Michael Phillips v. Morrill Electric, Inc.

IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

Filed September 15, 1999

MICHAEL PHILLIPS, ) C/A NO. 03A01-9901-CH-00030 ) Plaintiff-A ppellant, ) UNICOI CHANCERY ) v. ) HON . THO MA S J. SE ELE Y, JR., ) CHANCELLOR MO RRIL L EL ECT RIC, IN C., ) ) VACATED AND Defendant-Appellee. ) REMANDED

TONY SEA TON and LEE H ERRIN, LAW O FFICES OF TON Y SEATON , Johnson City, for Plaintiff -Appellan t.

WILLIAM C. BOVENDER and STEPHEN M. DARDEN, HUNTER, SMITH & DAVIS, LLP, Johnson City, for Defendant-Appellee.

O P I N IO N

Franks, J.

In this action f or breach o f employm ent contrac t, the defend ant-employer was granted summary judgment by the Trial Court, and plaintiff-employee has app ealed.

On November 10, 1994, plaintiff-employee and defendant-employer entered into an employment agreement providing that plaintiff was to be employed for a term of five years as a Special Assistant to the President of the company. The agreement contained a clause regarding termination that stated:

5. Termination for Cause: For good and sufficient cause, Employer may terminate this Agreement at any time upon giving written

notice to Employee specifying the reasons for such termination. The following specific gro unds, wh ile not exclus ive, shall con stitute sufficient reasons for termination of this Agreement for cause:

A. If the Employee shall engage in any conduct or activity which would be a material breach of his obligations under this Agreement; or

B. If the Employee shall be convicted of any offense or crime punishable as a felony or otherwise involving moral turpitude; or

C. If Em ployee shall en gage in an y act or condu ct which w ould be a violation of any rule, law or regulation relating to the conduct of Employer’s business and which would subject Employer to civil or criminal liabilities.

Defendant’s President,Giles Morrill, died unexpectedly on May 22, 1997. Vice President, William E. “Bud” King, assumed the role of President of the company and King began to restructure the company, and eliminated several positions, including that of Special Assistant to the President. He stated that in his new “organizational chart” there was no place for an Assistant to the President, regardless of who had worked in that capacity. He reassigned plaintiff to a production job at the com pany’s Ro cky Fork f acility.

After the death of Morrill, his widow and daughter approached Paul Farnor and asked him to become a member of the Board of Directors. Mr. Farnor was elected to Chairman of the Board in June of 1997, and between July 18, 1997, and August 18, 1997, Farnor evaluated the plaintiff’s performance. He reviewed the documents in plaintiff’s personnel file and interviewed co-workers as to plaintiff’s job performance. Farnor concluded that plaintiff was making no contribution to the comp any.

On Au gust 18, 19 97, Farno r met with P hillips and ask ed Phillips to leave the company “quietly” with six months benefits and pay. He told plaintiff that he had not bee n contr ibuting to the co mpan y, and tha t he “ha d been move d aroun d,” and that his peers were giving negative feedback about him. Farnor gave plaintiff a copy of the notes from that meeting. On September 8, 1997, Farnor gave Phillips a *3 “separation notice.” This notice stated that Phillips was discharged for cause “because he engaged in conduct and activities which are a material breach of his obligations under his employment agreement.” Plaintiff then brought this action, alleging that he had been wrongfully terminated in violation of his employment contract, and that he did not receive adequate notice of termination in accordance with the employment agreement, which also constituted a breach of the agreement. This appeal ensued, following the Trial Co urt’s grant of summa ry judgment to defenda nt.

In evaluatin g a motion for summ ary judgmen t, a trial court shou ld consider “(1) whether a factual dispute exists; (2) whether the disputed fact is material to the outcome of the case; and (3) whether the disputed fact creates a genuine issue for a trial.” Byrd v. H all, 847 S.W.2d 208, 214 (Tenn. 1993). When reviewing the action of th e Trial Co urt, this Cour t must view the eviden ce in the light m ost favora ble to the oppo nent of the motion, an d all legitimate c onclusion s of fact m ust be draw n in favor o f the op ponen t. Gray v. Amos, 869 S .W.2d 925 (T enn. A pp. 199 3).

