Amended December 23, 2016 Virgil Johnson and Virgil Johnson Trucking v. Associated Milk Producers, Inc.

IN THE SUPREME COURT OF IOWA
No. 15–0105
Filed October 14, 2016
Amended December 23, 2016
VIRGIL JOHNSON and VIRGIL JOHNSON TRUCKING,
Appellants,
vs.
ASSOCIATED MILK PRODUCERS, INC.,
Appellee.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Allamakee County,
Margaret L. Lingreen, Judge.
Dairy cooperative seeks further review of decision of court of
appeals that reversed summary judgment on the terms of a milk-hauling
contract. DECISION OF COURT OF APPEALS VACATED; DISTRICT
COURT SUMMARY JUDGMENT AFFIRMED.
John S. Anderson and Stephen J. Belay of Anderson, Wilmarth,
Van Der Maaten, Belay, Fretheim, Gipp & Zahasky, Decorah, for
appellants.
Matthew C. Berger of Gislason & Hunter LLP, New Ulm,
Minnesota, for appellee.
2
WATERMAN, Justice.
In this appeal, we must decide which rule of contract law applies to
resolve a standoff over a change in hauling fees paid by a dairy
cooperative to an independent contractor who transported milk from
farms to the co-op’s facilities. The parties agree their oral contract could
be terminated at will by either side upon reasonable notice. The co-op
notified the hauler it would be phasing out a $100 trip fee it had been
paying to the hauler in addition to the agreed hauling rate. The hauler
objected, but continued to transport milk and bill the co-op for the trip
fees. The co-op continued receiving shipments and paid the agreed
hauling rate without the trip fees. Months later, the hauler sued for the
unpaid trip fees, and the co-op declared the contract terminated.
The co-op moved for summary judgment, asserting it could modify
the terms of the at-will contract upon reasonable notice and the hauler
accepted the modification by continued performance. The hauler
resisted and, without contesting the reasonableness of notice, argued the
co-op improperly had attempted to modify an existing contract without
consideration or consent. The district court granted summary judgment
for the co-op, concluding, based on the undisputed facts, that the change
in payment terms was a new offer the hauler accepted by performance.
The court of appeals reversed, concluding questions of fact as to
acceptance precluded summary judgment. We granted the co-op’s
application for further review.
For the reasons explained below, we hold that in this at-will
contract, the co-op could alter payment terms prospectively upon
reasonable notice. The co-op made it clear that it would pay according to
a new schedule. The hauler understood this. The hauler faced a choice
of accepting the new terms or ceasing performance. The hauler accepted
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by performance notwithstanding its protests. Accordingly, we vacate the
decision of the court of appeals and affirm the district court’s summary
judgment dismissing the hauler’s claims.
I. Background Facts and Proceedings.
The record establishes the following facts as undisputed. On
September 1, 2000, Associated Milk Producers, Inc. (AMPI) entered into
an oral agreement with Virgil Johnson, the sole proprietor of Virgil
Johnson Trucking. AMPI is a cooperative of dairy farmers that receives
milk produced by its members, processes the milk into butter and
cheese, and sells the dairy products. AMPI contracts with independent
haulers to transport milk from the farms to its facilities. Haulers are
paid directly by AMPI, which in turn passes through those costs to its
members. Johnson was hired as an independent contractor to deliver
milk from the dairy farms to a station in Fredericksburg, Iowa, where the
milk was transferred from the hauler trucks to a semi-tanker for
transport to AMPI’s processing facilities. For this service, AMPI agreed to
pay Johnson a “hauling rate” of $0.50 per one hundred pounds of milk
delivered, a rate based on the distance between the various farms and
Fredericksburg.
Johnson also later offered to haul milk from Fredericksburg to
AMPI’s facilities in Arlington and Des Moines, Iowa. AMPI agreed to pay
Johnson the standard hauling rate, plus an additional “trip fee” for that
service. The trip fee was based on the amount that AMPI had been
paying another semi-driver ($1.00 per mile) and the distance from
Fredericksburg to the facilities. Johnson and AMPI negotiated the trip
fee to be $100 for deliveries to Arlington and $340 for deliveries to
Des Moines.
