City of Denton v. Brian Rushing, Calvin Patterson and Kevin Marshall

IN THE SUPREME COURT OF TEXAS
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NO. 17-0336
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CITY OF DENTON, PETITIONER,
v.

BRIAN RUSHING, CALVIN PATTERSON AND KEVIN MARSHALL, RESPONDENTS
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ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE SECOND DISTRICT OF TEXAS
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Argued January 9, 2019

JUSTICE DEVINE delivered the opinion of the court.

In this interlocutory appeal from an order denying a city’s plea to the jurisdiction and

alternative motion for summary judgment, we must determine whether Local Government Code

section 271.152, which waives a city’s immunity from suit on certain contracts, applies to these

underlying claims. The Local Government Code provides that a governmental entity that is

authorized by law to contract and that enters into a contract waives its “immunity to suit for

purposes of adjudicating a claim [under] the contract.” TEX. LOC. GOV’T CODE § 271.152. At issue

here is whether a contract exists. The court of appeals concluded that the City’s Policies and

Procedures Manual created a unilateral contract that certain employees could enforce under the

statutory waiver and therefore affirmed the trial court’s order. 521 S.W.3d 88, 97 (Tex. App.—Fort
Worth 2017). We disagree that such a contract was created and accordingly reverse the court of

appeals and render judgment sustaining the City’s jurisdictional plea.

I

Brian Rushing, Calvin Patterson, and Kevin Marshall (collectively “Rushing”) are full-time,

hourly-paid employees in the City of Denton’s Utilities Department. They are all entitled to

overtime pay under the Fair Labor Standards Act. See generally 29 U.S.C. § 207. As part of their

jobs, all three worked uncompensated on-call shifts between 2011 and 2015. Policy 106.06 of the

City’s Policies and Procedures Manual defines the rights and responsibilities of an on-call employee.

An “on-call period”, as defined by the Manual, is “a period of time during which an employee is

not actually performing work but is scheduled to remain at, near, or able to return to work for

operational requirements that may develop outside normally scheduled work hours.” An on-call

period lasts for seven days. If an employee is called into work, he is required to respond within

thirty minutes. If an employee does not respond within thirty minutes, the employee can be

disciplined.

Policy 106.06 was first adopted by City Council resolution in 1995. In the 1995 policy, on-

call time was not “compensated or credited as time worked.” In 2013, however, the City Manager

modified Policy 106.06. The City Manager’s revisions removed the part of the policy stating that

on-call time was not compensated and defined an explicit pay schedule for on-call time. These

amendments were not approved by the City Council. Rather, the amendments were reviewed by the

City’s Executive Committee before the City published them in the Manual.

Apart from Policy 106.06, the Manual also contains a general disclaimer that states:

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 The contents of this manual do not in any way constitute the terms of a contract of
employment and should not be construed as a guarantee of continued employment
with the City of Denton. Employment with the City of Denton is on an at will basis.
This means that the employment relationship may be terminated at any time by either
the City or the employee for any reason not expressly prohibited by law. Any oral
or written statements by anyone, (except individual written employment agreements
specifically authorized by the City Council) to the contrary are invalid and should
not be relied upon by any prospective or existing employee. The City of Denton
reserves the right to alter or amend the contents of this manual at any time without
notice.

Emphasis added. After the City notified Rushing that he would not be compensated for on-call

shifts worked between 2011 and 2015, he sued the City for breach of contract, alleging that Policy

106.06 constituted a unilateral contract that the City breached.

II

After Rushing filed suit, the City filed a plea to the jurisdiction. In this plea, the City argued

that governmental immunity was not waived because Policy 106.06 did not meet the statutory

definition of a contract. See TEX. LOC. GOV’T CODE § 271.151(2)(A) (defining what contracts are

“subject to this subchapter”). The City’s argument focused on the general disclaimer in the Manual

to show that the City lacked any contractual intent when drafting the Manual. Rushing argued,

however, that Policy 106.06 constituted the terms of a unilateral contract that Rushing accepted and

was therefore due compensation. See City of Houston v. Williams, 353 S.W.3d 128, 137–39 (Tex.

2011) (determining that a city ordinance may be considered a unilateral contract). The trial court

denied the City’s plea, and the City appealed. See TEX. CIV. PRAC. & REM. CODE § 51.014(a)(8).

The court of appeals affirmed the trial court’s order denying the jurisdictional plea. 521

S.W.3d at 97. The court first determined that Policy 106.06 was a valid unilateral contract that met

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the statutory definition of a “contract subject to this subchapter.” 521 S.W.3d at 94 (quoting TEX.

