NO. 90-614
IN THE SUPREME COURT OF THE STATE OF MONTANA
1991
GARY 0. KITTELSON,
Plaintiff and Appellant,
-vs-
ARCHIE COCHRANE MOTORS, INC.,
Defendants and Respondents.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
The Honorable G. Todd Baugh, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Gregory P. Johnson, Billings, Montana
Jock B. West; West Law Firm, Billings, Montana
For Respondent:
Don M. Hayes; Herndon, Hartman, Sweeney & Halvorson,
Billings, Montana
Submitted on Briefs: April 18, 1991
Decided: June 6, 1991
Filed:
Justice John Conway Harrison delivered the Opinion of the Court.
Gary 0. Kittelson appeals from summary judgment granted on
September 28, 1990, by the District Court of the Thirteenth
Judicial District, Yellowstone County, Montana, in favor of Archie
Cochrane Motors, Inc. Kittelson claimed that by refusing to
disburse severance pay, Archie Cochrane Motors was negligent and
had breached the employment contract and the implied covenant of
good faith and fair dealing. We affirm.
The issue is whether the District Court erred in determining
that no genuine issues of material fact exist and improperly
granted summary judgment.
Summary of Facts
Gary 0. Kittelson was fired on August 11, 1986, after having
been employed by Archie Cochrane Motors (ACM) for seventeen years,
working his way up from salesperson in 1968 or 1969 to General
Sales Manager in 1979. When he was promoted to General Sales
Manager on July 1, 1979, Kittelson signed an employment contract
which provided that he receive a salary of $1,700 per month plus
two per cent of the company's operating profits, as well as a year-
end bonus of two per cent of the company's operating profits. The
contract did not refer to a definite time period of employment.
Kittelsonls base salary increased over the years, and although his
profit percentage remained the same, he was making over $50,000 a
year as General Sales Manager during the last few years of
employment.
When Kittelson began working for ACM, the company was owned
by Archie Cochrane, who sold ACM in January 1974 to James and Dave
McNally. After McNallys bought the car dealership, an employee
handbook was distributed to all ACM employees. The handbook did
not state procedures or policies for discharging employees except
for a section providing that severance pay would be decided on a
case by case basis, but would not be given if the employee had
engaged in I1improper conduct."
According to James McNally, the President of ACM, Kittelson's
performance began to decline in late 1984. On January 27, 1986,
McNally wrote Kittelson a letter, constituting "a formal and final
warning on the problems you and I have been discussing over the
past ninety days.I1 The letter listed Kittelsonls shortcomings in
"inventory managementg1and llpeople
management.
Kittelson told McNally in June 1986 that he felt his
performance had improved. McNally disagreed and demoted Kittelson
to truck manager, temporarily taking over as General Sales Manager
himself. McNally said that because he and Kittelson were friends,
he switched Kittelsonls position rather than terminating his
employment, to I1jarl1him back to "functioning like he used to."
According to McNally, Kittelsonlsperformance continued to decline,
leading to his termination in August 1986.
Following his termination, Kittelson approached Jim McNally
about the possibility of obtaining severance pay. McNal ly
instructed Kittelson to write down the reasons that he felt
entitled to severance pay, and assured Kittelson that he would
present the matter to the Board of Directors. According to
Kittelson, McNally also commented that if anyone deserved severance
pay, Kittelson did. The Board rejected Kittelson ' s request for
severance pay.
McNally stated that approximately a year later, Kittelson told
him that he needed a letter of recommendation because of difficulty
in finding employment. Against his attorney's advice, McNally
wrote the letter and backdated it to the time Kittelson's
employment was terminated. McNally said that he did this because
"I was trying to help him out.'*
Before Kittelson's termination, ACM had never given an
employee severance pay. Subsequent to Kittelsonls discharge, two
ACM employees received severance pay after termination of their
employment.
Kittelson filed this action against ACM alleging negligent
discharge, negligent infliction of emotional distress, breach of
the implied covenant of good faith and fair dealing, and breach of
contract for failing to provide severance pay.
