In a recent employee handbook case, Crenshaw v. Erskine College, the South Carolina Supreme Court departed from a long line of precedent without the slightest acknowledgment of doing so.

A jury awarded a tenured professor $600,000 after his employer, Erskine College, terminated his employment in breach of his contract.  The contract was created by mandatory language in a Faculty Manual.  The trial court overturned the verdict, ruling the employer did not breach its contract with the professor.  In a 3-2 decision, with Chief Justice Beatty and Justice Hearn dissenting, the Supreme Court affirmed the trial court’s grant of judgment to the college and held that, as a matter of law, a Faculty Manual constituted an employment contract between the college and its tenured professors.  Nevertheless, the college did not breach the employment contract and the termination of the professor’s employment was lawful.

The majority of the opinion discusses the terms of the contract, the effect of tenure on the Court’s analysis, due process, and whether the college breached the contract in the way it handled the professor’s termination of employment.  The most startling part of the opinion is, however, the Court’s discussion about whether the Faculty Manual created a contract of employment despite the Manual’s conspicuous at-will disclaimer.  “In this case, the Faculty Manual states conspicuously at the bottom of almost every page, ‘This is not a contract of employment.’”  The Court stated, “Erskine refused at trial to concede the Faculty Manual is a contract, and continued its refusal to concede the point until we forced it to do so at oral argument before this Court.  We hold Erskine’s Faculty Manual is a contract with its tenured professors as a matter of law.”

The Court does not mention South Carolina’s at-will disclaimer statute, S.C. Code 41-1-110, or explain how a handbook that contains a conspicuous disclaimer was held, as a matter of law, to constitute a contract of employment.  Because the Faculty Manual’s “conspicuous disclaimer” did not comply with the statute’s requirements to be considered conspicuous as a matter of law, a history lesson is in order.

Prior to the South Carolina legislature enacting § 41-1-110, the South Carolina Supreme Court held employee handbooks created contracts of employment when the handbook set forth procedures binding on the employer because they contained mandatory language and the handbook did not contain a conspicuous disclaimer.  Although the presence of mandatory or promissory language and a non-conspicuous disclaimer created a factual issue for a jury to determine, a court was to resolve, as a matter of law, whether the employee handbook constituted a contract when the handbook’s policies and disclaimers, taken together, established that an enforceable promise did or did not exist.  For example, if a handbook contained a conspicuous disclaimer, the employee handbook did not create an employment contract as a matter of law.  Moreover, at-will disclaimers were conspicuous as a matter of law where the disclaimer was placed in a prominent position and was in bold, capitalized letters.

In 2004, the South Carolina legislature, with push from the business community, enacted the at-will disclaimer statute, § 41-1-110, which provides:

It is the public policy of this State that a handbook, personnel manual, policy, procedure, or other document issued by an employer or its agent after June 30, 2004, shall not create an express or implied contract of employment if it is conspicuously disclaimed. For purposes of this section, a disclaimer in a handbook or personnel manual must be in underlined capital letters on the first page of the document and signed by the employee. For all other documents referenced in this section, the disclaimer must be in underlined capital letters on the first page of the document. Whether or not a disclaimer is conspicuous is a question of law.

Thus, an at-will disclaimer compliant with this statute is supposed to prevent litigation over whether an individual employee handbook created an employment contract.  Cases have continued to be litigated in recent years where the disclaimer was not compliant with the statute or where the handbook was published before the statute’s enactment even though the employee was hired after 2004.

The Court has previously held judgment as a matter of law is inappropriate where a handbook or manual contains a non-conspicuous disclaimer and mandatory policy provisions.  Recognizing that, the Court in Crenshaw stated, in dicta, that the question of whether the Manual was a contract may need to be submitted to a jury in cases involving non-tenured faculty and non-faculty employees.  The Court appears to have decided the existence of a contract did not need to be submitted to a jury because the professor was tenured.

Because the professor was tenured, the Court’s analysis was distinguishable based on the promises inherent in the granting of tenure.  “Tenure – by its very nature – is a promise.”  The college’s granting of tenure to the professor was an offer to fulfill the promises set forth in the Manual, and he accepted that offer through his continued performance as a tenured professor.  The Court opined that the promise of tenure left the Court with “no doubt that the Faculty Manual is a contract” and warned that “[t]he role of the granting of tenure in our analysis of whether the Faculty Manual is a contract with tenured faculty probably renders this analysis inapplicable in any other context.”  (emphasis added)

In the dissent, written by Justice Hearn, the Court criticized the majority’s decision that the Faculty Manual created a contract of employment because:

the existence of the contract and the terms of that contract were issues for the jury to determine, not this Court. Erskine maintained throughout this litigation, including during the trial, that the Faculty Manual did not create a contract of employment.  Given Erskine’s continued insistence that the handbook did not constitute a contract, the trial judge had no alternative but to let the jury determine whether a contract existed.

Justice Hearn discounted the effect of the tenure policy in its Manual, stating the inclusion of that policy did not necessarily transform the Manual into a contract.

In essence, the majority found there was promissory language – a tenure policy – and a conspicuous disclaimer.  Instead of following its own precedent and holding no contract of employment existed, as a matter of law, the Court held the Faculty Manual constituted a contract of employment as a matter of law.  Even though the dissent takes issue with the majority not following precedent, the dissent appears to do the same, stating the decision should have been in the hands of a jury.

The Takeaways:

1. If the majority found, as a matter of law, that the disclaimer was conspicuous, as it stated, then the Court’s analysis should have stopped there with a ruling that the Faculty Manual did not create an employment contract.  Thus, in using the term “conspicuous,” did the Court not mean conspicuous as a legal term of art in handbook cases?  Or are we in a new world where a handbook can contain a conspicuous disclaimer and still be held to have created a contract of employment, thus limiting the employer’s ability to lawfully terminate an employee’s job?

2. Even though the majority opinion states it “probably” applies only to tenured faculty cases, it left open the door for an argument that another type of promise, other than tenure, could override the finding of a conspicuous disclaimer and cause an employer’s handbook to constitute a contract of employment.

3. Employers need to ensure all handbooks, manuals, and other documents contain an at-will DISCLAIMER that complies with the statute.  Employers should not rely on the inclusion of a compliant disclaimer but should continue drafting policy language in permissive, rather than mandatory, terms.

Drafting or revising handbooks and policy manuals in compliance with statutory and case law is complicated. If your business needs help doing so, or with assessing whether the company’s handbook needs an overhaul to begin with, contact the employment lawyers at GaffneyLewis.  We’ll make your business our business.

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