LOC. GOV’T CODE § 271.151(2)(A)). The court of appeals further dismissed the City’s argument

under the Manual’s disclaimer, concluding that it applied only to an employees’s at-will status. Id.

at 95. Because an at-will employment relationship does not prevent an employer from entering into

other enforceable contracts with its employees, the court held that the disclaimer did not waive

contractual intent. Id.; see also Light v. Centel Celluar Co. of Tex., 883 S.W.2d 642, 644–45 (Tex.

1994), abrogated on other grounds by Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011).

The City also argued that Policy 106.06 was not a contract because the 2013 modifications

to the policy were not properly executed by the City Council. The court of appeals disagreed. 521

S.W.3d at 96. Even though the City Council had not officially enacted the changes by ordinance,

it had delegated the power to amend existing policies to the City Manager, subject to Executive

Committee approval. Id.; see also Denton, Tex., Code of Ordinances ch. 2, art. II, § 2-28.

Accordingly, the court of appeals determined that section 271.152 waived governmental immunity

from Rushing’s breach of contract claim and affirmed the trial court’s judgment. 521 S.W.3d at 97.

III

Cities enjoy governmental immunity when they are performing governmental functions.

Tooke v. City of Mexia, 197 S.W.3d 325, 343 (Tex. 2006). The legislature, however, has waived

governmental immunity for certain contracts:

A local governmental entity that is authorized by statute or the constitution to enter
into a contract and that enters into a contract subject to this subchapter waives
sovereign immunity to suit for the purpose of adjudicating a claim for breach of the
contract, subject to the terms and conditions of this subchapter.

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TEX. LOC. GOV’T CODE § 271.152. A “contract subject to this subchapter” is “a written contract

stating the essential terms of the agreement for providing goods or services to the local governmental

entity that is properly executed on behalf of the local governmental entity.” TEX. LOC. GOV’T CODE

§ 271.151(2)(A). We have broken down section 271.151(2) into five required elements that must

be met before immunity is waived: “(1) the contract must be in writing, (2) state the essential terms

of the agreement, (3) provide goods or services, (4) to the local governmental entity, and (5) be

executed on behalf of the local governmental entity.” Williams, 353 S.W.3d at 135.

The City argues that Policy 106.06 is not a written contract because the Manual containing

the policy disclaims contractual intent and, in any event, was not “properly executed” because the

City Council never formally approved its revisions. These arguments put in issue two of the

elements required to waive the City’s immunity: (1) the existence of a written contract and (2) its

proper execution. As to the first, the City submits that the Manual’s disclaimer of contractual intent

prevents Policy 106.06 from being construed as a unilateral contract. Even though a provision by

itself might otherwise suggest contractual intent, disclaimers in the document can negate the

existence of such intent. Cty. of Dallas v. Wiland, 216 S.W.3d 344, 352, 354 (Tex. 2007)

(explaining that the county’s policy provisions did not create a contractual right because the

provisions expressly disavowed any intent to contract).

The court of appeals concluded that the disclaimer was only intended to preserve an

employees’s at-will status. Indeed, the disclaimer rejects any construction of the Manual “as a

guarantee of continued employment” or that employment with the City is anything other than “at

will.” But the disclaimer also provides that “[t]he contents of this manual do not in any way

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constitute the terms of a contract of employment . . . .” Interpreting Policy 106.06 to be a unilateral

contract regarding Rushing’s employment conflicts with this part of the disclaimer. See Williams

v. First Tenn. Nat’l Corp., 97 S.W.3d 798, 803 (Tex. App.—Dallas 2003, no pet.) (finding no

employment contract where an employee handbook contained an express disclaimer); Werden v.

Nueces Cty. Hosp. Dist., 28 S.W.3d 649, 651 (Tex. App.—Corpus Christi 2000, no pet.) (same);

Gamble v. Gregg Cty., 932 S.W.2d 253, 255 (Tex. App.—Texarkana 1996, no writ) (“A personnel

manual does not create property interests in the stated benefits and policies unless some specific

agreement, statute, or rule creates such an interest.”). To determine the disclaimer’s meaning we

must take a holistic approach that considers the entire disclaimer “in an effort to harmonize and give

effect to all the provisions” contained within. Apache Deepwater, LLC v. McDaniel Partners, Ltd.,

485 S.W.3d 900, 906 (Tex. 2016) (quoting J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229

(Tex. 2003)). The disclaimer opens with the unequivocal statement that the policies within the

Manual, including Policy 106.06, do not “constitute the terms of a contract of employment.” We

need not look any further to negate contractual intent. See Wiland, 216 S.W.3d at 354

(acknowledging that an employee manual can disclaim contractual rights allegedly contained within

the manual).

