I don’t think there is a whole lot of “new” law in Reynold Quedado v. The Boeing Company (Division 1, May 14, 2012), but whatever new law there is… well… it’s not so good for employees looking to sue their employer on a theory of breach of implied contract. And even to the extent the law is old, the Court’s application of the law to Boeing’s Code of Conduct and other policies will undoubtedly be of use and interest to employment law practitioners.
Quedado began working at Boeing in 1980. In 1997 he was promoted to a senior management position. For 26 years Quedado had a totally clean disciplinary record – until 2006, when he ran afoul of the company’s nepotism policy, which stated that employment decisions regarding family “must not result in actual or perceived preferential treatment, improper influence, or other conflict.” According to a Boeing investigation, Quedado “had improperly used his influence to obtain positions for his relatives, and when questioned he was not forthcoming about his family relationships.” This finding resulted in Boeing’s demotion of Quedado to a non-management position and a reduction in his wages.
Quedado then sued Boeing, claiming that Boeing’s investigation and demotion of him violated certain provisions of Boeing’s Code of Conduct and other documents regarding the terms and conditions of his employment. While Quedado did not claim that Boeing violated any individual employment contract between him and the company, Washington law does recognize these sorts of implied contractual modifications to the general rule of “at will” employment:
In Washington, an employer’s employment policies and procedures can alter the employment at-will relationship and form either a binding implied employment contract or create enforceable promises regarding terms of employment.
There are two ways an employer can be bound by its written policies: “First, the written materials may create an implied contract modifying the at-will relationship.” I’ll call this the “implied contract” claim. “Second, the written materials may create an atmosphere of job security and fair treatment with promises of specific treatment in specific situations, whereby an employee is induced to remain on the job and not actively seek other employment.” I’ll call this (as the Court does) the “equitable reliance” claim.
To succeed on an “implied contract” claim, a plaintiff must establish all the regular aspects of contract formation, with the employee’s continued work serving as adequate consideration for the promise (unlike some other jurisdictions).
To succceed on an “equitable reliance” claim, a plaintiff must establish “(1) that a statement (or statements) in an employee manual or handbook or similar document amounts to a promise of specific treatment in specific situations, (2) that the employee justifiably relied on the promise, and (3) that the promise was breached.” However, an employer can “escape obligation” by including a “conspicuous disclaimer” on its written materials that “nothing contained therein is intended to be part of the employment relationship” or if “the employer specifically reserves a right to modify the policies, or writes them ‘in a manner that retains discretion to the employer.'”
So that’s all basically just background. Nothing new there (at least I don’t think any of that is new or controversial). For practitioners in this area, however, the Court’s application of that law to Boeing’s statements of policy in its Code of Conduct and other polciies may be of interest.
Regarding Boeing’s Code of Conduct, the Court of Appeals concluded as a matter of law that it was “general,” made no “offer” of terms, and failed to “extend any specific promises as to how employees will be treated in specific situations.” According to the Court of Appeals, “Boeing’s code was likely intended to foster a general ‘atmosphere of fair treatment’ for Boeing employees.” “But such an ‘atmosphere’ is not enough to modify the at-will relationship.”
Quedado also relied on certain “company-wide procedures” (“PROs”) and “business process instructions” (“BPIs”) for his claims. He argued that these documents provided specific rules for how investigations and discipline would be carried out in specific situations.
The Court of Appeals rejected this argument for a number of reasons. “Contrary to Quedado’s argument, the two documents he attempts to rely on vest ultimate discretion in Boeing as to how investigations will be carried out and what discipline will be meted out.” Moreover, the documents contained conspicuous disclaimers of contractual rights.
Now, here is where it gets interesting! (Yes, it took this long; thanks for sticking with me.) “A disclaimer may be negated by later, inconsistent representations by the employer.” Here, Quedado claimed he was specifically told that the procedures in the BPI and PRO were mandatory, not discretionary. However, the Court of Appeals concluded that, even assuming such representations occurred, such a statement was insufficient to turn the discretionary policies of the PRO and the BPI into enforceable obligations.
Why? And what about the previous cases holding that inconsistent representations were enough to trump a disclaimer? Well, the Court drew contrasted this case, which involves both (i) expressly discretionary policies and (ii) a written disclaimer, with a prior case, which involved (i) expressly mandatory policies and (ii) a written disclaimer. In the prior case, the company’s representations were sufficient to overcome the disclaimer, because they were coupled with the mandatory policy language. But here, with the policies’ discretionary language and the disclaimer, Quedado’s testimony regarding what he was told by Boeing was insufficient to create an issue of fact. The policies said they were discretionary, and that was that.