Seibel v. Liberty Homes, Inc.

752 P.2d 291, 305 Or. 362

• Court: Oregon Supreme Court
• Decided: March 29, 1988
• Docket: TC 82-1214; CA A38803; SC S34101, S34152
• Status: Published

Opinions

LINDE, J.

Defendant discharged plaintiff from a light duty job that it gave him after he claimed workers’ compensation for permanent total disability following an industrial injury. Plaintiff won a jury verdict for damages for breach of an employment contract. On appeal, the Court of Appeals rejected defendant’s assertion that there was no evidence of a permanent or “lifetime” employment contract, but the court agreed with defendant that the verdict should be reduced by the amount of social security disability benefits that plaintiff had received and would receive until September 1, 1988, his projected normal retirement date. Seibel v. Liberty Homes, Inc., 85 Or App 261, 736 P2d 578 (1987). Each party petitioned this court to review the ruling adverse to its position. We affirm the ruling that the jury could find breach of a contract of permanent employment, but we reverse the order of remand to offset social security disability benefits.

It would serve little purpose to quote the evidence in detail. Briefly, the disputed terms on which plaintiff was employed emerged from a hearing before a referee considering plaintiff’s workers’ compensation claim. A determination order had awarded benefits based on 25 percent unscheduled disability from a low-back injury, and plaintiff claimed that he was entitled to permanent total disability benefits.

At the hearing, defendant’s production manager testified that defendant had light work available that plaintiff could perform, primarily driving a forklift. When asked whether “this job that’s available for Mr. Seibel, at this time, is a permanent job,” the manager answered: “as long as we have production to run.” When plaintiff, in turn, was asked whether he would take the type of job that the manager described, he answered that if he could work within his limitations and do no heavy lifting, he “would give it a good try.” Plaintiffs compensation award eventually was increased to 40 percent disability.

Plaintiff returned to work for defendant on November 27,1978. Defendant discharged him on January 26, 1979, on grounds that he did not perform assigned tasks and that other workers complained that he delayed production on which their pay was based, and the present action followed.

Defendant argued that its production manager’s statement “as long as we have production to run” meant that a light duty job would exist, not that it would be promised to plaintiff until he retired. The statement could be so understood. But a jury also could find that plaintiff reasonably understood the statement as an assurance that he could return to employment as long as the work he was able to do was needed. Plaintiff was 55 years old at the time, so an inference that the job would last until plaintiffs normal retirement was not unreasonable. We agree with the Court of Appeals that there was some evidence to support the verdict.

Once plaintiffs contract of employment is found to have been breached, however, we do not agree with the court’s decision that the amount of the judgment should be reduced by sums that plaintiff later received in social security disability benefits.

Plaintiff applied for disability payments in 1982 and was awarded benefits from and after January 1981. This fact surfaced only late in the trial in a conference in the judge’s chambers. The parties disputed whether it should be admitted into evidence, defendant arguing that it was evidence supporting his defense that plaintiff could not do the work, and plaintiff arguing that it was inadmissible evidence of a “collateral source.” The court admitted the evidence but instructed the jury not to take it into account in fixing plaintiffs damages, if any; the adjustment would be made by the court. There was no objection to this procedure. After the verdict, however, the court decided that the social security disability benefits should not be deducted from damages and denied defendant’s motion to do so.

The remaining issue, therefore, is the purely legal question whether disability benefits under the social security program reduce the liability of an employer who breaches an employment contract. Insofar as there might be an apparent inconsistency between the character of “disability” benefits and the employee’s claim that he was able to perform the “light duty” job that he was promised, the jury heard that evidence and decided the issue against the employer.

Whether such payments are to reduce an employer’s liability for wrongfully discharging a worker properly depends on the source of the benefits. As a matter only of the common law of contracts, liability with respect to economic damages would be reduced if the discharged employee finds another job, see Bramhall v. ICN Medical Laboratories, Inc., 284 Or 279, 586 P2d 1113 (1978), Restatement (Second) Contracts § 347 (1979), but statutory benefits often have other characteristics and reflect other policies than the common law of contracts.¹

The Court of Appeals reduced the employer’s liability on the basis of a single precedent, United Protective Workers v. Ford Motor Co., 223 F2d 49 (7th Cir 1955). In that case, an employee’s discharge was found to have violated a collective bargaining agreement, and the trial court awarded damages equal to his wages if he had not been discharged. The appellate court observed that if the employer had committed a tort, it could not reduce its liability by any compensation the plaintiff might receive from a third party, but the court thought the rule was otherwise when the discharge was a breach of contract. It explained the distinction on the theory that the tort rule “has a flavor of punitive damages,” while in the case before the court, although the employer had breached the contract, “it [was] not a wrongdoer in the tort sense.” Id. at 54.

Plaintiff attempts to distinguish United Protective Workers by drawing a distinction between social security retirement and disability benefits. Unless we were persuaded by that distinction, we might feel constrained to follow United Protective Workers, had that decision purported to rest on an interpretation of the Social Security Act. But United Protective Workers did not purport to be so based. Rather, the federal court applied what it took to be the common-law contract rule of damages or, more precisely, the federal law of labor agreements under section 301 of the National Labor Relations Act rather than the common law of any state.

We are not persuaded, however, that the effect of payments from a public benefit program on an employer’s liability for a wrongful discharge depends on whether the discharge is wrongful as a breach of contract or for some other reason. That distinction ordinarily has nothing to do with the purposes of such programs. The position urged by defendant and accepted by the Court of Appeals would disregard public compensation in computing damages if the employer wrongfully and tortiously discharges a worker from at-will employment but not if the employer has actually promised the worker a long-term or permanent job.