I
Before discussing the issues concerning Kittelsonls
termination, we must address the preliminary question of whether
the Montana Wrongful Discharge From Employment Act, 5 5 39-2-901 to
-914, MCA, applies to this case. Since Kittelson was discharged
in August 1986, this action is not controlled by the Montana
Wrongful Discharge From Employment Act, which took effect July 1,
1987.
We now turn to Kittelson's claim that the District Court erred
in granting summary judgment to ACM because genuine issues of
material fact existed. Summary judgment is proper when no genuine
issues of material fact exist, and the moving party is entitled to
judgment as a matter of law. Rule 56(c), M.R.Civ.P.; First
Security Bank of Bozeman v. Jones (1990), 243 Mont. 301, 303, 794
P.2d 679, 681. Initially, the moving party must allege the absence
of genuine factual issues. To prevail, the nonmoving party must
set forth facts demonstrating that a genuine issue exists. OIBagy
v. First Interstate Bank of Missoula (1990), 241 Mont. 44, 46, 785
P.2d 190, 191.
Kittelson argues that the following material facts were at
issue: (1) whether Kittelson was entitled to severance according
to provisions of the employee handbook; (2) whether ACM terminated
Kittelsonl employment "for an act of improper conduct;l1
s (3)
whether McNallyls statements to Kittelson in regard to his request
for severance pay imposed obligations on ACM; and (4) whether the
question of Kittelsonls severance pay was presented to the Board
by Jim McNally. Examination of the record reveals that no genuine
issues of material fact existed.
In Montana, employment "having no specified term may be
terminated at the will of either party on notice to the other . .
. . l1 Section 39-2-503, MCA. In asserting claims of wrongful
discharge, Kittelson relied on the exceptions to "at will1'
termination of employment listed in Prout v. Sears, Roebuck and Co.
(1989), 236 Mont. 152, 157, 772 P.2d 288, 291. Aside from
statutory exceptions, Prout lists four exceptions to "at will"
termination of employment: (1) violation of public policy; (2)
breach of express or implied promise of job security; (3) breach
of the implied covenant of good faith and fair dealing; and (4)
negligent discharge. As noted in Prout and as our discussion will
demonstrate, these exceptions frequently overlap. Prout, 236 Mont.
at 157, 772 P.2d at 291.
Neslisent Discharse
In a recent decision, we held that an employer is not under
a "duty to use reasonable care in decision making, based upon a
theory of negligence.I1 Heltborg v. Modern Machinery (Mont. 1990),
795 P.2d 954, 961, 47 St.Rep. 1254, 1264. Therefore, negligent
discharge is no longer a recognized exception to termination of
employment Ifat will,11and we need not further review Kittelsonls
claim that he was negligently discharged.
Violation of Public Policy
In cases not controlled by the Montana Wrongful Discharge of
Employment Act, a plaintiff must show a violation of public policy
by his employer in order to establish that he has been wrongfully
discharged. Rupnow v. City of Polson (1988), 234 Mont. 66, 70, 761
P.2d 802, 804. Administrative rules promulgated by state agencies
are one source of public policy, and an employer's violation of
administrative rules in terminating an employee may constitute
wrongful discharge. Nye v. Department of Livestock (1982), 196
Mont. 222, 639 P.2d 498. Termination of an employee for refusing
to participate in illegal or immoral activities also violates
public policy. Stark v. Circle K Corporation (1988), 230 Mont.
468, 475-76, 751 P.2d 162, 167 (employee discharged for refusing
to sign false report).
Kittelson does not claim these types of public policy
violations. Instead, he alleges that ACM violated public policy
by breaching the implied covenant of good faith and fair dealing.
Since the covenant is 'limplied as a matter of law based on the
public policy of this State,'' breach of the covenant amounts to a
violation of public policy. Stark, 230 Mont. at 475, 751 P.2d at
166. Thus, we must determine whether any genuine issue of material
fact exists to demonstrate breach of the implied covenant of good
faith and fair dealing.
