Watkins v. Josephine County

243 Or.App. 52

259 P.3d 79

Suzanne J. WATKINS, Thomas A. Amburn, Lorna Lynn Inman, Marilane Jorgenson, Jeffry Lee Michael, Eva L.I. Arce, David A. Bassett, Helen M. Connelly, Daniel Converse, Gilbert Covarrubias, Edwin F. Cramp, Michael Gould, Laurie Hansen, Cecilia Hay, Philip R. Killian, Donna Lipparelli, R. Lucas, Jackie McBee, Michael Doyle Perkins, Ernest A. Peters, Constance L. Roach, Sara Rubrecht, Michael G. Sanchez, Wendy Scruggs, Ken Selig, Robin Ward, James N. Warren, Ronald Wayne Winfrey, and Sandra L. Titzler, Personal Representative of the Estate of Scott Titzler, Deceased, on behalf of themselves and others similarly situated, Plaintiffs–Appellants,andJillana Tappan, Peggy Lowell, Laverla J. Young, and Brian Anderson, et al, Plaintiffs,

v.JOSEPHINE COUNTY, Defendant–Respondent.

05CV0577; A141306.

Court of Appeals of Oregon.

Argued and Submitted Oct. 6, 2010.Decided May 25, 2011.

Gene B. Mechanic argued the cause for appellants. With him on the briefs were Elizabeth A. Joffe, Cathy Highet, and McKanna Bishop Joffe & Arms, LLP.Kirk S. Peterson, Portland, argued the cause for respondent. With him on the brief were Devra S. Hermosilla and Bullard Smith Jernstedt Wilson.Before SCHUMAN, Presiding Judge, and WOLLHEIM, Judge, and ROSENBLUM, Senior Judge.SCHUMAN, P.J.

Plaintiffs are current and former nonunion employees of defendant Josephine County. After the county commissioners passed a resolution in 2005 eliminating or reducing certain employee benefits, plaintiffs brought this action, asserting that the resolution breached their employment contract, impaired an obligation of contract in violation of Article I, section 21, of the Oregon Constitution,¹ and transgressed principles of promissory estoppel. They also sought class action certification, as well as damages and penalties for various alleged statutory violations. The county moved for summary judgment, primarily on the ground that the disputed benefits were entirely prospective and the contract with plaintiffs never included a promise to maintain them permanently; for that reason, the county argued, there was no contract term that the resolution breached, no contract obligation to impair, and no promise on which to base an estoppel. The trial court granted the county's motion with respect to the breach of contract and Article I, section 21, claims, denied the motion regarding promissory estoppel, and did not reach the wage claims or class action request. Subsequently, the county filed a second summary judgment motion on the remaining claims and the court granted it. This appeal ensued. We affirm.

Plaintiffs are or were county employees in managerial, supervisory, or confidential positions who were hired by the county before August 2005. The terms of their employment are set by the county board of commissioners under authority conferred by the county charter. In particular, the charter provides:

“Section 17. ADMINISTRATIVE PERSONNEL.

“The Board of County Commissioners may appoint administrative and advisory personnel of the county to offices and positions established by the Board or pursuant to its authority.

“ * * * * *

“Section 25. COMPENSATION

“(1) The compensation and job related expenses of personnel in the service of the county shall be fixed annually by the budget committee.”

Pursuant to this charter authority, the board first issued personnel rules in 1979. The rules have been amended by resolution of the board several times over the past three decades. At all relevant times, however, the rules contained the following two general provisions. The first, emphasized by plaintiffs and serving as one basis for their argument that the rules promised a benefit package that could not be eliminated or reduced, provides that one “purpose” of the rules is “[t]o develop a program of recruitment, training, advancement, and tenure that will make a career in the County government attractive to persons who possess both ability and integrity.” Non–Union Personnel Rule (NPR) 2.1(B) (emphasis added). The second rule, emphasized by defendants and serving as one basis for their argument that the county retained the right to alter or abolish the benefit package (subject to statutory and constitutional constraints), provides that “the Board shall take action as they deem appropriate ” on any proposed rule amendment. NPR 2.3 (emphasis added). ²

At issue in this case are four employee benefits provided under the 2002–04 personnel rules (2004 rules) and the modifications to those benefits under the board's 2005 amendments (2005 rules). The 2004 rules provided plaintiffs with (1) an employer contribution to a deferred compensation account in an amount matching the employee's contribution, up to six percent of the employee's monthly salary, redeemable whenever the employee terminates employment with the county; (2) a “time management leave” program (TML), which entitled employees to accrue unused vacation, sick, and personal leave time and redeem it for cash each month or at the end of their employment; (3) a seven-step automatic salary increase based on years served; and (4) a provision that required that the county show “just cause” before disciplining or terminating an employee.

