On certification to the Superior Court, Appellate Division.
For reversal and remandment -- Chief Justice Wilentz and Justices Clifford, Schreiber, Handler, Pollock, O'Hern and Garibaldi. Opposed -- None. The opinion of the Court was delivered by Wilentz, C.J.
The issue before us is whether certain terms in a company's employment manual may contractually bind the company. We hold that absent a clear and prominent disclaimer, an implied promise contained in an employment manual that an employee will be fired only for cause may be enforceable against an
employer even when the employment is for an indefinite term and would otherwise be terminable at will.
Plaintiff, Richard Woolley, was hired by defendant, Hoffmann-La Roche, Inc., in October 1969, as an Engineering Section Head in defendant's Central Engineering Department at Nutley. There was no written employment contract between plaintiff and defendant. Plaintiff began work in mid-November 1969. Some time in December, plaintiff received and read the personnel manual on which his claims are based.
In 1976, plaintiff was promoted, and in January 1977 he was promoted again, this latter time to Group Leader for the Civil Engineering, the Piping Design, the Plant Layout, and the Standards and Systems Sections. In March 1978, plaintiff was directed to write a report to his supervisors about piping problems in one of defendant's buildings in Nutley. This report was written and submitted to plaintiff's immediate supervisor on April 5, 1978. On May 3, 1978, stating that the General Manager of defendant's Corporate Engineering Department had lost confidence in him, plaintiff's supervisors requested his resignation. Following this, by letter dated May 22, 1978, plaintiff was formally asked for his resignation, to be effective July 15, 1978.
Plaintiff refused to resign. Two weeks later defendant again requested plaintiff's resignation, and told him he would be fired if he did not resign. Plaintiff again declined, and he was fired in July.
Plaintiff filed a complaint alleging breach of contract, intentional infliction of emotional distress, and defamation, but subsequently consented to the dismissal of the latter two claims. The gist of plaintiff's breach of contract claim is that the express and implied promises in defendant's employment manual
created a contract under which he could not be fired at will, but rather only for cause, and then only after the procedures outlined in the manual were followed.*fn1 Plaintiff contends that he was not dismissed for good cause, and that his firing was a breach of contract.
Defendant's motion for summary judgment was granted by the trial court, which held that the employment manual was not contractually binding on defendant, thus allowing defendant to terminate plaintiff's employment at will.*fn2 The Appellate Division affirmed. We granted certification. 91 N.J. 548 (1982).*fn3
Hoffmann-La Roche contends that the formation of the type of contract claimed by plaintiff to exist -- Hoffmann-La Roche calls it a permanent employment contract for life -- is subject to special contractual requirements: the intent of the parties to create such an undertaking must be clear and definite; in addition to an explicit provision setting forth its duration, the agreement must specifically cover the essential terms of employment -- the duties, responsibilities, and compensation of the employee, and the proof of these terms must be clear and convincing; the undertaking must be supported by consideration in addition to the employee's continued work. Woolley claims that the requirements for the formation of such a contract have been met here and that they do not extend as far as Hoffmann-La Roche claims. Further, Woolley argues that this is not a "permanent contract for life," but rather an employment contract of indefinite duration that may be terminated only for good cause and in accordance with the procedure set forth in the personnel policy manual. Both parties agree that the employment contract is one of indefinite duration; Hoffmann-La Roche contends that in New Jersey, when an employment contract is of indefinite duration, the inescapable legal conclusion is that it is an employment at will; Woolley claims that even such a contract -- of indefinite duration -- may contain provisions requiring that termination be only for cause.
The trial court, relying on Savarese v. Pyrene Mfg. Co., 9 N.J. 595 (1952), Hindle v. Morrison Steel Co., 92 N.J. Super. 75 (App.Div.1966), and Piechowski v. Matarese, 54 N.J. Super. 333 (App.Div.1959), held that in the absence of a "most convincing[ ]" demonstration that "it was the intent of the parties to enter into such long-range commitments . . . clearly, specifically and definitely expressed" (using, almost verbatim, the language of Savarese, supra, 9 N.J. at 601), supported by consideration over and above the employee's rendition of services, the employment is at will. Finding that the personnel policy manual did not contain any such clear and definite expression
and, further, that there was no such additional consideration, the court granted summary judgment in favor of defendant, sustaining its right to fire plaintiff with or without cause.