In an action for wron gful discha rge in breac h of contra ct, the burde n is on the plaintiff to prove all facts essential to his cause of action. The employee establishes a prima fac ie case by prov ing the con tract, his perfo rmance th ereof up to the time of his discharge, and the damage resulting from the discharge that is in breach of the contract. 30 C.J.S. Employer-Employee Relationship §89(a) (1992). Where the contract requires good cause for a discharge, the employer has the burden of proving such g ood ca use. Id. At §89(b).

It is plaintiff’s position that he was discharged due to the restructuring of the company, and therefore was not discharged for cause as required under the Employment Agreement, and further that the defendant further breached the Agreement by not giving plaintiff adequate notice of his termination and the reasons.

Plaintiff was hired to the specific position of “Special Assistant to the *4 President” with such duties and responsibilities as assigned to him by the President or Board of Directors. The Employment Agreement states that initial duties will include assistance in the establishment and codification of corporate policies and procedures, and also to formulate and provide implementation for enhancement of manufacturing productivity. It was further agreed that future assignments would include duties and responsibilities commensurate with a senior management position for employer. The term of employment would continue through November 27, 1999.

When King took over the role of President following the death of Morrill, he vacated plaintiff from his position and reassigned him to a production job, which plaintiff described as work on the production line and “helping with department assessments and review, which was essentially process engineering or plant engineerin g kind of work.” H e also stated th at by the time he left work w ith defenda nt, his position “ had been reduced f ive levels.” N either his pay no r benefits was cut with the change of positions.

When an employee is hired to fill a particular position, any material demotion or change of duties constitutes a breach of the contract, unless the contract contemplates a change in rank and nature of job. 30 C.J.S. Employer-Employee Relatio nship § 52 (19 92); D avid J. O liveiri, A nnotatio n, Reduction in Rank or Authority or Change of Duties as Breach of Employment Contract, 63 A.L.R.3d 539 (1975 ). Also see Smith v. American General Corporation, NLT, 1987 WL 15144 (Tenn .App. 1 987).

In Moore Coal Co. v. Brown, 64 S.W.2d 3 (Tenn. 1933), involving a change of duties under an employment contract, the parties were held to have modified the employment agreement resulting in no breach. In Balderac chie v. Ruth , 256 S.W.2d 390 (Tenn. App. 1953), the Court held that modification of an existing contract cannot be acc omplished by the unilateral action of one of the parties. Rather, *5 there must be the same mutuality of assent and meeting of minds as required to make a contract, and new ne gotiations ca nnot affe ct a comp leted contrac t unless they resu lt in a new agreement. Moreover, a modification of an existing contract cannot arise from an ambiguous course of dealing between the parties from which diverse inferences might reasonably be drawn as to whether the contract remained in its original form or was ch anged . Id.

The reassignment of plaintiff to a job “five levels” lower than the job for which he was hired without more, would constitute a breach of the employment contract. Plaintiff was hired for a specific position of Special Assistant to the President, and his duties were described in the employment agreement as being compara ble to that of s enior man agemen t. While his sa lary remained the same, h is duties we re significan tly diminished w ith his reassign ment to a p roduction jo b, and it has been held that such a demotion can be characterized as a discharge of the emplo yee. See 30 C.J.S. Employer-Employee Relationship §52 (1992). The defendant has the burden of showing the modification of the contract by mutual assent or of establishing facts either constituting an accord or forming the basis of an estopp el. Id.

A contract for a definite term may not be terminated before the end of the term except for cause or by mutual agreement, unless the right to do so is reserved in the contract. 30 C.J.S. Employer-Employee Relationship §38. An employer has a right to discharge an employee at any time for just cause. The fact that the employer bears with the incompetency or irregularities of such employee for a time does not estop the em ployer from d ischarging the emplo yee for such in compete ncy if it continu es. Little v. Federal Container Corp., 452 S.W.2d 87 5 (Tenn. App . 1969), citing Glasgow v. Hood, 57 S.W. 162 (Tenn.Chan.App. 1900) and Jackson v. Texas Co., 10 Tenn.App . 235 (Tenn.Ap p. 1929).