4
The duration of the contract was unstated. Johnson understood
the agreement to be “for the indefinite future.” Johnson acknowledged
this was typical of hauling contracts in the milk industry because the
dairy farmers remained free to move on and sell their milk to competing
processors at any time. Neither party asserts there were any assurances
given about the duration of the contract, and Johnson stated he believed
he had the right to “retire” or “to stop[] performance under the contract”
at any time.
The parties continued working together for twelve years. They
modified their oral agreement several times as circumstances changed.
For example, in 2005 or 2006, the station in Fredericksburg closed, and
Johnson began delivering milk directly from the farms to AMPI’s facilities
in Arlington and Des Moines. AMPI agreed to increase Johnson’s base
hauling rate three times, from $0.50 per hundred pounds in 2000 to
$0.51 per hundred in 2006, $0.545 in 2008, and $0.565 in 2009.
Johnson purchased three more delivery routes from AMPI and other
haulers. AMPI made no representations regarding how long Johnson
could perform hauling services on these routes. Johnson understood
when he purchased the routes that “those patrons had the right and
were free to leave at any time.”
On June 19, 2012, Don DeVelder, senior vice president of AMPI,
notified Johnson by letter that AMPI was commencing a study “regarding
the inconsistency of hauler payment programs” to rectify discrepancies in
how milk haulers were paid for comparable work. Under the new
program, AMPI sought to “pay every hauler in the same way by using the
same formula, which will be based on miles driven, stops made and
pounds of milk picked up.” AMPI stated that the study might result in
“pay rate adjustments” for haulers and invited them to offer input on the
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new program. Johnson, through his attorney, sent a letter back to
DeVelder stating Johnson was unwilling to renegotiate the terms of their
oral agreement.
Over a year later, on July 31, 2013, the division manager of AMPI
wrote Johnson to inform him that AMPI had completed the study and
would be implementing changes to rates in several steps over the next
few months. Specifically, the $100 trip fee Johnson had been paid for
deliveries to Arlington was to be phased out: the fee would be reduced to
$75 in September, to $50 in October, to $25 in November, and
eliminated in December. Johnson responded by letter that he did not
agree to the reductions, but later admitted he understood AMPI would no
longer pay the trip fees.
In September, AMPI began paying Johnson under the program
announced weeks earlier, thereby reducing the trip fee to $75 for
deliveries that month. On October 7, Johnson submitted an invoice to
AMPI charging $100 for trip fees and stating that he had received
insufficient payment for his September hauls. AMPI’s manager returned
the invoice with a handwritten note at the bottom, stating, “Virgil, [b]ill
paid according to the attached notice dated July 31, 2013.” Johnson
continued to bill AMPI at $100 for the trip fees. AMPI did not return the
next several invoices with comments, but paid only the base hauling rate
and reduced trip fees as set forth on the July 31 schedule. Johnson
understood AMPI would not pay his $100 trip charges but nevertheless
continued hauling milk from the farms to AMPI.
On December 17, AMPI’s manager sent another letter to Johnson,
reiterating the payment policy implemented months earlier. The letter
stated that after November, Johnson would be paid at his current
hauling rate of $0.565 per one hundred pounds delivered, but would no
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longer be receiving any trip fee. The letter concluded by stating, “If this
is not acceptable with you let me know so we can make other
arrangements to haul AMPI member’s milk.”
On January 9, 2014, Johnson filed a civil action against AMPI in
the Iowa District Court for Allamakee County, alleging claims for breach
of contract, promissory estoppel, and unjust enrichment. Johnson
claimed that AMPI unilaterally attempted to modify the oral agreement by
its July 31, 2013 letter and did so without consideration or acceptance.
AMPI denied liability in its answer and alleged as an affirmative defense
that the July 31, 2013 modification was effective or, alternatively, that a
new contract had been formed without the $100 trip fee.