The Appellate Division, viewing plaintiff's claim as one for a "permanent or lifetime employment," found that the company's policy manual did not specifically set forth the term, work, hours or duties of the employment and "appear[ed] to be a unilateral expression of company policies and procedures . . . not bargained for by the parties," this last reference being similar to the notion, relied on by the trial court, that additional consideration was required. Based on that view, it held that the "promulgation and circulation of the personnel policy manual by defendant did not give plaintiff any enforceable contractual rights." In so doing it noted the "objections to a lifetime employment contract that make it contrary to public policy, i.e., lack of definiteness, unequal burden of performance, etc.," citing Savarese, supra, 9 N.J. at 600-01. While it did not purport to establish any special contractual rule concerning company personnel policy manuals, its analysis suggests they would ordinarily not lead to contractual consequences except for such provisions as those "involving severance pay," which "deal with a specific term of a contract. Its parameters are clearly set forth. The conditions and factors involved are definite and easily ascertained."
We are thus faced with the question of whether this is the kind of employment contract -- a "long-range commitment" -- that must be construed as one of indefinite duration and therefore at will unless the stringent requirements of Savarese are met, or whether ordinary contractual doctrine applies. In either case, the question is whether Hoffmann-La Roche retained the right to fire with or without cause or whether, as Woolley claims, his employment could be terminated only for cause. We believe another question, not explicitly treated below, is involved: should the legal effect of the dissemination of a personnel policy manual by a company with a substantial number of employees be determined solely and strictly by traditional contract
doctrine? Is that analysis adequate for the realities of such a workplace?
As originally conceived in the late 1800's, the law was that an employment contract for an indefinite term was presumed to be terminable at will; an employee with an at-will contract could be fired for any reason (or no reason) whatsoever, be it good cause, no cause, or even morally wrong cause. Comment, "A Common Law Action For The Abusively Discharged Employee," 26 Hastings L.J., 1435, 1438 (1975) [hereinafter cited as Comment, 26 Hastings L.J. 1435]. Pursuant to that rule, in New Jersey employers were free to terminate an at-will employment relationship with or without cause. English v. College of Medicine and Dentistry of N.J., 73 N.J. 20, 23 (1977); Schlenk v. Lehigh Valley R.R. Co., 1 N.J. 131, 135 (1948).
The at-will rule has come under severe criticism from commentators who argue that the economic justifications for the development of the rule have changed dramatically and no longer support its harshness. See, e.g., Note, "Protecting At Will Employees Against Wrongful Discharge: The Duty to Terminate Only in Good Faith," 93 Harv.L.Rev. 1816 (1980) [hereinafter cited as Note, 93 Harv.L.Rev. 1816]; Comment, supra, 26 Hastings L.J. 1435; Comment, "Implied Contract Rights To Job Security," 26 Stan.L.Rev. 335 (1974). The Legislature here, as in most states, has limited the at-will rule to the extent that it conflicts with the policies of our various civil rights laws so that, for instance, a firing cannot be sustained in New Jersey if it is based on the employee's race, color, religion, sex, national origin, or age. N.J.S.A. 10:5-4; see also 42 U.S.C.S. § 2000e-1 to -15 (1970) (Title VII of the Civil Rights Act of 1964); 29 U.S.C.S. § 623 (1970) (Age Discrimination in Employment Act).
This Court has clearly announced its unwillingness to continue to adhere to rules regularly leading to the conclusion that an employer can fire an employee-at-will, with or without cause,
for any reason whatsoever. Our holding in Pierce v. Ortho Pharmaceutical Corp., 84 N.J. 58, 72 (1980), while necessarily limited to the specific issue of that case (whether employer can fire employee-at-will when discharge is contrary to a clear mandate of public policy), implied a significant questioning of that rule in general.
