Ford v. Trendwest Resorts, Inc. , 146 Wash. 2d 146 ( 2002 )

Johnson, J.

— This case involves a lawsuit for breach of an employment at-will contract. A jury found Trendwest Resorts, Inc., breached its promise to rehire Bobby Ford as an at-will employee in a specific position. A jury awarded Ford $235,000 in damages based on his anticipated lost earnings. At issue is whether lost earnings are the measure of damages in a breach of an agreement to hire for employment at-will. The Court of Appeals affirmed the jury award, reasoning there was no relevant difference between discriminatory discharge cases, where lost earnings are the measure of damages, and a breach of an employment at-will contract. Ford v. Trendwest Resorts, Inc., 103 Wn. App. 380, 12 P.3d 613 (2000). We reverse.

FACTS

Ford began working for Trendwest in 1991 as an at-will employee. Trendwest sells vacation time at a network of resorts in North America. On April 30, 1997, the assistant manager of the “Upgrades” department fired Ford after he arrived at work smelling of alcohol for a second time. Shortly thereafter, Ford’s wife called several management contacts at Trendwest attempting to help her husband regain his job. The Trendwest sales director asked Ford if he was willing to complete an alcohol counseling program. Ford agreed to participate in the program and signed an employee assistance agreement. In exchange, Trendwest agreed to rehire him as an at-will employee in “a position equal to that which [he] held.” Pl.’s Ex. 1. Trendwest changed Ford’s employment status from terminated to “approved leave of absence.” Def.’s Ex. 30.

After establishing a treatment schedule, Ford called Trendwest to establish a new work schedule. The manager of the “Upgrades” department told Ford he could not return to “Upgrades,” but offered Ford a position as a telemarketer in the “Discovery Program,” a far less lucrative position than Ford had previously held. Ford declined the telemarketing position and told Trendwest he did not intend to return to work. Trendwest terminated Ford’s employment on July 31, 1997.

Ford filed a lawsuit against Trendwest alleging breach of contract, retaliatory discharge, intentional interference with employment, and defamation. The trial court granted partial summary judgment in favor of Trendwest on the intentional interference with employment and defamation claims, and Ford voluntarily dismissed his retaliation claim. A jury trial was held on the breach of contract claim.

The jury was given instruction 15, offered by Ford, which allowed the jury to award damages based on future lost earnings.¹ Trendwest specifically objected to using future lost earnings as a measure of Ford’s damages.²

The jury found Trendwest had breached its contract to rehire Ford and awarded Ford $235,000 in damages: $85,000 as “past economic damages” and $150,000 as “future economic damages.”³ Trendwest sought a new trial, arguing the trial court erred by refusing to instruct the jury on the contract formation element of mutual assent and by allowing it to calculate damages with reference to future lost earnings. The trial court denied the motion, and Trendwest timely appealed.

The Court of Appeals affirmed, relying primarily on a wrongful discharge case holding that lost earnings were an appropriate measure of damages flowing from the breach of an employment at-will contract to hire. Ford, 103 Wn. App. at 390-91 (citing Lords v. N. Auto. Corp., 75 Wn. App. 589, 604-07, 881 P.2d 256 (1994) (allowing damages based on lost earnings in discrimination suit brought by discharged at-will employee)). The court also distinguished a Court of Appeals decision that affirmed the exclusion of lost earnings evidence when an employer breached an employment at-will contract to hire. Ford, 103 Wn. App. at 390-91 (citing Bakotich v. Swanson, 91 Wn. App. 311, 957 P.2d 275 (1998)). The Bakotich court concluded the employee bargained for at-will employment and the amount of lost earnings was too speculative for the jury to consider. Bakotich, 91 Wn. App. at 316-17.

We granted Trendwest’s petition for review to resolve the apparent conflict and determine whether lost earnings are an appropriate measure of damages when an employer breaches a contract to hire an at-will employee.

ANALYSIS

The issue presented on appeal is a question of law which we review de novo. Wilson Court Ltd. P’ship v. Tony Maroni’s, Inc., 134 Wn.2d 692, 698, 952 P.2d 590 (1998).