After filing this lawsuit, Johnson continued to deliver milk for AMPI
throughout 2014, submitting monthly invoices to AMPI that included the
$100 trip fee. Early that year, Johnson added language to his invoice
stating, “A 15% interest charge will be added on all unpaid balances
beginning January 1, 2014.” Johnson had not charged AMPI interest
previously, nor had AMPI agreed to pay interest. Johnson continued to
submit invoices to AMPI for the $100 trip fees plus interest. Johnson
billed AMPI in this fashion until AMPI terminated the arrangement in
December.
Meanwhile, on September 26, AMPI filed a motion for summary
judgment. AMPI argued its July 31, 2013 memorandum effectively
operated as a notice of termination of the parties’ at-will oral agreement
and a proposal for a new contract with trip fees phased out. By
continuing to deliver milk, AMPI argued, Johnson consented to the terms
of the new agreement. Additionally, AMPI asserted the existence of a
contract precluded Johnson’s claims for unjust enrichment and
promissory estoppel.
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Johnson filed a resistance to the motion on October 22. Johnson
argued that AMPI failed to terminate the existing agreement and that
summary judgment was precluded by factual disputes as to whether
AMPI’s attempted unilateral modification altered the agreement’s terms.
Johnson never argued he was not given reasonable notice of the change
in terms. On November 12, Steven Faust, division manager of AMPI,
sent Johnson a letter terminating his employment. AMPI explained the
termination was because “in the course of [the] lawsuit, [Johnson] ha[d]
attempted to spin [his] continued deliveries to AMPI as evidence that
AMPI agreed to continue paying [him] the $100.00 ‘trip charge.’ ” The
letter stated,
AMPI’s communications to you have been clear that we were
unwilling to continue paying the “trip charge” beginning on
December 1, 2013. In order to avoid any confusion
regarding these issues, however, please be advised that the
contractual relationship between AMPI and you is hereby
TERMINATED effective (30) days from the date of this letter.
The division manager sent a similar letter to Johnson on December 10,
2014, again stating the contractual relationship between AMPI and
Johnson was “TERMINATED.” Johnson’s final invoice to AMPI in
December asserted AMPI owed a total of $121,375 for hauling charges
plus interest of $14,775 for the past seventeen months of deliveries.
AMPI deposed Johnson about his understanding of the July 31,
2013 communication phasing out the trip fees. He testified as follows:
Q. Now, would you agree with me that in this letter
AMPI is informing you that it is no longer going to pay the
trip charge beginning December 1st, 2013? A. I can see
that, yes.
Q. You agree that’s what the letter was telling you?
A. Yes.
Q. And then AMPI was going to phase that out over a
series of months leading up to that? A. Yes.
8
....
Q. Now, at the time you received this letter, you
understood that AMPI was not going to pay the trip charge,
correct? A. Yes.
Q. Did you tell AMPI that, “If you are not going to pay
the trip charge, I’m no longer going to deliver milk?” A. No, I
did not.
Q. Did you continue to deliver milk after you received
this letter? A. I did.
Q. When you continued delivering milk, you
understood that AMPI was not going to pay the trip charge,
is that correct? A. That’s correct.
Johnson also testified about his reaction to AMPI’s December 17, 2013
letter reiterating its unwillingness to pay the trip charge:
Q. You understood, when receiving this letter, that
AMPI was not willing to pay the trip charge, correct? A. Yes.
Q. And that if you were going to insist on the trip
charge, that your relationship with AMPI was going to be
terminated? A. Yes.
Q. Did you contact AMPI, after receiving this letter,
and tell them that this arrangement was not acceptable?
A. Um, we drafted two letters, and I can’t remember when
we drafted them. I think it was before this. I don’t think we
drafted anything after this. No.
Q. Okay. You continued to deliver milk? A. Yes.
Q. And you delivered that milk, knowing that AMPI
was not going to pay the trip charge? A. Yes.
