Marquardt v. Luxor Corporation

GETZENDANNER, District Judge.
No. 87 C 5243, N.Dist.Ill, Eastern Div.(Sept.8,1987) 1987 WL 16899

Plaintiff Larry Marquardt brings this diversity action against defendant Luxor Corporation because of defendant's alleged breach of plaintiff's employment contract. Defendant has moved to dismiss the complaint for failure to state a claim, arguing that the employment contract was terminable at will. For the reasons below, the motion is granted and this case is dismissed.
For purposes of this motion, I take the allegations of the complaint as true. On September 10, 1986, the parties entered into an employment agreement where 
plaintiff would work for defendant as defendant's marketing director. Based on the terms of the agreement, plaintiff decided to leave his 'prestigious and lucrative' job. In his new position, plaintiff was to receive compensation in the form of a base salary of $45,000 per year, plus commission of approximately $9,000, a stock incentive plan, a continuous health plan for plaintiff and his wife, moving expenses, an expense account, and the 'other usual and customary benefits of' comparable employment. This agreement was memorialized by written confirmation signed by Donald Nichoalds, defendant's president, the text of which is reproduced here: 

September 10, 1986 
Dear Larry: 
This will confirm Luxor's commitment to you regarding compensation. 
We are pleased to offer salary at the annual rate of $45,000 per year for 
1986 and 1987. 
In addition, you will receive an incentive agreement for 1987 which will 
render approximately $9,000 at budget. This incentive will be open ended and 
based on a percentage formula relating to net sales in new and existing 
markets. 
I am also authorized to confirm that you will be included in a stock 
incentive plan when such a plan is introduced at Luxor. 
Luxor will pay for continuous health care insurance for Mrs. Marquardt to 
offset the one year waiting period required by Luxor's insurer. Luxor will 
also pay the customary and reasonable expenses associated with relocating you 
and your family. This does not include expenses having to do with buying or 
selling real estate. 
We welcome you to Luxor and look forward to a long and successful 
association, 
Sincerely, 
Don Nichoalds, President

Plaintiff commenced his employment on September 2, 1986, and performed all his duties as agreed until November 3, 1986 when plaintiff was discharged without cause or provocation. This lawsuit for damage relief followed.

LEGAL DISCUSSION
The law in Illinois is well settled that an employment agreement specifying only a monthly or annual rate of salary is at will unless a period of duration is indicated in the contract. Berutti v. Dierks Foods, Inc., 496 N.E.2d 350, 352 (2d Dist. 1986); Mann v. Ben Tire Distributors, Ltd., 411 N.E.2d 1235 (4th Dist. 1980); Atwood v. Curtiss Candy Co., 161 N.E.2d 355 (1st Dist. 1959). Thus, a promise to pay 'salary calculated on an annual basis is not enough to create an employment contract for a specific duration.' Medina v. Spotnail, 591 F.Supp. 190, 197 (N.D. Ill. 1984). 'Neither is the expectation of an annual bonus to be calculated at year's end.' Id.(citing Mann, 411 N.E.2d at 1237). Similarly, an employer's statement which indicates a mere expectation of a lengthy employment, but does not provide any guaranteed term or compensation, is insufficient to establish more than an employment at will. Buian v. J.L. Jacobs & Co., 428 F.2d 531 (7th Cir. 1970); Payne v. AHFI/Netherlands, B.V., 522 F.Supp. 18, 22 (N.D. Ill. 1980). Of course, an employment agreement which is terminable at will may be terminated by either party at any time without liability. Vandevier v. Mulay Plastics, Inc., 482 N.E.2d 377 (1st Dist. 1985); Martin v. Federal Life Insurance Co., 440 N.E.2d 998 (1st Dist. 1982).

These principles have been applied in cases factually similar to this one. In Kepper v. School Directors of District No. 120, 325 N.E.2d 91 (3d Dist. 1975), a discharged employee relied on a written agreement in bringing a breach of employment contract suit. The appellate court, after recognizing that the agreement 'specifies the amount of compensation and other items which are applicable for a period from July 1, 1970 to July 1, 1971,' id. at 93, concluded that 'this does not help plaintiff's position' because 'a contract specifying no duration of employment, and thus terminable at will, is not made otherwise by the inclusion of salary rates based on units such as months or years.' Id. Similarly, the discharged employee in Mann v. Ben Tire Distributors, Ltd., supra, was not entitled to maintain a breach of contract claim merely because his bonus was to be calculated on an annual basis and he was to receive an annual review. 411 N.E.2d at 1237. The court reasoned that a time span for financial calculations 'is not to be equated with duration of employment,' id., and '[t]he promise of annual review is only one element to be considered in reviewing the entire transaction,' id. The critical determinant in these cases is whether the employment agreement contains 'clear words of guarantee[d]' compensation, not just expected rates of compensation. Berutti, 496 N.E.2d at 353 (citing Mann v. Ben Tire Distributors, Ltd.). If so, a duration of employment may be inferred.

There have been some Illinois cases in which the employment agreements provided clear words of guaranteed employment, and accordingly were not terminable at will. They provide a useful contrast to this case. For example, in Berutti, supra, the discharged employee relied on an employment contract which provided 'Guaranteed salary for twelve months of $750.00 per week.' The court viewed this as a contract of a year's duration: While the term '$750 per week' reflects the rate of pay at which Dierks would compensate Berutti, the additional language of 'Guaranteed salary for twelve months' goes beyond the rate of compensation and connotes a guaranteed salary for a specified duration. . . . The relationship of the parties is therefore properly found to be a fixed term and not at will. 496 N.E.2d at 354.