In Washington, the general rule is that an employer can discharge an at-will employee for “no cause, good cause or even cause morally wrong without fear of liability.” Thompson v. St. Regis Paper Co., 102 Wn.2d 219, 226, 685 P.2d 1081 (1984). Conversely, in the absence of a contract stating otherwise, an employee has the absolute right to abandon his or her employment at-will. This common law at-will employment doctrine has been the background employment rule in Washington since at least 1928. See Davidson v. Mackall-Paine Veneer Co., 149 Wash. 685, 688, 271 P. 878 (1928); see also Prescott v. Puget Sound Bridge & Dredging Co., 40 Wash. 354, 357, 82 P. 606 (1905) (Mount, C.J., dissenting) (“where [an employment] contract is general and for an indefinite time, it is terminable at will.”). As a device of the common law, the doctrine is subject to modification by the legislature, the courts, and the parties themselves. However, absent statutory, judicial, or contractual modifications to the employment relationship, the at-will employment doctrine limits an employee’s reasonable expectations to compensation for work performed. Thompson, 102 Wn.2d at 228-29.

There are three recognized exceptions to the general at-will employment rule. First, both Congress and the Washington State Legislature have modified the employment at-will doctrine by limiting employers’ rights to discharge employees. See National Labor Relations Act, 29 U.S.C. § 158(a)(1) (1994); Civil Rights Act of 1964,42 U.S.C. § 2000e-2(a)(l) (1994); ch. 49.60 RCW (Washington’s Law Against Discrimination); see also ch. 49.12 RCW (prohibiting discharge of employees for testifying in investigations regarding labor conditions, worker earnings, or sex discrimination); RCW 49.44.090(prohibiting discharge of employee for being age 40 and over). These laws create an exception to an employer’s right to discharge an employee by establishing and protecting the employee’s rights in those specific situations.

The Legislature has specifically authorized lost earnings as damages when an employer wrongfully discriminates against an employee. See RCW 49.60.030(2) (creating cause of action allowing discrimination victims to sue for “actual damages”); Xieng v. Peoples Nat’l Bank of Wash., 63 Wn. App. 572, 583, 821 P.2d 520 (1991) (“Actual damages include ‘damages for injury in fact, as distinguished from exemplary, nominal or punitive damages.’ ” (quoting Ellingson v. Spokane Mortgage Co., 19 Wn. App. 48, 58, 573 P.2d 389 (1978))), aff’d, 120 Wn.2d 512, 844 P.2d 389 (1993). The Xieng court noted that lost earnings is “a type of actual damages awarded in Title 7 employment discrimination suits which compensates victims ‘for the continuing future effects of discrimination[.]’ ” Xieng, 63 Wn. App. at 583 (quoting Pitre v. W. Elec. Co., 843 F.2d 1262, 1278 (10th Cir. 1988)).

Second, we have recognized a narrow public policy exception to an employer’s right to discharge an employee. See Smith v. Bates Technical Coll., 139 Wn.2d 793, 991 P.2d 1135 (2000) (public policy exception to “for-cause” employees); Gardner v. Loomis Armored, Inc., 128 Wn.2d 931, 913 P.2d 377 (1996) (discharge of armored truck driver who abandoned post to prevent murder violated public policy). Under this exception, an employer does not have the right to discharge an employee when the termination would frustrate a clear manifestation of public policy. Smith, 139 Wn.2d at 804-08; Gardner, 128 Wn.2d at 949-50. By recognizing this public policy exception, this court expressed its unwillingness to “shield an employer’s action which otherwise frustrates a clear manifestation of public policy.” Thompson, 102 Wn.2d at 231. Absent reinstatement, awarding a wrongfully terminated employee his or her lost earnings is the only reliable method of remedying the employee’s injury.

Lost earnings are available in these claims because an action for discharge in violation of public policy sounds in tort. “Damages” is a term used in torts to denote “an award made to a person by a competent judicial tribunal. . . because of a legal wrong done to him by another.” Restatement (Second) of Torts § 902 cmt. a (1979). Tort actions are maintainable for a variety of reasons: to compensate injured parties; to determine parties’ rights; to punish wrongdoers and deter wrongful conduct; and to vindicate parties and deter retaliation. Restatement (Second) of Torts § 901. The “measure of damages in tort [is] based upon the purposes for which actions of tort are maintainable.” Restatement (Second) of Torts § 901. Awarding lost earnings to an employee discharged in violation of public policy compensates the employee’s pecuniary loss, punishes the employer and deters future wrongful discharges, and vindicates the employee’s actions that gave rise to the initial termination. The fact such a remedy exists is not a testament to the ease with which it can be calculated. Rather, such a remedy reflects an understanding that if it were unavailable, the courts could not enforce sound public policy by remedying legal wrongs.