On November 24, the district court granted AMPI’s motion for
summary judgment. The district court ruled that an at-will contract may
be terminated or modified at any time as a condition of further
performance. Accordingly, the court concluded that Johnson, by
“continu[ing] to haul milk to AMPI’s plant in Arlington, Iowa, after having
been notified of the change in the trip charge payment and without any
other agreement having been reached with AMPI,” thereby accepted the
new terms as a matter of law. The district court also granted summary
judgment dismissing Johnson’s unjust enrichment and promissory
9
estoppel claims on grounds that the law will not imply a contract when
an express contract exists. See Chariton Feed & Grain, Inc. v. Harder,
369 N.W.2d 777, 791 (Iowa 1985).
On December 14, 2015, Johnson filed a motion to amend and
enlarge the district court’s summary judgment ruling, which the district
court denied. Johnson appealed the summary judgment, and we
transferred the case to the court of appeals. The court of appeals
reversed, concluding the oral agreement between AMPI and Johnson
constituted a bilateral contract that could not be modified without
mutual assent and consideration. The court of appeals noted the
contract was at-will, but it distinguished our employment-at-will
precedent because Johnson was an independent contractor, not an
employee of AMPI. The court of appeals stated, “Although the facts are
primarily undisputed, those facts do not support Johnson’s acceptance
of [AMPI’s] proposed modification as the only, or probable, conclusion
that can be drawn from those facts.” Thus, the court of appeals held
that questions of fact as to Johnson’s consent precluded summary
judgment. We granted AMPI’s application for further review.
II. Standard of Review.
Our review of an order granting summary judgment is for
correction of errors at law. Peak v. Adams, 799 N.W.2d 535, 542 (Iowa
2011). “Summary judgment is appropriate when there is no genuine
issue of material fact and the moving party is entitled to judgment as a
matter of law.” United Suppliers, Inc. v. Hanson, 876 N.W.2d 765, 772
(Iowa 2016) (quoting Robinson v. Allied Prop. & Cas. Ins. Co., 816 N.W.2d
398, 401 (Iowa 2012)). An issue of fact is material “only if ‘the dispute is
over facts that might affect the outcome of the suit.’ ” Peak, 799 N.W.2d
at 542 (quoting Phillips v. Covenant Clinic, 625 N.W.2d 714, 717 (Iowa
10
2001)). “Summary judgment is proper if the only issue is the legal
consequences flowing from undisputed facts.” Id. (quoting Huber v.
Hovey, 501 N.W.2d 53, 55 (Iowa 1993)). “We examine the record in the
light most favorable to the nonmoving party.” United Suppliers, 876
N.W.2d at 772.
III. Analysis.
We must decide which rule of contract law governs this dispute
over one party’s change in the terms of an ongoing commercial
relationship and the other party’s objection and continued performance. 1
The district court granted summary judgment for AMPI based on the rule
that an at-will contract is terminable or modifiable by either party upon
reasonable notice. The district court concluded that Johnson accepted
AMPI’s new terms of the agreement by continuing to haul milk. The
court of appeals reversed, applying a different rule that modification of
an existing contract requires mutual assent and consideration. We
conclude the district court correctly applied the governing rule.
Johnson and the court of appeals relied on caselaw involving
contracts that were not terminable at will. In one such case, we said
that a contract may be modified by one party only “with the consent of
the other.” Davenport Osteopathic Hosp. Ass’n v. Hosp. Serv., Inc., 261
Iowa 247, 253, 154 N.W.2d 153, 157 (1967) (“Stated conversely one party
to a contract cannot alter its terms unilaterally or without assent of the
other party.”). “[T]he requisite consent may be either express or implied
from acts and conduct.” Id. “[W]hether a contract has been modified by
the parties thereto is ordinarily a question of fact.” Id. In Davenport
1Johnson does not challenge the district court’s summary judgment dismissing
his promissory estoppel or implied contract claims.
