A. Employment Contracts

• Library: South Carolina Damages (SCBar) (2009 Ed.)

A. Employment Contracts

Litigation involving the alleged breach of employment contracts and employment torts has become a mainstay of employment lawsuits. Although employees in the past may have accepted a termination and simply sought another position, employees today are more likely to file suit against the former employee, not so much to regain a position as to be compensated for the discomfort of having been discharged. This chapter discusses the damages recoverable in situations involving employment contracts and wrongful discharge violating public policy. Each situation is discussed in a separate section. When evaluating an employer's potential liability, remember that South Carolina recognizes constructive discharge.¹

1. Breach of Employment Contract by Employer

This section discusses the damages recoverable for the breach of an employment contract, including damages available to an employee when the employer breaches a contract, damages available to an employer when the employee breaches the agreement, and damages available for breach of a covenant not to compete.

a. Types of Damages Available When the Employer Breaches the Employment Contract

Employment contracts are divided into two categories: contracts for a definite term and contracts for an indefinite term. Contracts for a definite term are presumptively terminable only upon just cause. However, this presumption can be altered by the parties by express contract provisions.² Where no express contract provisions exist, an employee dismissed without just cause is entitled to the full amount of the contract. The measure of damages is equal to the agreed upon wages for the unexpired portion of the term, less any wages the employee earned or might have earned through his reasonable efforts to obtain other employment. An employer may overcome this presumption by showing that the employee obtained or could have obtained other employment.³

An indefinite-term contract does not specify a definite period of employment. Under South Carolina law, an employee working under a contract for an indefinite term may be terminated at will. Generally, an at-will employee does not have a cause of action against his employer for breach of contract. While this doctrine states the general rule in South Carolina, appellate courts have created two exceptions that limit an employer's ability to terminate at-will. First, an employee may have a cause of action against his employer when the employee is discharged in violation of a clearly established public policy.⁴ Second, an employer may unintentionally change an employee's at-will status through handbooks, policies, and practices, despite the presence of a disclaimer in the handbook which asserts it is not intended to create a contract of employment where the handbook contains mandatory statements regarding disciplinary and grievance policies.⁵ Our appellate courts have determined that a jury can decide whether an employee handbook has limited an employee's at-will employment status.⁶

Since a contract requires a meeting of the minds, an employee may not recover damages for the breach of an alleged employment contract unless evidence exists that his employer "offered or assented to the contract contended for by the plaintiff."⁷ To prove that an employment contract exists, the employee must show the following three elements: (1) a specific offer; (2) communication of the offer to the employee; and (3) performance of job duties in reliance on the offer.⁸ Additionally, an oral contract may alter an employee's at-will status,⁹ but "[to] be binding, an offer must be definite."¹⁰ An employer's generalized statements regarding job security are insufficient to change an employee's at-will status.¹¹

Assuming the existence of an employment contract, a wrongfully discharged employee is entitled to receive compensatory damages caused by the breach. These may include back pay and future damages, reduced by any amounts an employee earned or reasonably could have earned from other employment, but may not include speculative damages. A jury will award these compensatory damages by determining how long the employee would have continued to be employed, but for a wrongful discharge.¹² As an alternative or in addition to wages, a wrongfully discharged employee's damage award may include any "seeking" expenses, such as moving or job-hunting, incurred in an attempt to mitigate damages.¹³ An employee who receives a lump sum damage award generally is not entitled to additional damages for any resulting net increase in income taxes that the employee must pay.¹⁴

In appropriate situations, an employee may have an alternate measure of damages when an employer wrongfully discharges an employee before he actually commences employment. Here, the measure of damages would be the expenditures the wrongfully discharged employee made in anticipation of the employment, such as moving expenses or expenses incurred in terminating prior employment. Nevertheless, this measure of damages may not be used in addition to recovery of lost wages, but may be available in the alternative.¹⁵

