In 2016, Rag-O-Rama, a clothing consignment store, offered Sally Hall a full-time job as an area manager.  This would require her to leave a long-term job she already had, so she needed some convincing.  She says, for example, that the president and owner of the company promised that, if she took the job, she would have use of a company car, receive $5000 for prior work, and oversee a franchising division that may lead to part ownership.  Hall ultimately decided to take the job but insisted, she says, on a guarantee of one year of salary and benefits, which she further claims to have asked it to be put in writing.  When Rag-O-Rama fired her for alleged poor performance before a year had passed, she brought a diversity suit in federal court. 

Language in Question

Here is the written provision (in a document curiously titled “Communication Form”) that Hall says memorialized her one-year term of employment: 

[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.[i]

Sounds weird, right?  In Hall v. Rag-O-Rama, LLC, Nos. 20-6059, 20-2090; 2021 U.S. App. LEXIS 36535 (6th Cir. Dec. 7, 2021), the Court pointed out and each party agreed, the provision was poorly drafted and “contains awful grammar.” Hall argued that it meant the company was obligated to employ her for a year or that, at least, the provision is ambiguous enough that, in light of the oral representations made to her, it could reasonably be interpreted to mean so.  The trial court and Sixth Circuit disagreed.  Despite being grammatically unsound, the Court held, the provision clearly did not give Hall a one-year term of employment.  

Court’s Analysis

The bedrock of the Court’s analysis is the strong presumption under Kentucky law that favors employment-at-will.  The parties were free to contract out of the presumption, but to do so, their negotiated contract terms would need to clearly state that intention.  The Court concluded that nothing in Hall’s employment contract did so.  Rather, on its face, and despite the misuse of the gerund “obligating” instead of the more grammatically apropos “the obligation of,”[ii] the provision speaks only to Hall’s and other managers’ obligations, not the company’s.  This is made clearer in the sentences that immediately follow the one upon which Hall relies: 

If the one full year is not met, any benefit including but not limited to used [paid time off], will be reversed/paid back to Rag-O-Rama.  If a manager separates from the company, they are prohibited from working for a direct competitor for two years.[iii] 

Moreover, elsewhere in the “Communication Form,” Hall agreed that she had reviewed the Employee Handbook and would “uphold it.” And like most such handbooks, Rag-O-Rama’s contained a general statement that employees worked at-will. 

The Court concluded that the only reasonable interpretation of the Communication Form was that Hall could be fired at the will of her employer but that if she chose to leave the Rag-O-Rama management team before a year, she was subject to certain penalties in the form of lost benefits.  The Court thus refused to consider the contract term “ambiguous,” and, in doing so, refused to consider Hall’s “parol evidence” to justify her alternate interpretation.[iv]

Hall also argued that, even if she had no contract for a term of employment, Rag-O-Rama committed the tort of fraudulent misrepresentation by inducing her to accept the job through false promises.  That tort requires Hall to show that the defendant knowingly made a false representation and that she reasonably relied on that misrepresentation. Not only did Rag-O-Rama fire her before a year, but it also failed to give her a company car, pay her the promised $5000, or put her on the path to part-ownership, as had been promised.  But the Court rejected this claim too, primarily because it held that no reasonable juror would find that Hall acted reasonably in relying on the owner’s promises when there was a written contract that did not include them.

What if Case was Decided Under Tennessee Law

So how would a case like this have fared in Tennessee? As in Kentucky and most states, Tennessee law presumes that an employment relationship is “at will,” absent a clear contract stating otherwise.[v]  Tennessee courts also would likely invoke the parol evidence rule to bar consideration of oral communications in interpreting the written contract to mean something other than what it plainly states.[vi]  The provision that Hall points to, which addresses the obligation of one year of employment, just does not appear to be obligating the company to keep Hall employed, particularly when read with the sentences right after it.[vii] 

However, a 2018 federal district court case from the Middle District of Tennessee may help a Tennessee employee with tort claims similar to Hall’s.  In Kolstad v. Leehar Distribs., LLC,[viii] the plaintiff-employee argued he was fraudulently induced to take a job through false oral promises of future equity in the company. That plaintiff alleged the torts of fraudulent inducement and promissory estoppel, both of which require proof of reasonable reliance on misrepresentations made. The defendant’s primary argument in seeking to dismiss the case was that the plaintiff could not have reasonably relied on any alleged oral promises when he subsequently received a written contract that not only confirmed the at-will nature of the employment but also asserted that the written document integrated the entire agreement between the parties.[ix]  In reversing the dismissal of the plaintiff’s claims, the Kolstad court held there was no per se rule in Tennessee that, for purposes of establishing a fraud-based tort claim, an employee cannot reasonably rely on oral promises made outside of an integrated written employment contract.[x] The Court further emphasized that the question of reasonable reliance is generally one for a jury to decide and that the written contract and its integration clause is a factor among others for the fact-finder to consider.[xi]

Conclusion

It will always be difficult for an employee to prove she has a contractual right to remain employed if there are written employment terms that do not clearly spell that out. When false promises induced the employee to take the job, she may want to consider whether a tort claim can provide relief. As the Hall case indicates, however, it will still be difficult to overcome the at-will employment preference.  Still, all was not lost for Hall, as the Court rejected the defendant’s argument that her claims were so frivolous as to require her to pay its attorneys’ fees.  Rather, the Court found, the defendant’s “poorly written contract” and alleged oral promises gave Hall legitimate bases for her claims, even if not ultimately successful ones.[xii]

Maha M. Ayesh is the Director of Experiential Learning and an Assistant Professor of Law at Lincoln Memorial University School of Law.  She has also practiced plaintiff-side employment law for over a decade with Jennifer Morton Law, PLLC in Knoxville.  Maya earned her JD from the University of Tennessee. She may be reached at 865-545-5322 or maha.ayesh@lmunet.edu.