Commentators have questioned the compatibility of the traditional at will doctrine with the realities of modern economics and employment practices. . . . The common law rule has been modified by the enactment of labor relations legislation. . . . The National Labor Relations Act and other labor legislation illustrate the governmental policy of preventing employers from using the right of discharge as a means of oppression. . . . Consistent with this policy, many states have recognized the need to protect employees who are not parties to a collective bargaining agreement or other contract from abusive practices by the employer.
This Court has long recognized the capacity of the common law to develop and adapt to current needs. . . . The interests of employees, employers, and the public lead to the conclusion that the common law of New Jersey should limit the right of an employer to fire an employee at will.
In recognizing a cause of action to provide a remedy for employees who are wrongfully discharged, we must balance the interests of the employee, the employer, and the public. Employees have an interest in knowing they will not be discharged for exercising their legal rights. Employers have an interest in knowing that they can run their businesses as they see fit as long as their conduct is consistent with public policy. The public has an interest in employment stability and in discouraging frivolous lawsuits by dissatisfied employees. [ Id. at 66-67, 71 (citations omitted).]
The spirit of this language foreshadows a different approach to these questions. No longer is there the unquestioned deference to the interests of the employer and the almost invariable dismissal of the contentions of the employee. Instead, as Justice Pollock so effectively demonstrated, this Court was no longer willing to decide these questions without examining the underlying interests involved, both the employer's and the employees', as well as the public interest, and the extent to which our deference to one or the other served or disserved the needs of society as presently understood.
In the last century, the common law developed in a laissez-faire climate that encouraged industrial growth and approved the right of an employer to control his own business, including the right to fire without cause an employee at will. . . . The twentieth century has witnessed significant changes in socioeconomic values that have led to reassessment of the common law rule. Businesses have evolved from small and medium size firms to gigantic corporations in which ownership is separate from management. Formerly there was a clear delineation between employers, who frequently were owners of their own businesses, and employees. The employer in the old sense has been replaced by a superior in the corporate hierarchy who is himself an employee. We are a nation of employees. Growth in the number of employees has been accompanied by increasing recognition of the need for stability in labor relations. [ Id. at 66 (citations omitted)].
The thrust of the thought is unmistakable. There is an interest to be served in addition to "freedom" of contract, an interest shared by practically all. And while "stability in labor relations" is the only specifically identified public policy objective, the reference to the "laissez-faire climate" and "the right to fire without cause an employee at will" as part of the "last century" suggests that any application of the employee-at-will rule (not just its application in conflict with "a clear mandate of public policy" -- the precise issue in Pierce) must be tested by its legitimacy today and not by its acceptance yesterday. See also Nicoletta v. North Jersey Dist. Water Supply Comm'n, 77 N.J. 145 (1978) (at-will employee in public sector entitled, as a matter of constitutional right, to hearing prior to discharge).
Given this approach signaled by Pierce, supra, 84 N.J. 58, the issue is not whether the rules applicable to individual lifetime or indefinite long-term employment contracts should be changed, but rather whether a correct understanding of the "underlying interests involved," supra at 291, in the relationship between the employer and its workforce calls for compliance by the employer with certain rudimentary agreements voluntarily extended to the employees.
The rule of Savarese, supra, 9 N.J. 595, which the trial court and the Appellate Division transported to this case, was derived
in a very different context from that here. The case involved an unusual transaction not likely to recur (promise by company officer, made to induce employee to play baseball with company team, for lifetime employment even if employee became disabled as a result of playing baseball). Here, instead, we have the knowing distribution of an apparently carefully thought-out policy manual intended to cover all employees of a large employer. The courts below, however, despite this completely different situation, identified the claimed implied promise not to fire except for cause as purporting to establish an individual contract for lifetime or long-term employment for a particular employee. On that basis, they concluded that the stringent rule of Savarese was triggered.
