As Always, Words Matter

Across most of the United States, courts presume that employees are “at-will” workers.  Recently, however, the United States Court of Appeals for the Sixth Circuit (which oversees federal courts in Kentucky, Michigan, Ohio, and Tennessee) considered an employee’s claim that poor wording in her employment agreement overcame that presumption.  Specifically, the employee argued that her poorly drafted employment agreement guaranteed her employment for at least a year.  The case is Hall v. Rag-O-Rama, 2021 WL 5782381 (6th Cir. Dec. 7, 2021).

FACTS

In 2015, Vance Whitener, the owner of Rag-O-Rama (a used clothing retail store in Kentucky), convinced Sally Hall to move to Kentucky and work in a part-time role training staff.  Shortly after the engagement began, Whitener persuaded Hall to work full-time in an area manager position by offering her a pay increase, a company car, and other incentives.  Hall claims that she also bargained for a guarantee that she would be employed for at least a year.  In June 2016, the parties entered into a written agreement that listed the terms of the employment arrangement.  The agreement, however, did not clearly specify that Rag-O-Rama was required to employ Hall for at least a year.

Unfortunately, after Whitener promoted Hall, he became increasingly dissatisfied with Hall’s work performance.  Ultimately, in January 2017, Whitener decided to terminate Hall’s employment.  Hall sued Rag-O-Rama, claiming that it breached the parties’ employment agreement by failing to employ Hall for at least a year. In support of her argument, Hall looked to one specific sentence in the agreement, specifying that Hall “is reminded of the non-competition clause guidelines, as well as, obligating associate managers and higher to one full year of employment on the management team at Rag-O-Rama.” (And yes, that is how the sentence was written).

A Kentucky federal district court dismissed Hall’s claims, and she appealed to the Sixth Circuit Court of Appeals.

HOLDING

The Sixth Circuit was unimpressed with Hall’s legal arguments and the language in the employment agreement.  The Court noted that the applicable phrases from the agreement “contain[ed] awful grammar” and that “[t]he present participle ‘obligating’ likely should have been a noun (‘the obligation of’).” Nevertheless, the Court stated that “grammar errors do not automatically render a contract ambiguous if it had a clear meaning despite those errors.”

The Court concluded that “no reasonable person could read this clause as prohibiting Rag-O-Rama from terminating Hall for one year after she became an area manager.” Instead, the term “obligating” applied only to Hall and other area managers and did not bind Rag-O-Rama.  Said another way, despite its lack of clarity, the employment agreement did not require Rag-O-Rama to do anything and did not depart from Kentucky’s default rule allowing the company to fire Hall at any time.

Further, the agreement stated that Hall would be bound by the company’s employee handbook, which in turn specified that all employees were “at-will.” “Like most states, Kentucky starts with the presumption that an employer and an employee intend for an ‘at-will’ relationship, meaning that the employer generally can fire the employee at any time for almost any reason, and the employee can quit at any time for any reason.” With that presumption in mind, the parties’ contract would need to clearly indicate that Hall’s employment was being structured otherwise. Unfortunately for Hall, it did not.

Finally, the Court asked: “Does it matter that Hall committed herself to one year of employment without obtaining an identical commitment from Rag-O-Rama?” It concluded “[w]e do not see why” and that, in any event, it was unclear of the consequences of a “breach” if Hall had decided to quit in less than a year.

KEY TAKEAWAYS

Rag-O-Rama could have likely avoided the time, effort, and expense of defending itself in a lawsuit if it had been more careful in drafting the agreement.  In that respect, this case offers at least two important lessons for employers. First, make sure your employment agreements are written clearly.  Second, it’s prudent to include language in every employment agreement with an at-will employee that specifies the parties’ intention that the person is employed at-will.