In Hodgkins v. New England Telephone Co., -- F.3d -- (1st Cir. May 7, 1996), the First Circuit Court of Appeals decided a case arising out of NET's employee suggestion program. NET has an elaborate, detailed employee suggestion program known as "Ideas At Work." The program provides for "Initial Awards" and "Special Merit Awards" under certain circumstances spelled out in a "Suggester's Guide" and other documents. One provision of the program is: "All ideas which result in Initial Awards for tangible ideas shall receive consideration for a Special Merit Award." (emphasis added). Another provision says: "All tangible ideas which were awarded an initial award will be re-evaluated one year from the date of implementation to determine actual savings or profits." (emphasis added). The program documents also contain a "company rights" provision which states: "The Company has the sole, exclusive, and complete discretion and right to determine the terms, policy, structure, operation and administration of the Program. . . . The decisions of the Company . . . are final, binding, and conclusive."

     Mr. Hodgkins submitted an idea under the program and received an Initial Award of $5000 for his idea. He thought the idea would be very valuable to the company, so he retired with the belief that under the program he would receive a total award of $50,000. After he retired, the company assessed the implementation of his idea and offered him a $17,500 award, which he rejected as too low. The company then reassessed his idea and its implementation, determined that the idea's value could not be ascertained, and awarded Mr. Hodgkins no further money at all. Mr. Hodgkins sued NET in U.S. District Court for (1) breach of contract, (2) unjust enrichment, (3) quantum meruit, (4) equitable estoppel, (5) promissory estoppel, and (6) negligent misrepresentation. That's quite a list of claims!

     The District Court granted summary judgment for NET on all claims. On appeal, the First Circuit Court of Appeals reversed as to the breach of contract claim and affirmed the summary judgment on all the other claims. On the contract issue, the court held that NET's detailed employee suggestion program providing that certain actions "will" and "shall" be taken amounted to an enforceable contract; that the company rights provision did not give the company unfettered discretion to do anything that it wanted to do regardless of the other language in the program documents; and that the company was required to administer its employee suggestion program in a reasonable, good faith, and non-arbitrary manner. The court held that there were genuine issues of material fact as to whether the company had administered its program to Mr. Hodgkins in a reasonable, good faith, and non-arbitrary manner, and therefore Mr. Hodgkins was entitled to proceed to trial on his breach of contract claim.

     The lessons to be learned from this case are many:

     1. An employer should use "may" rather than "will" or "shall" in the employer's policies and programs. In general, an employer should be very careful about stating in the employer's personnel policies, manuals, or programs that certain actions "will" or "shall" be taken by the employer. There may be some employer policies or "promises" which should be stated in the forceful, strong language of "will" or "shall," but an employer usually should use "may" instead of "will" or "shall" when referring to actions to be taken by the employer. However, actions required to be taken by an employee properly may be phrased in terms of what the employee "will" or "shall" do. Thus, an employer should say "An employee may be reviewed after six months" rather than "An employee will be reviewed after six months." Use of "may" rather than "will" or "shall" maintains employer flexibility and allows for unforeseen events to be handled by the employer as necessary without an apparent violation by the employer of the employer's own policies.

     2. An employer should not use "contract language" in the employer's policies and programs. The Hodgkins case shows that even specific "reservation of rights" language may be not fully enforceable if that language conflicts with other specific employer contract-like statements. It is better never to make a promise than to make a promise in one statement and then disclaim that promise in another statement. In short, if a document looks like a contract or sounds like a contract, then a court probably will interpret the document to be a contract, or a court will allow a jury to decide the issue. See Libby v. Calais Regional Hospital, 554 A.2d 1181 (Me. 1989) (some justices believed that contract-sounding language in an employee handbook created a jury question about whether any portions of the handbook were part of an employment contract).

     3. Even an employee-at-will may have enforceable contract rights against an employer. In this case, Mr. Hodgkins was an employee-at-will who quit his employment, but he was still allowed to proceed with a claim against his former employer, because his claim for an employee suggestion award was independent of his continued employment with the company. An employer may avoid this type of situation, of course, by expressly providing that in order to be eligible for an employee suggestion award, the employee must be employed by the employer at the time the award is paid.

     4. Employers must remain concerned with other common law theories of recovery which may be asserted against employers by current or former employees. In the Hodgkins case, all five of the claimant's non-breach-of-contract theories of recovery were rejected, but they were rejected only because on the facts of that particular case they were not valid, not because employees in general may not bring such claims against employers. For example, Mr. Hodgkins' claims for unjust enrichment and quantum meruit were both rejected only because he had a contract which governed his right to compensation for his idea submission. If he had not had a contract right to such compensation, then he might well have been allowed to proceed on his unjust enrichment or quantum meruit claims. Similarly, Mr. Hodgkins' estoppel and negligent misrepresentation claims failed only because the courts found as a fact that he had not reasonably relied on any promises or representations made by NET; in another case, an employee or ex-employee might make a showing of reasonable reliance and be allowed to proceed with such claims. Employers cannot ignore, and should take steps to avoid, these types of common law claims.

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Dated: January, 2000

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