As correctly read by the trial court and the Appellate Division, Savarese required that a long-term employment arrangement such as was involved in that case must be held to be an employment at will unless two distinct requirements are satisfied: there must be clear and convincing proof of a precise agreement, setting forth all of the terms of the employment, including, in addition to the duration thereof, the duties and responsibilities of both employee and employer; and the long-term undertaking by the employer must be supported by consideration from the employee in addition to his continued work. This reluctance to impose employment contracts other than at-will on employers is found in our cases both before and after Savarese. See, e.g., Schlenk, 1 N.J. 131 (1948); Hindle v. Morrison Steel Co., 92 N.J. Super. 75 (App.Div.1966); Piechowski v. Matarese, 54 N.J. Super. 333 (App.Div.1959); Bird v. J.L. Prescott, 89 N.J.L. 591 (Sup.Ct.1916); Shaw v. Woodbury Glass Works, 52 N.J.L. 7 (Sup.Ct.1889). It should be noted, however, that each of these (except for Schlenk) involved a particular contract between one employee and the employer, and its interpretation; none involved the question of the impact of a
contract put forth by the employer as applicable to all employees, similar to the policy manual in this case.*fn4
We acknowledge that most of the out-of-state cases demonstrate an unwillingness to give contractual force to company policy manuals that purport to enhance job security. See, e.g., Caster v. Hennessey, 727 F.2d 1075 (11th Cir.1984); Beidler v. W.R. Grace, Inc., 461 F. Supp. 1013 (E.D.Pa.1978), aff'd, 609 F.2d 500 (3d Cir.1979); Uriarte v. Perez-Molina, 434 F. Supp. 76 (D.D.C.1977); Schroeder v. Dayton-Hudson Corp., 448 F. Supp. 910 (E.D.Mich.1977), amended, 456 F. Supp. 650 (E.D.Mich.1978); Heideck v. Kent Gen. Hosp., Inc., 446 A.2d 1095 (Del.1982); Shaw v. Kresge, 167 Ind.App. 1, 328 N.E. 2d 775 (1975); Johnson v. National Beef Packing Co., 220 Kan. 52, 551 P. 2d 779 (1976); Degen v. Investors Diversified Servs. Inc., 260 Minn. 424, 110 N.W. 2d 863 (1961); Gates v. Life of Montana Ins. Co., 638 P. 2d 1063 (Mont.1982); Mau v. Omaha National Bank, 207 Neb. 308, 299 N.W. 2d 147 (1980); Chin v. American Tel. & Tel. Co., 96 Misc. 2d 1070, 410 N.Y.S. 2d 737 (Sup.Ct.1978). These cases, holding that policy manual provisions do not give rise to any contractual obligation, have to some extent confused policy manuals with individual long-term employment contracts and have applied to the manuals rules appropriate only to the individual employment contract. When there was such an individual contract before them (often consisting of oral assurances or a skeletal written agreement) not specifying a duration or term, courts understandably ruled them to be "at-will" contracts. They did so since they feared that by interpreting a contract of indefinite duration to be terminable only for cause, the courts would be saddling an employer with an employee for many years. In order to insure that the employer intended to accept the burdens of such an unusual "lifetime employment," the courts understandably insisted
that the contract and the surrounding circumstances demonstrate unmistakably clear signs of the employer's intent to be bound, leading to the requirements of additional independent consideration and convincing specificity.
Referring to these requirements, the Michigan Supreme Court noted:
To the extent that courts have seen this rule as one of substantive law rather than construction, they have misapplied language and principles found in earlier cases where the courts were merely attempting to discover and implement the intent of the parties. [ Toussaint v. Blue Cross & Blue Shield of Mich., 408 Mich. 579, 600, 292 N.W. 2d 880, 885 (1980).]
See also Pine River State Bank v. Mettille, 333 N.W. 2d 622, 628 (Minn.1983) (employee wrongfully terminated under provisions of employee handbook that was ...