High drama at the Rag-O-Rama: Court addresses poorly-worded employment agreement

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Employees are presumptively deemed to be “at-will” in virtually every state.  Recently, the United States Court of Appeals for the Sixth Circuit (which oversees federal courts in Kentucky, Michigan, Ohio, and Tennessee) considered a claim by an employee that poor wording in her employment agreement reflected the parties’ intent that she was guaranteed employment for at least a year.

Facts

In 2015, Vance Whitener, the owner of Rag-O-Rama—a used clothing retail chain—convinced Sally Hall to move to Kentucky and work in a part-time role training staff.  Pleased with her performance, Whitener persuaded Hall to work full-time in an area manager position by offering her a pay increase, a company car, and other incentives.  Hall claims that she also bargained for a guarantee that she would be employed for at least a year.  In June 2016, the parties entered into a written agreement that listed terms of the employment arrangement.  The agreement, however, did not specify that Rag-O-Rama was required to employ Hall for at least a year.

Unfortunately, after Hall’s promotion, Whitener became increasingly dissatisfied with her work performance.  Ultimately, he decided to fire Hall in January 2017.  Hall brought suit, claiming that Rag-O-Rama breached the parties’ agreement by failing to employ her for at least a year.  In support of her argument, Hall cited language in the agreement specifying that Hall “is reminded of the non-competition clause guidelines, as well as, obligating associate managers and higher to one full year of employment on the management team at Rag-O-Rama.”  A Kentucky federal district court dismissed Hall’s claims, and she appealed to the Sixth Circuit Court of Appeals.

Holding

The Sixth Circuit was unimpressed with the wordsmithing of the parties’ agreement as well as with Hall’s legal arguments.  The Court noted that the phrase quoted above “contains awful grammar” and that “[t]he present participle ‘obligating’ likely should have been a noun (‘the obligation of’).”  Nevertheless, the Court stated that “grammar errors do not automatically render a contract ambiguous if it had a clear meaning despite those errors.”

The Court concluded that “no reasonable person could read this clause as prohibiting Rag-O-Rama from terminating Hall for one year after she became an area manager.”  Instead, it is clear that the term “obligating” applied only to Hall and other area managers and didn’t bind Rag-O-Rama.  Further, the contract stated that Hall would be bound by the company’s employee handbook, which in turn specified that all employees were “at-will.”  “Like most states, Kentucky starts with the presumption that an employer and an employee intend for an ‘at-will’ relationship, meaning that the employer generally can fire the employee at any time for almost any reason and the employee can quit at any time for any reason.”  With that presumption in mind, the parties’ contract would need to clearly indicate that Hall’s employment was being structured otherwise.  It did not.

Finally, the Court asked: “Does it matter that Hall committed herself to one year of employment without obtaining an identical commitment from Rag-O-Rama?”  It concluded “[w]e do not see why” and that, in any event, it was unclear of the consequences of a “breach” if Hall had decided to quit in less than a year.  Hall v. Rag-O-Rama, 2021 WL 5782381 (6th Cir. Dec. 7, 2021).

Bottom Line

The deck was stacked against Hall from the outset.  There already was a presumption that she was employed at-will, and she was unable to point to any language in her written agreement that reflected the parties’ intention that Rag-O-Rama was guaranteeing that she wouldn’t be terminated for a certain period of time.  Supposed verbal assurances wouldn’t cut it.

That said, it’s possible that Rag-O-Rama could’ve avoided the expense and the hassle of defending itself in a lawsuit if it had been more careful in the wording of the contract.  In that respect, this case offers at least two important lessons for employers.  First, make sure that employment agreements are clearly written.  (Lawyers can help with this).  Second, it’s prudent to include language in every employment agreement with an at-will employee that clearly specifies the parties’ intention that the person is employed at-will.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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