Implied Covenant of Good Faith and Fair Dealinq
Montana has long recognized the implied covenant of good faith
and fair dealing in employment contracts. Dare v. Montana
Petroleum Marketing Co. (1984), 212 Mont. 274, 687 P. 2d 1015; Gates
v. Life of Montana Insurance Co. (1982), 196 Mont. 178, 638 P.2d
1063. Whether an implied covenant of good faith and fair dealing
exists in an Itat will1' employment context depends upon objective
manifestations by the employer that would give rise to the
employee's reasonable belief that he had job security and would be
treated fairly. Barrett v. Asarco, Inc. (Mont. 1990), 799 P.2d
1078, 1081, 47 St.Rep. 1980, 1982. Both parties are protected by
the reciprocal nature of the covenant, which imposes on the
employee an obligation of good faith performance of his job duties.
Barrett, 799 P.2d at 1081, 47 St.Rep. at 1082.
Kittelson had worked for ACM for seventeen years and for
McNallys since they bought ACM in 1974. In 1979, ACM promoted
Kittelson to General Sales Manager, a managerial position which
required Kittelson to supervise the other sales managers and
salespersons. Kittelson received base salary increases and a
percentage of profits over his base salary, as well as a year-end
bonus. These facts could give rise to a reasonable belief that
Kittelson had job security. See Barrett, 799 P.2d at 1081, 47
St.Rep. at 1982 (receiving regular raises and bonuses in salaried,
managerial position for fifteen years were sufficient objective
manifestations of existence of covenant).
The implied covenant of good faith and fair dealing requires
"'honesty in fact and the observance of reasonable commercial
standards of fair dealing in the trade"' by both parties. Story
v. City of Bozeman (1990), 242 Mont. 436, 450, 791 P.2d 767, 775
(quoting § 28-1-211, MCA). "[Tlo rebut allegations by an employee
that the employer breached the covenant, the employer need only
show a fair and honest reason for terminati~n.~~
Barrett, 799 P.2d
at 1081, 47 St.Rep. at 1982.
~ittelson's primary contention is that ACM1s refusal to
disburse severance pay was unfair and contrary to the policy stated
in ACM1s employee handbook:
G. Separation for Cause. If you are separated for
cause, whether or not you are given severance pay depends
upon the reason you were leaving our organization, and
each case will be handled individually. Severance pay
will not be given, however, for separation because of an
act of improper conduct.
No other portions of the handbook commented on procedures for
discharge of employees. Kittelson maintains that he was entitled
to severance pay because he was not terminated for Itan act of
improper conduct,11 precluding severance pay according to the
handbook.
An employee handbook distributed after the employee was hired
is not an employment contract because the handbook constitutes a
unilateral statement of company policies and procedures, because
its terms are not bargained for, and because no meeting of the
minds occurred. Gates, 196 Mont. at 183, 638 P.2d at 1066.
Nevertheless, an employer can breach the implied covenant of good
faith and fair dealing by failing to follow its own policies as set
forth in the employee handbook. Gates, 196 Mont. at 184, 638 P.2d
at 1067.
On January 27, 1986, Jim McNally wrote Kittelson a letter
comprising "a formal and final warning on the problems you and I
have been discussing over the past ninety days.11 The letter
cataloged llshort-comings as to inventory management that we
discussedI1 and llshort-comings to people management that we have
as
d i s c ~ s s e d ,listing three items in each category, and informed
~~
Kittelson that he had to improve his performance by June 1, 1986.
About a year after Kittelsonls employment was terminated,
McNally, at Kittelsonls request, wrote a letter of recommendation,
addressed "To Whom It May C ~ n c e r n , ~ ~
citing Kittelsonls llloyalty
and
honestyw and liabilities as a Sales Manager." The letter, backdated
to August 22, 1986, also stated:
About two years ago, Gary and I started differing on
management methods. As these differences grew it became
9
apparent we would be better served if Gary were to seek
employment with a firm whose philosophies were more in
line with his thoughts.