11
Osteopathic Hospital Association, a hospital contracted with a health
insurer to treat the insurer’s subscribers under an agreed
reimbursement schedule. Id. at 251, 154 N.W.2d at 156. Their written
contract included a provision allowing either party to terminate the
agreement “on 90 days written notice.” Id. After paying under the
agreed schedule for several years, the insurer, without invoking the
termination provision, announced that it was changing the
reimbursement formula, effective seventeen months later. Id. The
hospital continued to provide services to the insurer’s subscribers at the
lower rate, but protested the reduction and filed suit for breach of
contract. Id. The district court ruled that the hospital, by failing to
terminate the contract and “by continuing to accept [the lower]
compensation . . . impliedly acquiesced in the modification.” Id. at 252,
154 N.W.2d at 156. We reversed, concluding that the hospital, which
had “openly and repeatedly voiced objection to the change,” did not
assent to the modification. Id. at 254, 154 N.W.2d at 158. We held the
hospital could continue to perform, accept payments under protest, and
sue for breach to recover the difference. Id.
Johnson also refers to Tindell v. Apple Lines, Inc., 478 N.W.2d 428
(Iowa Ct. App. 1991). There, Joseph Tindell entered into an operating
lease to haul freight for Apple Lines. Id. at 429. Their contract “provided
it was subject to cancellation by either party upon thirty days’ written
notice.” Id. at 429–30. A year later, Apple Lines attempted to reduce the
compensation rate without canceling the contract. Id. at 430. Tindell
refused to sign an addendum and told Apple Lines he would not agree to
the lower rate, but he continued to “accept loads and cash paychecks
calculated at the [lower] rate.” Id. at 430. Tindell sued for breach, and
the district court ruled in his favor, awarding damages at the original
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contract rate. Id. at 430. The court of appeals affirmed, holding that
“[b]y accepting payments under protest and continued performance on
his part, Tindell reserved the right to recover for breach.” Id. Tindell and
Davenport Osteopathic Hospital Association are good law for the
modification of an existing contract with a termination provision neither
party elects to exercise. When neither side invokes the termination
clause, mutual consent is required to modify the contract. See Tindell,
478 N.W.2d at 430.
We have a different rule for modifying at-will contracts. An at-will
contractual “relationship is terminable by either party at any time, for
any reason, or for no reason at all.” Jones v. Univ. of Iowa, 836 N.W.2d
127, 144 (Iowa 2013) (quoting Berry v. Liberty Holdings, Inc., 803 N.W.2d
106, 109 (Iowa 2011)). Contracts at will can be terminated by either
party upon reasonable notice. C.C. Hauff Hardware, Inc. v. Long Mfg.
Co., 257 Iowa 1127, 1131, 136 N.W.2d 276, 279 (1965). A contract for
services is “terminable at will only if we cannot ascertain a durational
term.” Shelby Cty. Cookers, L.L.C. v. Util. Consultants Int’l, Inc., 857
N.W.2d 186, 192 (Iowa 2014). 2 Johnson and AMPI agree that their
2We find the Restatement (Second) of Contracts instructive. Shelby Cty.
Cookers, 857 N.W.2d at 192. “When the contract calls for successive performances but
is indefinite in duration, it is commonly terminable by either party, with or without a
requirement of reasonable notice.” Restatement (Second) of Contracts § 33 cmt. d, at
94 (Am. Law Inst. 1981). We may also look to Iowa’s Uniform Commercial Code (U.C.C.)
for guidance, even though the U.C.C. does not apply to contracts for services. Semler v.
Knowling, 325 N.W.2d 395, 399 (Iowa 1982) (“Exclusion from Article 2, however, does
not foreclose the application of its policies and reasons. ‘[Courts] have recognized the
policies embodied in an act as applicable in reason to subject-matter which was not
expressly included in the language of the act.’ ”) (alteration in original) (quoting Iowa
Code Ann. § 554.1102 cmt. 1 (1981)). “Where the contract provides for successive
performances but is indefinite in duration it is valid for a reasonable time but unless
otherwise agreed may be terminated at any time by either party.” Iowa Code
§ 554.2309 (2013).
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contract was at will; accordingly, we apply the rule governing
modification of at-will contracts.