In 2005, the board faced significant county-wide budget cuts and passed an ordinance amending the rules governing benefits. The 2005 rules, all of which applied only prospectively, eliminated the six percent match to deferred compensation accounts, stopped the accrual of unused leave days into a TML account (without affecting the ability to use accrued days as they could be used under the 2004 rules), reduced salary step increases from seven increments to three, and modified the standard of discipline from “just cause” to “insufficient cause.”

Following the board's enactment of the 2005 rules, plaintiffs filed this action alleging that, in reducing the benefits provided by the 2004 rules, the county breached the terms of plaintiffs' employment contract, impaired an existing obligation of contract, and should be estopped from reneging on its promises. Plaintiffs sought declaratory and injunctive relief as well as damages “in an amount equal to that of the [benefits that each plaintiff] has been improperly denied.” Defendant moved for summary judgment. The trial court initially granted defendant's motion with respect to the impairment of contract claim and breach of contract claim, but denied the motion as to the promissory estoppel claim. The trial court ordered plaintiffs to strike the contract claims; plaintiffs complied and filed a third amended complaint. After additional discovery, defendant again moved for summary judgment. The trial court granted defendant's motion on the remaining claims, and plaintiffs now appeal.³

The recurring problem of determining whether particular benefits inhere in legislatively created (or quasi-legislatively created) employment contracts requires us to apply general principles of contract law, as those principles are inflected by principles of employment law and statutory interpretation. Generally, to interpret a contract provision, we examine its text within the context of the entire contract in light of the circumstances underlying the contract's formation. Batzer Construction, Inc. v. Boyer, 204 Or.App. 309, 317, 129 P.3d 773, rev. den., 341 Or. 366, 143 P.3d 239 (2006). If, after that examination, the contract is ambiguous, we turn to such indications of the parties' intent as “the parties' practical construction of an agreement.” Yogman v. Parrott, 325 Or. 358, 364, 937 P.2d 1019 (1997). A contract term is ambiguous if it is capable of more than one sensible and reasonable interpretation, PGF Care Center, Inc. v. Wolfe, 208 Or.App. 145, 151, 144 P.3d 983 (2006), which is a question of law, Yogman, 325 Or. at 361, 937 P.2d 1019 (quoting Eagle Industries, Inc. v. Thompson, 321 Or. 398, 405, 900 P.2d 475 (1995)). If ambiguity remains after examination of text, context, and other indications of intent, we turn to “appropriate maxims of construction.” Id. at 364, 937 P.2d 1019.

In the employment context, if an employer offers a benefit to an at-will employee, the employee accepts the offer, thereby creating a unilateral contract, by commencing or continuing employment thereafter. McHorse v. Portland General Electric, 268 Or. 323, 331, 521 P.2d 315 (1974); Funkhouser v. Wells Fargo Corp., 224 Or.App. 308, 312, 197 P.3d 592 (2008), rev. den., 346 Or. 115, 205 P.3d 887 (2009). Generally, an employer may prospectively change or eliminate a term of the employment contract. However, the offer may contain a promise of a future benefit; if so, then the employee's right to that benefit accrues at the time of acceptance and, if the employer fails to perform the promise, that failure amounts to an actionable breach. Sabin v. Willamette–Western Corp., 276 Or. 1083, 1089, 557 P.2d 1344 (1976); Stuart v. Tektronix, Inc., 83 Or.App. 139, 143–44, 730 P.2d 619 (1986), rev. den., 303 Or. 74, 734 P.2d 354 (1987).

Although these general principles apply to contracts created by legislation, additional rules apply as well. Hughes v. State of Oregon, 314 Or. 1, 14, 838 P.2d 1018 (1992); Eckles v. State of Oregon, 306 Or. 380, 397–99, 760 P.2d 846 (1988), appeal dismissed, 490 U.S. 1032, 109 S.Ct. 1928, 104 L.Ed.2d 400 (1989). One of those rules is that a government contract will not be inferred from legislation that does not unambiguously express an intention to create one. Hughes, 314 Or. at 14, 838 P.2d 1018; Eckles, 306 Or. at 397, 760 P.2d 846. That requirement—lack of ambiguity—applies not only to the existence of a contract per se, but to “the extent of the obligation created” by the contract, that is, to the question of whether its terms encompass a particular promise. Eckles, 306 Or. at 397, 760 P.2d 846; see also Hughes, 314 Or. at 27–29, 838 P.2d 1018. In Oregon State Police Officers' Assn. v. State of Oregon, 323 Or. 356, 918 P.2d 765...