Third, employers and employees can contractually modify the at-will employment relationship, eschewing the common law rule in favor of negotiated rights and liabilities. Thompson, 102 Wn.2d at 228-30. An employer can bargain away its right to discharge an employee without cause by contracting not to do so. Thompson, 102 Wn.2d at 228. The law governing this exception is not a species of the employment at-will doctrine; it is the law of contracts. Therefore, the law of contracts governs an injured party’s right to recover damages under this exception. Thompson, 102 Wn.2d at 230-32. Unlike a wrongful discharge, a breach of contract is neither immoral nor wrongful; it is simply a broken promise. See Thompson, 102 Wn.2d at 231-32.

Ford’s claim is based on Trendwest’s breach of contract to rehire him as an at-will employee. To the extent possible, the law of contracts seeks to protect an injured party’s reasonably expected benefit of the bargain:

Contract damages are ordinarily based on the injured party’s expectation interest and are intended to give that party the benefit of the bargain by awarding him or her a sum of money that will, to the extent possible, put the injured party in as good a position as that party would have been in had the contract been performed.

Mason v. Mortgage Am., Inc., 114 Wn.2d 842, 849, 792 P.2d 142 (1990). “The central objective behind the system of contract remedies is compensatory, not punitive. Punishment of a promisor for having broken his promise has no justification on either economic or other grounds . . . .” Restatement (Second) of Contracts § 356 cmt. a (1981). See also Restatement (Second) of Contracts § 355 cmt. a (“courts in contract cases do not award damages to punish the party in breach or to serve as an example to others unless the conduct constituting the breach is also a tort for which punitive damages are recoverable.”).

“Employment contracts are governed by the same rules as other contracts.” Kloss v. Honeywell, Inc., 77 Wn. App. 294, 298, 890 P.2d 480 (1995). Thus, Ford argues, once the breach of contract was established, Ford’s damages were limited only by their foreseeability. See Gaglidari v. Denny’s Rests., Inc., 117 Wn.2d 426, 446, 815 P.2d 1362 (1991) (“damages recoverable for a breach of contract are those which ‘may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from [the] breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.’ ” (quoting Hadley v. Baxendale, 9 Ex. 341, 354, 156 Eng. Rep. 145, 151 (1854))).

But a contract confers no greater rights on a party than it bargains for. In other words, a party to a contract has a contractual right only to that which it bargained for—its reasonable expectation. The parties do not dispute Ford bargained for at-will employment, nor does Ford dispute Trendwest could have hired him as an at-will employee and then immediately fired him without fear of liability. An employee’s expectations under an employment at-will contract are no different from the employment itself. Although Ford presents compelling facts that suggest he was treated unfairly by Trendwest, we are unwilling to abandon the long-standing distinction between at-will employment and for-cause employment. Since we are dealing with an at-will employment contract for hire and not a for-cause employment contract for hire, the question is whether we should treat the breach of one different from the breach of the other. The answer is yes, and the reason is because if we treat them the same (i.e., if the breach of either gives rise to expectation damages), there will be no difference between at-will or for-cause employment.

When the parties contracted for at-will employment, Ford had no greater expectations than an at-will employee, and Trendwest had no fewer rights than an at-will employer. The contract did not modify the at-will employment relationship, and Ford’s claim does not fall within a recognized exception to the employment at-will doctrine. Ford does not allege his discharge was discriminatory nor does he claim it violated public policy. Although Ford entered into a contract with Trendwest, neither party bargained for something other than employment at-will. Nothing in this contract changed the at-will employment relationship.