Contracts terminable at will are modifiable at will. Cannon v. Nat’l
By-Prods., Inc., 422 N.W.2d 638, 641 (Iowa 1988). A party that
unilaterally modifies an at-will contract effectively terminates the old
agreement and offers new terms for acceptance. See id. For example, in
Cannon, James Cannon sued his former employer for wrongful
termination, relying on a personnel policy adopted after he started work
that permitted termination only for cause. Id. at 639–41. The employer
asserted that the policy did not modify Cannon’s preexisting contract of
employment because the modification was not supported by independent
consideration. Id. at 641. We disagreed, noting “the power of the parties
to a contract to rescind their agreement and enter into a new one in
many instances obviates the need for additional consideration.” Id. We
stated,
We find it to be particularly inappropriate to require an
independent consideration for modification of an agreement
which is conceded to have been a mere contract at will by
defendant. In such situations, we believe the preferable
approach is to view the issue as if an entirely new contract is
being formed at the time of the alleged modification.
Id. (citing Moody v. Bogue, 310 N.W.2d 655, 660–61 (Iowa Ct. App. 1981)
(per curiam)). We held the modified policy requiring for-cause
termination became part of Cannon’s employment contract and, on that
basis, affirmed the judgment for wrongful termination. Id. at 641–42.
When one party modifies an at-will contract, the other party may
choose to accept the new terms or discontinue the relationship:
[A]n employment contract terminable at will is subject to
modification at anytime by either party as a condition of its
continuance. The employee’s only alternative is to accept the
new conditions or quit; an employee’s decision to continue to
14
work, knowing the newly proposed terms, results in the
employee’s acceptance as a matter of law.
Moody, 310 N.W.2d at 660–61 (citations omitted). The court of appeals
applied that principle in Moody. Id. Gary Moody’s employer advised
Moody that he was overpaid and would be denied a bonus if he refused
to take on additional management responsibilities. Id. at 657. Moody
refused extra duties and filed suit after he was denied the bonus. Id.
The court of appeals held that by continuing employment after being
notified the bonus was contingent upon extra duties, Moody accepted the
modification. Id. at 661; see also Clasing v. Hormel Corp., 993
F. Supp. 2d 960, 977 n.8 (N.D. Iowa 2014) (recognizing that parties may
modify at-will contract upon reasonable notice); Viafield v. Engels, No.
15–1663, 2016 WL 4054175, at *2 (Iowa Ct. App. July 27, 2016) (“Given
the at-will employment relationship, Viafield could modify [its personnel
policies] at any time . . . .”); Willets v. City of Creston, 433 N.W.2d 58, 62
(Iowa Ct. App. 1988) (concluding the employer had right to change sick
leave benefits in an at-will employment contract and the “employee’s
decision to continue to work, knowing the newly proposed terms, results
in the employee’s acceptance as a matter of law”).
We do not require formalistic language terminating an at-will
contract before a change in terms will be effective going forward. See
Moody, 310 N.W.2d at 660 (determining that statements informing
Moody his bonus would be eliminated if he refused management
responsibilities “effectively notified” Moody of the modification); see also
DiGiacinto v. Ameriko-Omserv Corp., 69 Cal. Rptr. 2d 300, 305 (App.
1997) (noting an approach that required formalistic assent to modify at-
will agreements would “encourage[] employers to fire employees” that did
not accept the modification and hire them back immediately under
15
modified terms) (quoting Stieber v. Journal Publ’g Co., 901 P.2d 201, 204
(N.M. Ct. App. 1994)). In an at-will contract, a party who gives notice of
a changed term effectively offers a new contract in place of the existing
one, which the other party may accept by continued performance. See
Cannon, 422 N.W.2d at 641.
Johnson and the court of appeals distinguish the foregoing cases
as applying to at-will contracts with employees but not independent
contractors. They rely on Harvey v. Care Initiatives, Inc., in which we
recognized “a long-standing distinction in the law between employees
and independent contractors.” 634 N.W.2d 681, 683 (Iowa 2001). In
Harvey, we declined to extend the tort of wrongful discharge to
independent contractors. Id. at 686. We noted the tort was recognized to
address the “inequity of the bargaining position in a typical at-will
employer-employee relationship” and concluded that independent
contractors, who “have greater control and flexibility in their work and in
the hiring process,” did not need the protection of a wrongful-discharge
tort. Id. at 684. We elaborated,
The distinct differences in the nature of the relationship
between independent contractors and at-will employees not
only suggest a greater need to protect at-will employees, but
existing principles of contract law provide independent
contractors with remedies not available to employees. Thus,
an independent contractor can not only negotiate the
circumstances governing termination of a contract, but has
contract remedies to enforce all expressed or implied terms
of a contract.