Rushing further argues that Policy 106.06 constitutes the terms of a unilateral contract

because it mirrors the city ordinance in Williams, which we held created a valid unilateral contract

between the City of Houston and its firefighters. See 353 S.W.3d at 137–39. In Williams, the City

of Houston’s ordinances promised its firefighters specific compensation for overtime and

termination pay. Id. at 138. The firefighters sued for breach of contract, alleging underpayment.

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Id. at 131. We held that the mandatory language of the ordinances created an enforceable, unilateral

contract that met all the requirements of section 271.151(2). Id. at 137–39.

Policy 106.06, however, is unlike the ordinances at issue in Williams. Williams dealt with

city ordinances, while Policy 106.06 is a provision of a policies and procedures manual. See id. at

135. Although city ordinances may create enforceable contracts, we have not previously held that

a municipality’s policies and procedures manual can create an enforceable contract. Compare id.

at 137–38 (finding that a city ordinance may create a unilateral employment contract), and Fort

Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 840 (Tex. 2000) (recognizing that

ordinances may be read together as a single contract to determine purpose or intent), and City of San

Antonio v. Frizzell, 91 S.W.2d 1056, 1057 (Tex. 1936) (recognizing an ordinance as a contractual

provision to move the plaintiff’s barber shop), and Byrd v. City of Dallas, 6 S.W.2d 738, 741 (Tex.

1928) (recognizing that an ordinance authorizing pensions to police and fire department employees

may be binding contractual provisions against the City), with Parviz-Khyavi v. Alcon Labs., Inc., 395

S.W.3d 376, 381–82 (Tex. App.—Dallas 2013, pet. denied) (employee handbook did not constitute

a binding contract of employment), and Werden, 28 S.W.3d at 651 (“[T]he above provisions from

appellee’s employee handbook clearly do not express an intent to vest contractual or property

rights.”), and Gamble, 932 S.W.2d at 255 (absent some specific agreement, a personnel manual does

not create property interests in the stated benefits). Rushing relies on Paniagua v. City of Galveston

to show that policies contained within an employee manual may create a contract under Texas law.

See 995 F.2d 1310, 1314–15 (5th Cir. 1993) (holding that a standby pay provision in the City’s

Personnel Rules and Regulations constituted an enforceable contractual term). In Paniagua,

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however, the manual did not include a disclaimer like the one in the City’s Manual. See id. (“[T]he

absence of any disclaimer in the Rules and Regulations—i.e., to the effect that they do not create

a contract or affect legal relations—reinforces the magistrate’s determination that the standby

provision became part of Paniagua’s employment contract.”). Thus, even if the policies in the City’s

Manual might otherwise signal contractual intent, the presence of the disclaimer here negates that

intent. See Wiland, 216 S.W.3d at 354.

The presence of a disclaimer, however, does not always negate contractual intent. The

disclaimer in Williams, for instance, simply stated that “[n]o provision of this ordinance shall be

construed to create a vested right of compensation for sick leave benefits or, where applicable, for

termination benefits.” Williams, 353 S.W.3d at 140. We held that this limiting language only

disclaimed a right to vested compensation. Id. We further held that even if the disclaimer negated

contractual intent, its limited scope would only affect the firefighters’ claims based on sick leave.

Id. at 141.

The City of Denton’s disclaimer, however, disclaims contractual intent “in any way” as to

the terms of employment. Unlike the waiver in Williams, which was a limited waiver of vested

compensation rights, the waiver here disclaims any intent to create an employment contract. See

id. at 140. Previously, we have upheld broad general disclaimers as a valid means to negate

contractual intent. See Wiland, 216 S.W.3d at 354. In Wiland, the disclaimer in Dallas County’s

manual stated that “[n]othing in the [manual] is to be construed as a contract of employment or a

provision guaranteeing the specific term or tenure of employment.” Id. at 349. We held that this

waiver negated contractual intent on behalf of the county because of the express disclaimer. Id. at

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354. The analogous provision in the City’s Manual similarly disclaims any contractual intent.

Therefore, the Manual—including Policy 106.06—is not a valid written contract subject to a waiver

of governmental immunity. See TEX. LOC. GOV’T CODE § 271.152.

The City also argues that Policy 106.06 was not subject to section 271.152's waiver of

immunity because the 2013 revisions were not “properly executed” by the City Council. See

Williams, 353 S.W.3d at 135. Because the City’s disclaimer negated any contractual intent, we need

not consider this issue.

***

For governmental immunity to be waived under section 271.152 of the Local Government

Code, there must first be an enforceable, written contract. Here, the City of Denton’s Policies and

Procedures Manual does not create such a contract because the Manual effectively disclaims the

City’s contractual intent. We accordingly reverse the court of appeals’ judgment affirming the

denial of the City’s plea to the jurisdiction and render judgment dismissing the case.

_____________________________
John P. Devine
Justice

Opinion Delivered: March 15, 2019

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