The distinction finds no support in the policy considerations implicit in public benefit programs such as the social security disability program involved here. Whether the statutory benefit to a discharged worker should reduce the cost to the employer of choosing to breach the employment contract is properly an interpretation of the statutory policy. In fact, statutes rarely address the point explicitly, so that court decisions referring only in general terms to a statutory policy “to alleviate the distress of unemployment,” see Century Papers, Inc. v. Perrina, 551 SW2d 507 (Tex Civ App 1977) (citing other cases), have been criticized for hiding the “opacity” of legislative purposes behind a “rhetorical flourish.” Fleming, The Collateral Source Rule and Contract Damages, 71 Calif L Rev 56, 79-80 (1983). But the opacity is not impenetrable.

Social benefit payments to adults before normal retirement age ordinarily are a substitute for income usually earned from some private or public employer. Income from employment is the norm, and support from social funds such as unemployment compensation, disability benefits or welfare is intended as an exceptional replacement. Of course, plaintiffs discharge did not cause his disability, but had he remained employed, as defendant promised, he would not have been eligible for disability benefits. If this replacement income from a public benefit program is subtracted from an employer’s liability for wrongfully discharging a worker, the employer may calculate that paying only the difference between the worker’s wages and the substituted social benefits is the more profitable choice for the enterprise, but its gain comes at the cost of whoever finances the social program.

Of course, the social program may pay the benefits in any event, whether or not the employer’s liability is reduced by the amount of the benefits, if the program either does not provide for recapturing the benefits or administrators have not moved to do so when the wrongful discharge claim is tried. As between the employee and the agency, this may give rise to a question whether an employee, in plaintiffs situation may end up with more than his due; but that problem can arise in other three-cornered financial relationships. Seen from the perspective of the employer, subtracting benefits paid to a discharged worker from the employer’s contractual liability to that extent reduces the employer’s incentive to perform its contract and to keep the worker employed rather than on public welfare or other benefits.

We doubt that legislators enacting such programs mean to adopt the theory that it may be economically more efficient to breach an employment contract and pay damages when the cost of such “efficient” breaches falls on a social benefit program. We also doubt that they meant a liability-reducing effect of social benefits to depend on whether the discharge violates a statute, a contractual promise, or tort law. The effect will be inconsistent with the assumptions underlying the replacement income, unless that program is funded only by the employer or there is evidence of a contrary legislative policy.

Social security is funded by payroll taxes on employers and employees. We do not lay down a single rule for all programs. For instance, the Wisconsin Supreme Court let an employer offset unemployment compensation against damages for breach of an employment contract because the employer would ultimately bear the cost through an increased tax rate. Dehnart v. Waukesha Brewing Co., 21 Wis 2d 583, 124 NW2d 664, 671 (1963). But compare, e.g., Rutzen v. Monroe Cty Long Term Care Program, 104 Misc. 2d 1000, 429 NYS 2d 863, 865-66 (Sup Ct 1980), quoting Labor Board v. Gullett Gin Co., 340 US 361, 364, 71 S Ct 337, 95 L Ed 337 (1951) (no offset for unemployment benefits); Brown v. A.J. Gerrard Mfg. Co., 715 F2d 1549 (11th Cir 1983); Green Forest Public Schools v. Herrington, 287 Ark 43, 696 SW2d 714 (1985); Lambert v. Equinox House, Inc., 126 Vt 229, 227 A2d 403 (1967) (same). Moreover, programs differ in the speed and finality of their benefit determinations. Some potential claims may not even have been filed by the time the worker’s case against the employer is tried, or a claim may have been accepted at one level only to be later rejected at a higher level, or it may have been rejected and appealed, or benefits may be redefined or recalculated. These exigencies of social benefit administration should play no role in the employer’s liability for wrongfully discharging an employee. A trial of the employee’s contract action should not be turned into a trial of the employee’s potential claims for benefits from some administrative program, nor should the outcome depend simply on whatever cash benefits happen to have been paid before the trial.

It is argued that to disregard payments of social benefits in the action against the employer gives a successful plaintiff an unjustified windfall. But whether to save or recapture those costs is properly an issue between the provider of the benefits and its beneficiaries, a policy choice in the design of the program. Absence of a recoupment provision does not help the employer who causes the costs by improperly terminating the employee’s regular source of compensation. See Rutzen, supra, 429 NYS 2d at 866; Note, Mitigation of Damages by Social Welfare Benefits, 48 B U L Rev 271, 280-82 (1968).

The Legislative Assembly recently enacted that civil damages for bodily injury or death may be reduced by benefits received-from someone other than the party who is to pay the damages, with exceptions that include “(d) Retirement, disability and pension plan benefits, and federal social security benefits.” ORS 18.580. The statute does not directly apply, but our holding today is consistent with its policy toward the treatment of benefits replacing economic loss.

For the foregoing reasons, we conclude that the circuit court was right not to reduce plaintiffs damages by the amount of his social security disability benefits.

The decision of the Court of Appeals is affirmed in part and reversed in part, and the judgment of the circuit court is affirmed.

1 Defendant also quotes and the Court of Appeals cites Timberline Equip, v. St. Paul Fire and Mar. Ins., 281 Or 639, 646, 576 P2d 1244, 1248 (19781, for the general proposition that “[w]hen a contract is breached the injured party is entitled to receive what he would have if there had been no breach; he is not entitled to receive more.” Timberline was a dispute about interpretation of a liability insurance policy; the quoted sentence had nothing to do with compensation or any other measure of damages.