Id. (footnote omitted) (citations omitted). But these differences between
employees and independent contractors cut against Johnson. He seeks
greater protection as an independent contractor, yet we reached the
opposite conclusion in Harvey favoring greater protection for employees.
Employers may modify contracts with at-will employees prospectively.
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Nothing in Harvey supports treating independent contractors more
favorably than employees.
Moreover, there is ample authority allowing unilateral
modifications to at-will service contracts with independent contractors as
well as employees. The United States Court of Appeals for the Fifth
Circuit applied this principle to a milk-hauling contract involving similar
facts in W.G. Pettigrew Co. v. Borden, Inc., in which an independent
contractor worked as a distributor for a dairy and was paid for delivering
milk to its customers. No. 97–40010, 1997 WL 589344, at *1 (5th Cir.
Sept. 8, 1997). The dairy changed its compensation terms over the
hauler’s objection. Id. at *2. The hauler continued performing but later
sued for breach of contract. Id. The federal district court granted the
dairy’s motion for summary judgment. Id. The Fifth Circuit affirmed,
stating,
As an at-will contract, the distributorship could be modified
by either party as a condition to the continuation of the
relationship. In general, when a party to an at-will contract
notifies the other of changes in the contract terms, the other
must either accept the terms or terminate the contract. If
the party continues to perform under the contract with
knowledge of the changes made by the other party, the
former is deemed, as a matter of law, to have accepted the
changes.
Id. at *3 (citation omitted).
This principle was utilized in Cascade Auto Glass, Inc. v.
Progressive Casualty Insurance Co., when an insurance company
contracted with a vendor to repair its insured vehicles. 145 P.3d 1253,
1254 (Wash. Ct. App. 2006). The contract was terminable at will by
either party. Id. at 1255. When the insurer initiated a new pricing
policy, the vendor argued the unilateral modification was ineffective. Id.
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at 1257. The Washington Court of Appeals allowed the unilateral
change:
[A] terminable-at-will contract may be unilaterally modified.
The same rule applies in at-will employment agreements,
where an employer may unilaterally change policies and
procedures set forth in an employee handbook so long as the
employee receives reasonable notice of the change. In such
cases, a new contract is formed when the employer
communicates the new terms (offer), the employee works
after receiving the notice (acceptance), and the employee
continues in employment although free to terminate
(consideration).
Id. (citations omitted).
Other courts agree, holding at-will contracts with independent
contractors can be unilaterally modified. See, e.g., Moholt v. Dooney &
Bourke, Inc., 63 F. Supp. 3d 1289, 1300–01 (D. Or. 2014) (concluding
independent sales representative’s contract could be modified at any time
because it was terminable at will); Builders Supply Corp. v. Shipley, 341
P.2d 940, 941 (Ariz. 1959) (holding at-will contract between independent
hauler and brick manufacturer unilaterally modifiable); Bass v. Prime
Cable of Chi., Inc., 674 N.E.2d 43, 50–51 (Ill. App. Ct. 1996) (determining
contract between cable company and customers was terminable at will,
and therefore, cable company could unilaterally modify terms by
discontinuing free cable guide); Garber v. Harris Trust & Sav. Bank, 432
N.E.2d 1309, 1314 (Ill. App. Ct. 1982) (holding that cardholder
agreements between issuers and cardholders were terminable at will, and
therefore, issuers could modify terms); Associated Petroleum Prods., Inc.
v. Nw. Cascade, Inc., 203 P.3d 1077, 1080 (Wash. Ct. App. 2009)
(concluding contract between diesel fuel supplier and construction
company was modifiable at will with reasonable notice). Johnson cites
no authority to the contrary.