The Court of Appeals in Bakotich reached the right result but for the wrong reasons. The court held that in a breach of an employment at-will contract case, anticipated lost earnings evidence is “highly speculative and [therefore] properly excluded by the trial court.” Bakotich, 91 Wn. App. at 316-17. But to simply characterize lost earnings as speculative does not fairly explain why they are available to remedy a wrongful discharge but not a breach of contract. We hold lost earnings cannot measure damages for the breach of an employment at-will contract because the parties to such a contract do not bargain for future earnings. By its very nature, at-will employment precludes an expectation of future earnings. Because Ford did not bargain for future earnings, he cannot claim they measure the harm he sustained by Trendwest’s breach. To hold that Ford reasonably expected future earnings under his employment at-will contract would create a new exception to the at-will employment doctrine not supported in law.⁴

Other courts have reached the same result.⁵ The Michigan Court of Appeals addressed an almost identical factual situation and reached the same conclusion. Sepanske v. Bendix Corp., 147 Mich. App. 819, 384 N.W.2d 54 (1985) (per curiam). In that case, Sepanske left his employment at-will position after relying on Bendix’s promise to rehire him in an equal or better position. Sepanske, 147 Mich. App. at 822-23. A jury found Bendix breached its contract, but the appellate court limited Sepanske’s damages to a nominal amount. The court held Sepanske contracted for at-will employment and “he had no actionable expectation that any such restoration would be permanent.” Sepanske, 147 Mich. App. at 829. Because an employer can alter or terminate at-will employment without consequence, “[t]here [was] no tangible basis upon which [to assess] damages . . . where plaintiff’s expectation was for an at-will position which could have been changed or from which he could have been terminated without consequence.” Sepanske, 147 Mich. App. at 829. We agree with this analysis. Sepanske is consistent with our case law, and Ford has cited no authority to support his argument that a party to an employment at-will contract is entitled to future earnings. Ford, therefore, falls under the default rule: an employer can discharge an at-will employee for “no cause, good cause or even cause morally wrong without fear of liability.” Thompson, 102 Wn.2d at 226.

CONCLUSION

Trendwest breached an employment at-will contract with Ford under which Ford held no reasonable expectation of future earnings. Ford is, therefore, entitled to the amount of damages available in all contract actions “ ‘where, from the nature of the case, some injury has been done, the amount of which the proofs fail entirely to show.’ ” Gilmartin v. Stevens, 43 Wn.2d 289, 294, 261 P.2d 73 (1953) (quoting Bellingham Bay & British Columbia R.R. Co. v. Strand, 4 Wash. 311, 314, 30 P. 144 (1892)). We reverse the Court of Appeals as to the damages award and remand this case for entry of nominal damages on Ford’s breach of contract claim. We further vacate the award of attorney fees.

Alexander, C.J., and Smith, Madsen, Bridge, and Owens, JJ., concur.

1 Jury instruction 15 stated:

“With regard to the plaintiff’s breach of contract claim, in your determination of damages you are to use the following measure of damages, in the amounts proven by the plaintiff:

“Plaintiff would be entitled to recover future lost earnings for such period of time as he is able to prove with reasonable certainty is attributable to the breach.” Clerk’s Papers at 547.

2 Trendwest raised this issue in its petition for review to this court. Ford argues Trendwest waived its right to appeal the use of lost earnings to measure Ford’s damages because Trendwest proposed a damages instruction submitted to the jury. But a party may object to its own instruction and, if it does so, it preserves the issue for appeal. See Coyle v. Mun. of Metro. Seattle, 32 Wn. App. 741, 743-44, 649 P.2d 652 (1982).

3 “Past economic damages” referred to the amount of Ford’s losses from the breach of contract date to the date of the jury verdict. “Future economic damages” referred to the amount of Ford’s losses from the date of the jury verdict forward to a point the jury considered to be Ford’s reasonably expected length of employment.

4 For example, if an employer breached a contract to hire a prospective at-will employee and the prospective employee could recover lost future earnings, a prospective employee would have greater rights than an actual at-will employee. In other words, a prospective at-will employee would have a greater expectation in future income than an actual at-will employee. This illogical exception would swallow the at-will employment rule.

5 Sepanske v. Bendix Corp., 147 Mich. App. 819, 384 N.W.2d 54 (1985) (per curiam); see also Clark v. Beverly Enters.-Mo., Inc., 872 S.W.2d 522 (Mo. Ct. App. 1994); Bennett v. E. Rebuilders, Inc., 52 N.C. App. 579, 279 S.E.2d 46 (1981).