In Miller v. Community Discount Centers, Inc., 228 N.E.2d 113 (1st Dist.) 1967), the plaintiff was offered a position as a management trainee at a specified annual salary. In confirmation of his appointment, he received a letter which stated, in pertinent part: '[L]et me again extend an official welcome to the Community family; we are certain you have a rewarding and satisfying career ahead of you. . . . Your beginning salary will be $10,000.00 per year as a Store Management Trainee. Regarding moving expenses, we will pay one-half now and the balance after one year.' The court found that the phrase 'we are certain' you will have a 'satisfying career ahead of you' was sufficient to determine that the relationship was not at will. The court then found that the language 'after one year' (referring to the time of payment of one-half moving expenses) made it clear that a definite, guaranteed term of employment for one year was contemplated.

Finally, in Grauer v. Valve & Primer Corp., 361 N.E.2d 863 (2d Dist. 1977), the plaintiff's employment agreement stated: 'Attached guarantees you of a minimum of $22,500 in 1973--more likely $24,000 plus--because I look for $3,500,000 sales (i.e. Shipments). I review it annually based on performance.' The court held that the 'guarantee' of a minimum salary of $22,500 in 1973 coupled with annual review was sufficient to establish an employment contract of a year's duration.

These cases and principles can be readily applied to this case and compel the conclusion that plaintiff had only an at will contract. First, the complaint does not allege, or even suggest, that the employment agreement had some specific duration. The complaint simply alleges the annual rate compensation and benefits; it does not allege a term of the employment. Plaintiff argues that the specific term of employment can be gleaned from the letter plaintiff received from Nichoalds memorializing the employment agreement. Specifically, plaintiff contends there are four indications in that letter suggesting that the contract was not at will. I examine each one in turn.

First, plaintiff points to the second sentence of the letter which states that defendant is pleased 'to offer salary at the annual rate of $45,000 per year for 1986 and 1987. This sentence, plaintiff maintains, establishes that employment was to last through 1987. This is incorrect. It establishes only that the rate of compensation was to stay at $45,000 per annum throughout 1987. This does not mean that the duration of compensation extended throughout 1987. The long settled Illinois rule that an annual rate of compensation is insufficient to establish a specific term of employment renders plaintiff's first contention meritless. E.g., Berutti, Mann, Atwood, Medina. Second, plaintiff points to the next part of the letter which establishes plaintiff's commission benefits: 'you will receive an incentive agreement for 1987 which will render approximately $9,000 at budget. This incentive will be open ended and based on a percentage formula relating to net sales in new and existing markets.' This language merely establishes a method for computing commissions in 1987, and the current estimate of annual commission benefits. Thus, the language only expresses an annual rate of compensation, not a duration. Just as an annual salary rate and an expected annual bonus, see Medina, supra, are insufficient to establish a specific term of employment, so is an expected rate of commissions insufficient. Had defendant 'guaranteed' plaintiff $9,000 in commissions for 1987, this case might be different. But here the language chosen merely estimates commissions by explaining computation methods. This falls short of guaranteed compensation for a specific duration. It is merely an unenforceable expectation.

Third, plaintiff points to the paragraph providing that defendant 'will pay for continuous health care insurance for Mrs. Marquardt to offset the one year waiting period required by [defendant's] insurer.' Plaintiff reads this statement as evidence that the employment relationship was to last for at least one year. That is a misconstruction of the statement. Plaintiff is attempting to rely on Berutti where the court held that because the agreement there provided that one-half of the moving expenses would be paid after one yar, the contract was meant to last one year. Plaintiff's agreement here does not provide a similar guarantee. Health care benefits for Mrs. Marquardt commence immediately. The letter explains that defendant will pay for those benefits for the first year, because under defendant's agreement with its insurer, the insurer will not provide coverage for a year. That is quite different from saying that part of a compensation package will not be provided for one year. In that situation, as was the case in Berutti, a court may infer that the contract is meant to last one year. Here, however, where the compensation-- including health coverage--begins immediately at some specified rate (i.e., salary at an 'annual' rate, health insurance 'continuously'), there is no reason to infer a specific term of contract duration.

Finally, plaintiff refers to the last sentence of the letter in which defendant welcomes plaintiff and 'look[s] forward to a long and successful association.' Again, plaintiff is relying on Berutti because there the employment contract had language supposedly similar to the language here and which that court found helpful to the plaintiff. Actually, the language in the Berutti contract was that the defendant was 'certain' that the employee had a 'satisfying career ahead of him.' This is language of a guaranteed, long-term employment. Here, defendant has not indicated any certainty about the length of employment. The phrase 'we look forward to a long and successful association' is merely a hope for a productive relationship.

Any doubt about the nature of this written agreement is dispelled by the first sentence of the agreement: 'This will confirm [defendant's] commitment to you regarding compensation.' Clearly, this letter is about compensation, not about the length of employment. Furthermore, there are no guarantees in the letter about the total compensation that will be received. At most, the letter 
expresses expectations calculated on an annual basis. But Illinois law is clear that expectations of compensation, when calculated on an annual basis, are just rates of compensation. As such, they are insufficient to establish a contract of specific duration. Accordingly, I must conclude that plaintiff's contract was at will.

CONCLUSION
Defendant's motion to dismiss plaintiff's complaint for failure to state a claim is granted. This case is dismissed.