More is less (confusion) in offer letters
- The employer’s continuing obligation to pay employee following termination
- Performance criteria; or lack thereof
- Whether the Illinois Wage Act applies to unpaid future wages
First, some terminology. Absent an express contrary intention, an employment agreement without a fixed duration is terminable at-will by either party. For example, hiring someone at a monthly or annual salary, if no duration is specified, is considered an at-will employment relationship.
Eakins (Employee/plaintiff) was Hanna Cylinders’ (Employer/defendant) plant manager pursuant to an at-will employment agreement. Eakins tendered his resignation to Hanna after receiving an offer of employment from another company. Hanna, in response to the tendered resignation, offered Eakins a revised contract in letter form which Eakins signed. The offer letter provided the following terms:
|o Base salary
| o Automatic bonuses
| 2010 $10,000
| 2011 $20,000
| o Minimum term of employment
| 24 months
Fourteen months into the new employment agreement, Hanna terminated Eakins “for cause” citing his poor performance in the management of the plant, failing to meet forecasted shipments resulting in loss of identifiable customers and market share and other objective shortcomings in his performance as plant manager. Eakins filed a two count complaint asserting claims for breach of contract and unpaid wages under the Illinois Wage Act. Eakins asserted that the offer letter constituted an employment agreement for a minimum term of 24 months and he was due 10 additional months of wages under the contract and further the Illinois Wage Act1 entitled him to prejudgment interest and statutory penalties.
Eakins filed a motion for summary judgment on each count arguing that the offer letter was a contract for a fixed duration of two years and was not an at-will employment relationship. Employer, six months following Eakins’ motion, filed its motion for summary judgment arguing that Eakins was a terminated “for cause” based upon his breach of the employment agreement by failing to meet various performance standards expected of a plant manager, citing to numerous objective performance failures. Hanna noted in its motion that Eakins admitted that his job as plant manager required certain essential duties and that he could have performed better. Notably, Hanna did not assert that Eakins failed to perform his duties such as unexplained absences or sitting as his desk all day doing nothing.
The trial court denied Eakins’ motion as to the breach of contract claim noting that even if the contract was for a specific duration Eakins admitted he breached his duties to perform. The trial court also denied the Wage Act claim finding the Act did not apply to an employment agreement where a question existed about whether the employee was terminated for cause.2 Eakins timely appealed3 the trial court’s denial of his motion on the breach of contract and Wage Act claims.
The appellate court reversed the trial court on the breach of contract claim and affirmed the Wage Act claim dismissal. On the breach of contract claim, the court rejected Hanna’s argument that an employer is always entitled to terminate an employee “for cause” regardless of the duration of the employment contract. Accepting Eakins argument that his contract was for a specific duration and did not contain any performance criteria, the court found that the terms of the employment agreement as stated in the offer letter were an unambiguous agreement for a specific term of 24 months. Further, the court found that Eakins’ performance level was not among the contract’s terms or a basis for a discharge “for cause” stating:
Furthermore, even if [Eakins’] performance was poor, no performance standards were contained in the contract. To recognize this as a valid basis for termination would transform this specific-duration contract into an at-will contract where defendant would be free to terminate plaintiff whenever it felt that plaintiff’s performance was inadequate.
Id. at ¶26. The court limited its decision to the facts that were presented, namely where the alleged breach is premised upon a failure to meet certain non-existent performance standards. Importantly, the court specifically noted that had employee’s breach been premised upon a failure to perform his duties such as not appearing for work or doing nothing while at work, the fact that the agreement was for a specific duration would be of no import.
This case provides some important takeaways for employers:
- First, an offer letter can create a binding contract, so ensure that it is carefully drafted.
- Second, if you are drafting a contract for a specific duration, always include “for cause” termination criteria such as performance metrics and other objective criteria;
- Finally, if you are saddled with a bare bones specific duration employment agreement and seek to terminate an employee, be sure to document whether the employee is fulfilling his/her employment duties as opposed to whether the employee is performing based upon non-existent performance criteria.
1Hanna filed counterclaims which are neither relevant to the issues addressed in this article nor which were part of the appeal.
2The appellate court concurred with the trial court’s reliance upon Majmudar v. House of Spices, 2013 IL Ap (1st) 130292.
3Eakins’ appeal was pursuant to a special finding by the trial court under Illinois Supreme Court Rule 304(a) which provides: “…If multiple parties or multiple claims for relief are involved in an action, an appeal may be taken from a final judgment as to one or more but fewer than all of the parties or claims only if the trial court has made an express written finding that there is no just reason for delaying either enforcement or appeal or both.