Job Offer Letters Can Destroy At-Will Status

Every day in every way employers and employees battle over at-will status. Employers should win the lion's share of these battles. They hold all the cards. They dictate the terms and conditions of employment to non-union employees. The employee escapes at-will status only if he/she can convince the employer to grant job protection against dismissals at any time for any reason. At-will status, after all, relates only to the duration of employment. Employees with indefinite duration are at-will. Employees granted fixed duration jobs by their employers can only be fired for just cause.

Converting At-Will Employees into Fixed Term Employees

The tragedy is that employers through their own mistakes or inadvertence can convert at-will employees into fixed-duration employees. A chief culprit here is the over-enthusiastic offer letter where the employer seeks to convince a desired applicant to "come aboard." Carelessly drafted offer letters easily come back to haunt employers when "dream" applicants turn into "nightmare" employees. This is true, we shall see, even in a fiercely-at-will state such as New York.

TSR Consulting Services Inc. was trying to hire Larry Steinhouse as manager of its New York branch office. Larry was reluctant. His present job paid him $220,000 per year. Also, he understood prior TSR managers were fired shortly after being hired. Larry "demanded assurances of job security." The parties negotiated. TSR then drafted an offer letter that Larry accepted. Larry began work. You guessed it; he lasted less than 10 weeks when he was abruptly fired "for reasons that are not clear from the record."

The Offer Letter

Let us examine TSR's fateful May 27, 1997 offer letter signed by its president. It stated:

For the first twelve months of your employment, through May 31, 1998, your compensation will consist of a base salary, which if annualized would be $120,000. In addition, you will receive a guaranteed non-recoverable draw of $10,000 against commissions for this same period. Also, as you requested an additional recoverable draw of $20,000 against commissions can be provided. The objectives for the additional incentive/compensation commissions are outlined in schedule A. For the second year of your employment, you will receive a guaranteed recoverable draw of $120,000 against commissions.

Larry accepted this offer and began work on June 2, 1997. By August 8, 1997, he was fired and the parties were in court arguing over the meaning of this May 27, 1997 offer letter. TSR said it was an at-will letter. Larry said it gave him a two-year contract and demanded full pay and benefits for the remaining 94 weeks.

TSR sued first, seeking a declaratory judgment that Larry was an at-will employee. Larry counter-claimed with his two-year breach of contract claim. TSR then moved for summary judgment on its at-will claim and dismissal of Larry's contract claim. New York County Supreme Court Justice Carol Huff held the offer letter was "ambiguous" and denied TSR's motion. On December 7, 1999, the Appellate Division, First Department, unanimously affirmed. TSR Consulting Services, Inc. v. Larry Steinhouse, 267 A.D.2d 25 (1999).

Dangerous Words in the Offer Letter

There are three dangerous words and phrases in the May 27, 1997 TSR offer letter. Can you spot all three without reading ahead? Those three words and phrases were all drafted by TSR. This company dug its own grave. Larry could recover a quarter-million dollars (or more) at trial for work he will never perform for TSR. However, the case never did go to trial, as TSR chose to settle the matter instead.

If you haven't spotted the three "bad" words and phrases yet, we'll give you another clue. Look for words and phrases with the first letters, G, T and F, again without reading ahead. The First Department zeroed in on those words and phrases when it denied TSR's motion to declare Larry an at-will employee.

Guaranteed Draw

G stands, of course, for "guaranteed." At-will employees don't receive guarantees. This offer letter gave Larry "guaranteed" draws during the first and second years of his employment. That certainly suggested a two-year contract to the Appellate Division. The court cited the 1918 case of Gressing v. Musical Instrument Sales, 222 N.Y. 215. Mr. Gressing's offer letter promised an annual salary of $3,000, a sum Larry would earn every nine days. Gressing's employer's offer letter said it was "guaranteeing [him] a net income of not less than $4,000 per annum" because, in addition to the $3,000 per annum salary, the letter offered Gressing commissions "up to the guarantee."

The G words led the New York Court of Appeals over eight decades ago to hold this employer intended "to give the plaintiff a year within which to earn" the moneys promised in his offer letter. They held it offered a one-year agreement, not an at-will agreement. The First Department in TSR also cited Levey v. Leventhal & Sons, 231 A.D.2d 877 (4th Dep't 1996), where contract language providing a weekly salary which "represents a commission guarantee for the next 15 to 18 months" was held to be ambiguous enough to block summary judgment for the employer.

Employment Through

T stands for "through," as in the first twelve months of your employment "through May 31, 1998." If these additional words had been omitted, the offer letter's first sentence would have only stated: "For the first twelve months of your employment, your compensation will consist of a base salary, which if annualized would be $120,000." Nearly every state, including New York, holds that telling an employee that he/she will be paid so much per day, week, month or year merely establishes the employee's pay rate not the duration of his/her employment.

The First Department also cited Atkins and O'Brien v. International Service System, 252 A.D.2d 446 (1st Dep't 1998), another T case. There, a building and maintenance company outsourced its legal work to a law firm. The company promised the firm a fixed fee each month for 1995, a higher monthly amount "through 1996" and a still higher monthly amount "thereafter." The law firm leased office space in three cities but was fired in February 1996 following a management change at the company. The court held the agreement "through 1996" obligated the company through the remaining ten months of 1996.

Employment For . . .

The final fateful word or phrase in the TSR offer letter was F or "for" as in employment "for the first twelve months of your employment" and "for the second year of your employment." The First Department again reached back to an old Court of Appeals decision, the 1916 decision in Cuppy v. Stollwerckhos, 216 N.Y. 591. The employee in that case was fired after four months and sued claiming he had a one-year contract. The Court of Appeals, reversing the appellate court, which held this was an at-will arrangement, held the company's letters proposing salary and expenses "for twelve months" meant the plaintiff was promised employment for a definite one-year period. This plaintiff stood to recover $10,000 during the remaining eight months of his one-year contract, a princely sum 90 years ago.

The First Department in TSR also cited an even-earlier "F word" case, the 1908 decision in Mason v. New York Produce Exchange, 127 App. Div. 282 (2d Dep't). Mason, an engineer, was offered an annual salary of $2,500 "for the first year" and, if his services were "satisfactory," a $3,000 annual salary "for the second year and thereafter." The Second Department, reversing the Kings County Supreme Court, which held this was only an at-will contract, held those F words meant this was a "hiring from year to year." Mason began work in January 1904 and was fired in August 1906. He recovered $1000, which was his salary "for" the remaining four months of his third and final employment year.

Summary

Employers in all states now have words to avoid, "guaranteed," "through" and "for" if they want to keep their employees at-will. Did you guess all three words? More importantly, how do your own offer letters stack up?