Kittelson maintains that this letter raises a question of fact
regarding the reasons for his termination. Kittelson further
argues that the letter of recommendation shows that he was not
terminated for "an act of improper conductIvv
and thus was not
precluded from receiving severance pay by the provisions of the
employee handbook.
The January 27, 1986, letter demonstrates that Kittelsonls
performance was lacking. In June 1986, Kittelson was demoted to
truck sales manager and given a final warning. The letter of
recommendation, written approximately a year after Kittelson was
terminated in August 1986, cannot be characterized as giving
Kittelson the reasons for ending his employment. The letter was
written at Kittelsonvs request for the purpose of helping him
obtain other employment.
However, we need not decide whether Kittelson was discharged
for Ifan act of improper conduct.11 The language of the employee
handbook clearly states that "each case will be handled
individuallyw in deciding whether severance pay is given.
At some time shortly after he received notice of termination,
Kittelson approached McNally about receiving severance pay.
McNally told Kittelson that he would bring the matter before the
Board of Directors of ACM and suggested to Kittelson that he record
the reasons which entitled him to severance pay. Kittelson sent
his written reasons for receiving severance pay to the other two
Board members. Kittelson contends that a factual dispute remains
over whether McNally presented the matter of Kittelson's severance
pay to the Board of Directors as he had described to Kittelson.
Kittelson also emphasizes that McNally said to him, "If anyone has
severance pay coming, you do."
Kittelson's reasoning fails because the employee handbook does
not outline the procedures ACM must take to reach a decision
regarding severance pay. As stated by the District Court, I1[t]he
contents of the employment handbook paragraph regarding such pay,
the content of the conversation between McNally and Kittelson, and
the result of the Board's determination regarding the severance
pay are not at issue.I1
McNally stated in his deposition that because ACM had
continued to employ Kittelson for some time after his performance
declined, he and the Board "felt that we had paid Mr. Kittelson
probably a year's salary that was unearned." The actions of the
ACM Board of Directors, however the Board may have arrived at the
decision and for whatever reasons, comply with ACM policy to handle
each case individually as stated in the employee handbook.
McNallyls statement that Kittelson had severance pay coming if
anyone did is neither a promise to Kittelson that he would receive
severance pay nor a representation to Kittelson that the Board
decision would be in Kittelson's favor. The District Court did not
err in concluding that genuine issues of material fact did not
exist and that ACM did not breach the implied covenant of good
faith and fair dealing by denying severance pay to Kittelson.
We briefly discuss Kittelson's last two claims. Kittelson
does not have a breach of contract claim based on the employee
handbook because, as noted in the above discussion, an employee
handbook is not an employment contract. Gates, 196 Mont. at 183,
638 P.2d at 1066. Finally, we note that Kittelson's claim of
negligent infliction of emotional distress is without basis.
Affirmed.
We concur: _Ica
Justice Terry N. Trieweiler specially concurring.
I concur with the result of the majority's decision, but not
with all that is said therein.
The plaintiff has alleged five causes of action. However, all
causes are based on plaintiff's assumption that he was entitled to
severance pay which his employer wrongfully refused to give him.
Plaintiff's assumption that he was entitled to severance pay
was based on the following provision found in his employer's
Employee Handbook:
If you are separated for cause, whether or not you are
given severance pay depends upon the reason you are
leaving our organization, and each case will be handled
individually. Severance pay will not be given, however,
for separation because of an act of improper conduct.
Plaintiff contends that it is reasonable to interpret the
above provision as, "the assurance that an employee terminated for
cause, other than an act of improper conduct, is entitled to and
will receive benefits from Respondent."
Plaintiff's proffered interpretation is not reasonable. All
that is guaranteed by the Employee Handbook is that each case will
be handled individually and that consideration will be given to the
circumstances of an employee's departure. That is what the
employer did in this case, and therefore, there was no employment
policy violation which could form the basis for any of the
plaintiff's five causes of action.
For this reason, I would affirm the judgment of the District
Court, even though I do not concur with all that is said in the
ma j ority opinion.
/
I concur in the foregoing concurring opinion of Justice Trieweiler.