The Trial Judge h eld that plaintiff was fired for g ood cause, and there was no genuine issue of material fact as to the cause of termination. Good cause for discharge is found w hen the employee acts in a w ay that tends to injure his employer’s busine ss, intere sts, or rep utation. 3 0 C.J.S . Emplo yer-Emp loyee Re lationsh ip §60. Whether good cause exists to terminate an employment contract is a determination made on a case-by-case basis, and ex ists only where the discharg e is “objective ly reasonable.” Video Catalog Channel, Inc. v. Blackwelder, 1997 WL 581120 (Tenn.App. 19 97) citing 30 C.J.S. Employer-Em ployee Relationship §60 (1 992).

The Trial Judge relied heavily on an admission by the plaintiff that he was fired for cause. W hen aske d why he w as terminate d from the job at Mo rrill Moto rs, plaintif f respo nded “ for cau se.” Ho weve r, this state ment is n ot dispo sitive. Plaintiff cou ld have m erely been rep eating the rea son he w as given fo r his termination. This may evince the fact that plaintiff knew the company was discharging him for cause and not for some other reason. Nonetheless, the stated reason for termination and the actual reason for termination may not coincide.

There are disputed issues of material fact as to the true cause of plaintiff’s termination. On the one hand, plaintiff’s position was eliminated in the restructuring of the comp any, and on the other hand there is evidence that plaintiff’s job perfor mance w as not acce ptable to the d efendan t.

Section 5 of the Employment Agreement states that “for good and sufficient cause, Employer may terminate this Agreement at any time upon giving written notice to the employee specifying the reasons for such termination.” (Emphasis added). Plaintiff contends there is a dispute as to whether he received adequ ate writt en notic e for the reason s for his termina tion.

Defend ant points to th ree written d ocumen ts as eviden ce of ade quate notice of the termination and the reasons therefor. First, defendant points to a memo *7 dated May 9, 1997, reprimanding plaintiff’s job performance. Next, defendant relies on a hand-written copy of the minutes of the August 18, 1997 meeting, that was furnished to plaintiff. Defendant states that it was in that meeting that plaintiff was terminated, and the notes contain notice, in writing, of plaintiff’s deficiencies. At the time plaintiff was advised that “he was simply not contributing to the company, and he had been moved around and his peers are giving negative feedback about him.” Plaintiff counters that in the meeting “there was no discussion of termination for cause.” However, the notes from the meeting indicate that plaintiff was being terminated from his position. The third written notice to plaintiff was the separation notice completed on September 8, 1997. This stated that plaintiff was discharged because “ he engag ed in cond uct and ac tivities which are a materia l breach of his obligati ons un der his e mploym ent agre emen t.”

Plaintiff relies upon the deposition of Farnor to support his position that he was not given adequate notice of his termination. Farnor was asked if he had, at any time, given plaintiff “written notice specifying the reasons for his termination”, and Farnor responded that he did not. Farnor was then asked if any other written reprimand s in plaintiff’s f ile specified a reason fo r termination , to which F arnor again replied “no.” Farnor further stated that he had no knowledge of anyone else in the company giving plaintiff anything in writing specifying the reasons for termination.

There is a genuine issue of fact as to whether any of the written documents cited by the defendant satisfy the notice requirement. While defendant argues that it did satisfy this requirement, the Chairman of defendant’s Board of Directors a dmits that he never gav e plaintiff w ritten notice of the reasons for his termination, nor knew of anyone else in the company providing such notice.

On this issue, an employee who is summarily discharged with less notice than spec ified under the con tract may recov er co mpe nsation f or the notice p eriod on ly, *8 and no t for the balanc e of the contrac t period . See 27 Am .Jur.2d, Employment Relationsh ip §43 (1996).

There are disputed issues of material fact to be resolved, and we therefore vacate the summary judgment and remand for trial on these issues.

We vacate the summary judgment and remand with cost of the appeal assessed to the defen dant.

__________________________ Herschel P. Franks, J.

CONCUR:

___________________________ Charles D. Susano, Jr., J.

___________________________ D. Michael Swiney, J.