y.2d at 335-36 (1987) (employee failed to demonstrate an express agreement limiting employer's right to terminate); O'Conner v. Eastman Kodak Co. 65 N.Y.2d 724 (1985) (employee did not satisfy reliance requirement of Weiner analysis).

B. Effect of De Petris on the At-Will Employment Doctrine.

The De Petris decision read in its entirety does little to change existing law. The treatment of employee manuals in at-will employment situations remains much the same as it has been since Weiner. Although the court neither explicitly mentions the totality of the circumstances test, nor addresses all four of its elements, the facts of De Petris may have been sufficiently clear that the court felt no need for such detailed analysis. Additionally, although the court explicitly mentions only two of Weiner's elements, it strongly implies that all four of the elements are still required for a successful claim.. For instance, the court notes that the "[m]ere existence of a written policy, without the additional elements identified in Weiner," does not create a legal claim. Additionally, after referring to Weiner, the court notes the "well established requirements for stating a wrongful discharge cause of action."

However, some confusion may result from the failure of the court to explicitly address all of the Weiner factors. The court states that "[a]n employee may recover . . . by establishing that the employer made the employee aware of its express written policy limiting its right to discharge and that the employee detrimentally relied on that policy in accepting the employment." A casual reading of this section in isolation might lead to one of several conclusions that the De Petris Court did not intend.

First, some may interpret the court's failure to note explicitly the philosophical approach of considering the totality of circumstances to mean that future triers of fact should no longer consider "the 'course of conduct' of the parties, 'including their writings' and antecedent negotiations." Weiner, 57 N.Y.2d at 466 (citation omitted).

Second, some observers may view De Petris as creating a "pared down" test to replace the four traditional Weiner elements. The De Petris court's failure to mention two Weiner elements (i.e., an employee's rejection of other offers of employment and an employer's prior compliance with the handbook) leaves open this possibility. Such less stringent requirements would allow a greater number of plaintiffs to bring successful wrongful termination claims.

Third, De Petris may be interpreted as placing particular emphasis on the detrimental change of position factor, thereby increasing the threshold for passage of the totality of circumstances test. See, e.g., Klinge v. Ithaca College, Tompkins County, unpublished Oct. 30,1995 (recognizing the vagaries of DePetris). This analysis might result from the recognition by the DePetris Court that in order for a claim to survive, the plaintiff must establish that " the employer made the employee aware of its express written policy limiting its right to discharge" and that employee "detrimentally relied on that policy in accepting the employment." This interpretation of the Weiner totality of circumstances test heightens the level of scrutiny on the reliance factor. Creating an additional hurdle, in the form of a tougher reliance test, would serve to reduce the number of successful wrongful termination claims. If a number of courts adopt this analysis of De Petris, the tide will turn, halting the erosion of the at-will employment doctrine that has occurred in other states.

Each department will surely be faced with a number of creative employees and employers using their own interpretations of De Petris to persuade the court. Those who hope to preserve the Weiner totality of the circumstances test will view De Petris as a limited holding driven by the facts. Plaintiffs with wrongful termination claims will see the doors being held wide open to the majority of the population that is employed at-will. Of course, employers will extol the benefits of returning to a traditional at-will employment doctrine.

C. Employee Handbook Exceptions to At-Will Employment in Other Jurisdictions.

A number of jurisdictions have abandoned the strictly traditional interpretation of at-will employment and have begun to include an employee handbook exception. In Illinois, the general rule is that employee handbooks are not part of an at-will employment contract, but two exceptions exist. Under the first exception, a handbook becomes part of the contract if adopted after an employee is hired if it is a modification of a preexisting contract. The second exception applies to handbooks that are written contracts subject to the policies of the employer. Neither of these exceptions directly parallels the New York case law. However, they illustrate the courts' attempts to move away from a traditional reading of the at-will employment doctrine.

In Robinson v. Ada S. McKinley Community Servs., Inc., 19 F.3d 359 (7th Cir. 1994) (holding that an Illinois employer whose handbook provisions were contractually binding on certain employees was precluded from amending those provisions without the employees' consent), the Seventh Circuit cast substantial doubt on the effectiveness of unilaterally implemented disclaimers in employee handbooks. For a discussion of recent judicial treatment of such employee handbook provisions, see Kenneth A. Jenero, "Employers Beware: You May Be Bound By the Terms of Your Old Employee Handbooks," 20 Empl. Rel. L.J. 299 (1994). In Duldulao v. St. Mary of Nazareth Hosp. Ctr., 505 N.E.2d 314, 318 (Ill. 1987), the Illinois Supreme Court held that "that an employee handbook or other policy statement creates enforceable contractual rights if the traditional requirements for contract formation are present." The Duldulao court held that when three conditions are present, the employee's continued work "constitutes consideration for the promises contained in the statement, and under traditional principles a valid contract is formed." Id. at 318. Cf. Weiner, 57 N.Y.2d at 465-66 (developing a four-factor test that includes "detrimental reliance" by employee). Illinois required three factors: First, the "the language of the policy statement must contain a promise clear enough that an employee would reasonably believe that an offer has been made. Second, the statement must be disseminated to the employee in such a manner that the employee is aware of its contents and reasonably believes it to be an offer. Third, the employee must accept the offer by commencing or continuing to work after learning of the policy statement." Duldulao, 505 N.E.2d at 318.

States that follow a Duldulao-type analysis include Alabama, Arizona, Idaho, Minnesota, Nebraska, New Hampshire, South Carolina, Virginia, and West Virginia. Jenero, 20 Empl. L.J. at available in Lexis. See also Hanly v. Riverside Methodist Hosps., 603 N.E.2d 1126 (Ohio App. 1991). Given the indeterminate language in De Petris, observers will have to wait for new opinions to conclusively establish the current direction of the Court of Appeals. De Petris may be holding the line against judicial inroads to parties' freedom of contract or alternatively, aligning itself with those jurisdictions that make it relatively easy for a plaintiff to establish that an employer has breached an employment contract by violating a provision in an employee handbook.

Prepared By:

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