If a tort arises out of the breach, a relationship that gives rise to a duty must also exist, because South Carolina does not recognize breach of contract as an actionable tort, regardless of the breaching party's intent.¹⁶ For an employee to recover punitive damages in an action for breach of an employment contract, the employer must commit a fraudulent act along with the breach.¹⁷ "To recover for breach of contract accompanied by a fraudulent act . ..[an employee] . ..must prove: (1) a breach of contract; (2) fraudulent intent relating to the breaching of the contract and not merely to its making; and (3) a fraudulent act accompanying the breach."¹⁸ An employer's unfulfilled promises do not constitute fraud.¹⁹

An employer and employee are free to alter the at-will nature of their employment relationship, thereby restricting their respective freedoms to discharge without cause and to resign.²⁰ If an employment contract only authorizes termination for cause, the appropriate test to determine whether a breach of contract occurred is not whether the employee actually committed any misconduct, but whether the employer, in good faith, reasonably determined that sufficient cause existed for termination.²¹ Most often, just cause for termination is related to an employee's substandard performance of his work duties.²²

Employment contracts imply that an employee has an affirmative duty of loyalty towards his employer; therefore discharge is justified where an employee is disloyal or acts adversely to his employer's interests.²³ Additionally, an employee has the obligation to obey his employer's reasonable rules and instructions. Generally, intentional disobedience to rules justifies rescission of the employment contract and dismissal of the employee.²⁴Finally, an employee who refuses to comply with an employer's reasonable request will be found to have engaged in misconduct justifying discharge for cause, but the reasonableness of the employer's request and the employee's reason for noncompliance must be evaluated.²⁵

This seeming deference to an employer's decision is limited as a practical matter by an employee's challenges to an employer's good faith determination of just cause. In Conner v. City of Forest Acres,²⁶a former police dispatcher brought a wrongful discharge action against the city alleging breach of contract and bad faith discharge. During the course of her employment, plaintiff received numerous reprimands for a variety of misconduct.

After an unsatisfactory evaluation, the city terminated her.²⁷ During her employment, plaintiff had received two employee handbooks, both containing disclaimers and policies detailing progressive disciplinary procedures. The city, relying on the conspicuous disclaimers, argued that the handbooks did not create a contract or alter plaintiff's at-will status. The plaintiff argued that since the handbook created a contract, the city terminated her without just cause.²⁸

In Conner, the South Carolina Supreme Court relied on Small v. Springs Industries, which stated that it would be unjust to allow an employer to use mandatory terms in a handbook or other similar material, and then permit him to ignore these policies whenever they work to his disadvantage.²⁹ In Conner, the South Carolina Supreme Court held that the city's handbook, which contained several instances where mandatory language was used, combined with the outlined progressive discipline policy, created genuine issues of material fact as to 1) whether the employee handbook modified plaintiff's at-will status by creating a contract; and 2) whether the plaintiff was wrongfully terminated.³⁰

Contrast Conner with Byers v. Westinghouse Electric Corp.,³¹where the South Carolina Supreme Court affirmed summary judgment for the employer. In Byers, Westinghouse fired the plaintiff after she abandoned her work station on several occasions, despite being instructed by her supervisor not to do so. Westinghouse conceded that its employee handbook gave rise to an employment contract. The handbook provided, in pertinent part, that certain employee conduct may result in immediate discharge due to its extremely serious nature. The handbook listed insubordination, such as failure to carry out definite instructions or assignments, as extremely serious misconduct. Additionally, the handbook provided that less serious misconduct may lead to progressively severe discipline. The handbook listed absence from one's work area without permission or a satisfactory reason as misconduct.³²

Byers claimed that her behavior did not warrant termination.³³ The circuit court granted Westinghouse's motion for summary judgment for the following reasons: (1) the plaintiff did not challenge, but admitted to her misconduct; (2) her conduct clearly constituted insubordination, which permits discharge; and (3) although plaintiff's...