On certification to the Superior Court, Appellate Division.
Garibaldi, Wilentz, Handler, Pollock, O'Hern, Stein, Clifford
The opinion of the court was delivered by
Plaintiff, Robert Bernard, alleges that he was unlawfully discharged by defendant, IMI Systems, Inc. (IMI), in violation of a written letter agreement of employment. This appeal poses questions concerning the interpretation of two provisions of that letter agreement: whether the provision "Your compensation will be at the rate of $80,000 per annum . . ." creates a year-to-year contract of employment; and whether the provision "You will receive options on 2,000 shares of IMI stock . . . at the time that you start work on a full time basis with IMI" lapses on an employee's termination of employment. The trial court ruled that the mere statement of a salary in annual terms does not overcome the presumption of an at-will contract, and that employees may exercise stock options only during their terms of employment.
In an unreported opinion, the Appellate Division reversed, finding that under Willis v. Wyllys Corp., 98 N.J.L. 180 (E. & A. 1922), a salary quoted in annual terms establishes a year-to-year contract. The court also ruled that genuine issues of fact existed regarding the termination of the stock option. We granted defendants' petition for certification, 130 N.J. 9 (1992), but denied plaintiff's cross-petition, ibid. We affirm and modify the Appellate Division judgment, and we overrule Willis.
Because this appeal comes to us from a grant of summary judgment, we accept as true plaintiff's version of the facts, giving him the benefit of all inferences favorable to his claim. R. 4:46-2; Portee v. Jaffe, 84 N.J. 88, 90 (1980). IMI sent a letter dated September 1, 1987, confirming an offer of employment to Bernard to serve as its New Jersey Special Accounts Branch Manager. The letter, signed by Robert Forman, IMI's president, read as follows:
We enjoyed the opportunity to talk with you and were favorably impressed with your credentials and qualifications. The purpose of this letter is to confirm our offer to you as the New Jersey Special Accounts Branch Manager with IMI Systems Inc. (IMI). As we discussed the salient points of this offer are:
1. Your compensation will be at the rate of $80,000 per annum to be paid semimonthly.
2. You will begin to work part time on October 15, 1987 and will be working full time by November 15, 1987.
3. You will be eligible for IMI's company paid health, life insurance, and tuition refund plans. Effective start date for plans is October 15, 1987.
4. You will participate in the Managers Compensation Plan. Your incentive base will be $40,000.
5. You will receive options on 2000 shares of IMI stock at the fair market value at the time that You start work on a full time basis with IMI. An interest free loan would be available, if required, at option execution time.
6. You will receive a monthly car allowance of $500/month.
7. A November, 1987 bonus will be paid; this would amount to $4,500 in addition to a "pro-rated" amount.
8. Three (3) weeks of vacation per year are granted, with an option for a fourth week if business conditions warrant.
I look forward to your acceptance of this offer, and to your association with IMI being both profitable and
personally rewarding. Please sign below to confirm your acceptance of our offer, and return one (1) executed copy to me by September 20, 1987. (emphasis added.)
Plaintiff signed and returned the letter. He began part-time employment with IMI on October 15, 1987, and became a full-time employee on November 15, 1987. He contends that while at IMI he improved the sales and profits, both domestically and internationally, of his branch office. Nevertheless, on May 12, 1988, Goldberg, IMI's vice-president and Bernard's supervisor, asked Bernard to resign. When Bernard refused, he was fired, effective May 20, 1988. Plaintiff never reported to work at IMI after May 12, 1988.
In early 1988, IMI Vice President Thomas Krausz informed Bernard that his stock option had been recorded and that his written option agreement was being prepared. When plaintiff inquired about his shares, Krausz told him that he had an option of 10,000 shares at $4 per share, which was on file with the company. He also asserts that Krausz told him that he would receive a written option agreement that would contain terms differing from the agreements of other employees.
The option agreement was dated November 16, 1987, however, Bernard did not receive it until May 13, 1988, the day after his employment had been terminated. The option agreement set forth the terms of the options and the conditions on their exercise and provided that the option was to he exercised in accordance with a specific time schedule.
Paragraph 5(a) provides that the option may not be exercised after the employee's termination of employment for any reason other than death. Paragraph 14 also provides that the option agreement shall not confer on the employee any right with respect to continuance of employment by the Company nor interfere with the Company's right to terminate his employment at any time. During his employment Bernard did not request or attempt to exercise his stock options.
After his termination plaintiff filed a fourteen-count wrongful dismissal complaint against IMI, its president, Robert Forman, and vice-president, Marvin Goldberg. The trial court granted summary judgment for defendants, dismissing most of the claims. The Appellate Division affirmed except with respect to the two claims that are before this Court: (1) that the company had breached Bernard's one-year employment contract by terminating him seven months after he had begun work, and (2) that the company had breached the stock-option agreement.
Defendants denied the allegations and moved for summary judgment dismissing the two counts. Defendant Forman submitted an affidavit in support of his motion for summary judgment, stating that the offer letter had quoted a salary in annual terms to conform with standard business practice and that plaintiff had known that the stock option expired on his termination of employment.
The trial court ruled that the letter agreement between the parties established an employment-at-will relationship and that the plaintiff could have exercised his stock option only while employed at IMI.
The Appellate Division, in an unreported decision, reversed, finding itself bound by our decision in Willis, supra. The court held that Willis is a rule of construction establishing that absent any clear expression of contrary intent, a contract that defines the employee's salary in annual terms is to be construed as a contract from year to year.
However, the court noted that the letter agreement had stated that it included the "salient points of the offer" and thus did not constitute a complete statement of the parties' intent. Accordingly, the court ruled that defendants could introduce competent parol evidence to prove that the parties' agreement included other terms that would render inapplicable the Willis rule of construction. Thus, if IMI could prove that a reasonable person in Bernard's position would have understood that the offer letter established an employment-at-will relationship, then ...