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We hold that the principle of contract law allowing unilateral
changes to at-will contracts upon reasonable notice applies to
independent contractors as well as employees. When AMPI announced
in July 2013 it was phasing out the $100 trip fees, Johnson could
“accept the new conditions or quit.” Willets, 433 N.W.2d at 62.
Johnson’s decision to continue hauling milk, “knowing the newly
proposed terms, results in [his] acceptance as a matter of law.” Id. 3
Johnson’s protests to AMPI’s modification phasing out the trip fee
were ineffective in light of his continued performance. In Schoppert v.
CCTC International, Inc., the plaintiff “objected continually” to an
employer’s unilateral modification of his commission. 972 F. Supp. 444,
447 (N.D. Ill. 1997). Yet the court found his actions spoke louder than
his words:
Even crediting Schoppert’s version that he “objected
continually” to the Modification, as we must on a motion for
summary judgment, his actions in continuing to work for
over two and a half years, without any demonstration that
CCTC might reconsider its ultimatum to him, belie those
verbal objections. Schoppert has not indicated that he ever
told anyone at CCTC that he would only work under the pre-
3See also Care Travel Co. v. Pan Am. World Airways, Inc., 944 F.2d 983, 990 (2d
Cir. 1991) (recognizing that if one party imposes a unilateral modification and the other
party continues to perform, recovery for breach is precluded); Martin v. Airborne
Express, 16 F. Supp. 2d 623, 632 (E.D.N.C. 1996) (“At any rate, Martin’s decision to
remain in AMR Distribution’s employ after notification of the restructuring negates any
related breach of contract claim.”); Kauffman v. Int’l Bhd. of Teamsters, 950 A.2d 44, 48
(D.C. 2008) (“[N]either party to at-will employment is bound to continue performance,
and thus courts properly view future performance by each as valid consideration for the
change in terms.”); Geary v. Telular Corp., 793 N.E.2d 128, 133 (Ill. App. Ct. 2003)
(“Plaintiff accepted the April 1996 modifications to the compensation plan when he
accepted payment of commissions under the April 1996 plan and continued
employment.”); Brett v. City of Eugene, 880 P.2d 937, 939 (Or. Ct. App. 1994) (“By
continuing to work for an employer after the employee is aware of a change in the
employer’s policies, the employee impliedly accepts the change in his or her
employment contract.”); Hathaway v. Gen. Mills, Inc., 711 S.W.2d 227, 229 (Tex. 1986)
(“If the employee continues working with knowledge of the changes, he has accepted the
changes as a matter of law.”).
19
1991 terms, or that his continued performance was in any
way conditioned on the retention of his earlier commission
structure. Nor is there any evidence that the 1991
Modification remained open to further negotiation after the
December 1991 meeting. In these circumstances,
Schoppert’s continuing to work for over two and a half years
while receiving commissions under the new structure must
be seen in legal terms as an acceptance of the 1991
Modification, grudging and protest-filled as that acceptance
may have been. The old saw “actions speak louder than
words” has more than a grain of truth to it, and we adhere to
it where, as here, a party’s words are contradicted by his
actions.
Id.; see also Gebhard v. Royce Aluminum Corp., 296 F.2d 17, 19 (1st Cir.
1961) (rejecting “Plaintiff’s explanation . . . that thereafter ‘he accepted
the checks because he had to,’ but that he never agreed to any change”).
We reach the same conclusion. Johnson admitted in his
deposition that he knew AMPI would refuse to pay the trip fees he
continued to bill. He understood that under the new payment program,
he would only be paid the base hauling rate. As a matter of law,
Johnson accepted AMPI’s new terms by his conduct in continuing to
haul milk and accept payments, notwithstanding his protests. The
district court correctly ruled that Johnson’s continued performance
accepted AMPI’s modification to their at-will contract as a matter of law.
IV. Disposition.
For these reasons, we vacate the decision of the court of appeals
and affirm the district court’s summary judgment dismissing Johnson’s
action.
DECISION OF COURT OF APPEALS VACATED; DISTRICT
COURT SUMMARY JUDGMENT AFFIRMED.