VOLUME I Chapter 1 Employment Contracts

• Jurisdiction: South Carolina

Chapter 1 Employment ContractsM. Baker Wyche IIIJohn T. Merrell

Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

I. Introduction

The objective and nature of the employment relationship is inextricably related to the agreement, understanding or contract between the parties to perform work for hire or compensation. This chapter discusses various issues related to employment contracts, including the nature of the relationship between contracting parties in the employment context, the different types of contract (express and implied, written and oral, unilateral and bilateral), the requisites for contract formation, terms of the employment contract, and the means for modifying or terminating the contractual relationship. In addition, it will touch upon the nature of the employment-at-will relationship and how that relationship might be altered or preserved through the use of contractual language. Finally, it will address the consequences of a breach of the employment contract, such as through premature or unfounded termination of the employment relationship.

II. Employees Distinguished from Independent Contractors

The initial question to be asked is whether the person who is engaged is working as an employee or as an independent contractor. The South Carolina Supreme Court has said, "Whenever services are rendered and received, a contract of hiring or an obligation to pay compensation will generally be presumed."¹ This proposition, of course, still begs the question of whether the worker is an employee or an independent contractor.² Whether an individual is an employee or an independent contractor is a fact-specific determination, which is reached by applying certain general principles.³

The primary consideration in determining whether a worker is an employee or an independent contractor is whether the purported employer has the right to control the worker in the performance of his duties and the manner in which they are done.⁴ The test is not whether actual control is exercised but, rather, "whether there exists the right and authority to control and direct the particular work or undertaking."⁵ On the other hand, the mere fact that one of the contracting parties is empowered to give general directions as to what is to be done, without control over the methods or means of doing it, does not necessarily create the relation of employer and employee.⁶

An independent contractor is one who, exercising an independent employment, contracts to do a piece of work according to his own methods, without being subject to the control of his employer, except as to the result of his work.⁷ The principal factors indicating that an employer actually has the right of control are (1) direct evidence of the right or exercise of control; (2) furnishing of equipment; (3) method of payment; and (4) the right to fire.⁸ These four factors are evaluated "with equal force in both directions."⁹An employment relationship may be found even where not all of the four factors would support a finding of employment.¹⁰

In determining whether a party is an employee or an independent contractor, the basis of engagement between the parties must be considered. Although the parties do not control the legal effect of the contract, the primary test of the character of the relationship is the intention of the parties, which is to be gathered from the entire scope of the agreement and the language used.¹¹

The determination of whether the relationship of employer and employee has been established depends largely on the facts and circumstances in each case.¹² Generally, where the evidence is conflicting or admits of more than one inference, the question is one of fact for the jury.¹³

III. Nature of the Contract: Bilateral and Unilateral

The employment relationship is contractual in nature. As with other agreements, employment contracts may be bilateral or unilateral.

Bilateral employment contracts are created when there is a meeting of the minds, an employee accepts the terms offered by the employer, and the parties exchange valid consideration. The terms of the bilateral employment contract usually include a definite period of employment. For example, when a teacher signs an employment agreement with her school district for the coming year, the parties have entered into a bilateral employment contract. Bilateral employment contracts are often, though not always, reduced to writing.

Most employment agreements are unilateral.¹⁴ In a unilateral employment agreement, the employer makes an offer or promise to hire for specified wages and benefits, and the employee accepts the offer by performing the act on which the promise is impliedly or expressly based. The employee's act or forbearance in reliance on the employer's promise furnishes consideration to the employer, while the benefits conferred under the terms of the promise constitute consideration for the employee.¹⁵ An employee handbook may give rise to a unilateral employment contract.¹⁶ Oral statements, if specific enough, also may give rise to a unilateral contract of employment.¹⁷

IV. Requisites for Creating the Relationship

It is generally accepted that a contract is an objective manifestation of agreement between two or more persons that is supported by consideration. As with any contract, before an employment contract can be formed, there must be mutual assent between the parties (in this case, employee and employer) and an exchange of valid consideration.¹⁸Generally, to have a contract in the employment context, there must be a specific offer, a communication of that offer to an employee, and performance of job duties in reliance upon the offer.¹⁹ Proof of these requirements may come in different forms, depending upon whether the employment contract is expressed or implied.

Many disputes concerning the existence of an employment agreement focus on the issue of whether a specific offer was made. An offer is the objective manifestation of a willingness to enter into a bargain, made in such a way that another person is justified in understanding that his assent to that bargain is invited and that such assent will result in the formation of an agreement. Any conduct from which a reasonable person in the offeree's position would be justified in inferring a promise in return for a requested act amounts to an offer. To be binding, an offer must be definite. In addition, it must be one which is intended of itself to create legal relations on acceptance. There are certain spoken words that the South Carolina Supreme Court has found do not amount to an offer of employment other than at will.²⁰

A. Express Contracts

Express employment contracts may be created by written or spoken language. As long as the language is promissory in nature and contains the requisites of a valid contract, South Carolina law treats both forms of agreement as legally binding.

B. Implied-In-Fact Contracts

An implied-in-fact contract is "founded upon a meeting of minds, which, although not embodied in an express contract, is inferred, as a fact, from conduct of the parties showing, in the light of the surrounding circumstances, their tacit understanding."²¹Whether an implied-in-fact employment contract exists is a question of intent.²² With any employment relationship in South Carolina, there exists a presumption of at-will employment; for a contract to exist that alters the at-will relationship, the employee must present evidence rebutting this presumption.²³

1. Cases Before the "At Will" Act Safe Harbor Provision

The South Carolina Supreme Court enunciated an implied-in-fact contract exception to the employment-at-will rule in its decision in the case of Small v. Springs Industries, Inc.²⁴In that decision, the court held that evidence of a contract may come from an employee handbook, bulletin board posting, or oral statement.²⁵ An employee handbook may create, or evidence the creation of, a unilateral employment contract.

Through the use of handbooks, an employer may attempt either to summarize existing policies and practices or to promulgate policies and procedures for employees to follow. The obvious reason is to communicate to employees the expectations of the employer and to provide for a workplace that will be safe, efficient, and productive. Typically, handbooks include rules of workplace conduct and provide for a disciplinary procedure, which may be progressive, corrective, or summary in nature. Many employers attempt to reserve discretion with respect to whether discipline should be imposed in a given situation and, if so, its severity. Many also reserve the right to bypass the progressive procedure in the event of serious misconduct.

Following the decision in Small v. Springs Industries, Inc. (Small I),²⁶ many employers, as an added measure of protection, inserted a provision in their handbooks disclaiming the contractual, binding nature of the document and reaffirming the employment-at-will relationship. The result was a handbook that contained both a disclaimer of a contract and a written document with promises and responsibilities that both parties expected to be followed. In cases where the plaintiff employee argued that a handbook created an employment agreement altering the at-will relationship, the courts have submitted to a jury the question of whether there was such a contract when (1) its existence is questioned, and (2) the evidence is conflicting or admits of more than one inference.²⁷ The state appellate courts have held that the juxtaposition of conspicuous disclaimers (informing employees that the handbook is not intended to alter the at-will relationship) with mandatory language (such as that which might be found in the disciplinary process) creates a jury question as to whether a contract exists.²⁸ However, the South Carolina Supreme Court held in 2005 that courts may decide whether a handbook constitutes a contract as a matter of law.²⁹ Consequently, where the handbook contains a conspicuous disclaimer and a...