State Ex Rel. Roberts v. Public Finance Co.

662 P.2d 330, 294 Or. 713, 26 Wage & Hour Cas. (BNA) 716, 1983 Ore. LEXIS 1156, 114 L.R.R.M. (BNA) 2837

• Court: Oregon Supreme Court
• Decided: April 19, 1983
• Docket: TC 16-81-03230, CA A21878, SC 28993
• Status: Published

Opinions

CAMPBELL, J.

The state, acting through the Oregon Bureau of Labor and Industries, brought this action against Public Finance Company to collect vacation pay it alleges Public Finance owes to the state’s assignor, Richard Hoglen. The employer denies owing any vacation pay because Hoglen was discharged before his anniverary date. The trial court granted summary judgment for the employer. The state appealed. The Court of Appeals affirmed. We also affirm.

Hoglen had been employed by Public Finance since November 24, 1961. His employment contract was terminable at will by either party. On November 21, 1980, Public Finance terminated Hoglen’s employment because it sold the business. This was three days before Hoglen’s anniversary date. Public Finance paid Hoglen his earned salary. However, it refused to pay him wages in lieu of any portion of the vacation that Hoglen contends he earned. Hoglen assigned his wage claim to the Bureau of Labor and Industries, which filed this complaint pursuant to ORS 652.310 to 652.405. The state also seeks the civil penalty provided by ORS 652.150 and costs and attorney fees.

The relevant portion of the employment contract reads as follows:

“557. VACATION

“557.1 Eligibility - Permanent full-time employees are eligible for vacation based on length of continuous service. Eligibility is contingent upon such service being performed in strict compliance with all Company rules and policies. Except at completion of the first six months of employment, vacation entitlement is established on the employee’s anniversary date with the Company. Anniversary date means Month and Day employed.

U* * * * *

“544. VACATION ENTITLEMENT ON TERMINATION

“544.1 Dismissal for Cause

“544.11 No vacation pay.

“544.2 Dismissal and Release

“544.21 An employee who is released or dismissed for reason other than cause as explained in 543.11 with vacation time earned but not yet taken, will be paid for that time.

“544.3 Resignation

“544.31 If an employee resigns with vacation time earned but not yet taken, he/she will be paid for that time, provided proper notice of intent to resign is given as explained in 543.43.”

Both parties moved for summary judgment. The trial court found that the requirement that an employee be employed on his anniversary date was a condition precedent to his entitlement to vacation for that year and granted the employer’s motion for summary judgment.

An employer is free to set the terms and conditions of the work and of the compensation and the employee may accept or reject those conditions. There is no question that this employment contract was terminable at will by either party at any time. Neither party claims that this contract is ambiguous, and we agree that it is unambiguous. The employment contract itself will control the employee’s right to vacation. Sabin v. Willamette-Western Corp., 276 Or 1083, 557 P2d 1344 (1976).

We find that a fair reading of this contract reveals that if an employee is terminated before his anniversary date, even though his discharge is not “for cause,” he has earned no vacation time for the year, and the employer does not need to pay wages in lieu of vacation time for the full year or on a pro rata basis. An employee is entitled to a paid vacation or wages in lieu of vacation only if he is employed on his anniversary. If the phrase “and an employee does not earn vacation on a pro rata basis” had been inserted into this contract, it would not change the contract in any respect.¹

This holding is consistent with Rose City Transit v. City of Portland, 18 Or App 369, 525 P2d 1325 (1974). In that case, the Court of Appeals found that when the business was sold, employees who had not met the requirements of a pension plan in terms of age and service requirements were not entitled to pension benefits on a pro rata basis. Those requirements were correctly interpreted as conditions precedent that must have been met before the employer was obligated to provide pension benefits. We modified this case on a separate issue and did not disturb this holding. Rose City Transit v. City of Portland, 271 Or 588, 533 P2d 339 (1975). We expressly approve it now.

The state relies heavily on Thompson v. Burr, 260 Or 329, 490 P2d 157 (1971). In Thompson the employment contract stated that if an employee worked thoroughout a calendar year, and was still employed on April 15, he would be eligible for a bonus based on the gross earnings of the previous calendar year. That employer terminated the employment of the worker on March 12. We held that the employee nevertheless was entitled to the bonus because he had earned it by his employment through the preceding calendar year. The requirement that he be employed on April 15 was not a condition precedent to earning the compensation, but rather a payment date. Also in Thompson there were allegations and findings that the employee was not terminated for bona fide business reasons. Our present case would be analogous to Thompson if Hoglen had been discharged after his anniversary date, and had not yet taken the vacation time he had earned by being employed on his anniversary date.

The state argues that the vacation plan is a unilateral employment contract which cannot be revoked after the offeree has begun performance. It contends that this is identical to the hypothetical situation in which A offers B $10 to cross the Brooklyn Bridge and attempts to revoke or actively renders his performance impossible when B is almost to the end of the bridge. It is correct that under general contract law this attempt at revocation would not be effective and A would be in breach of contract. This, however, is not the present case.

It is true that this plan offering vacation pay is somewhat like a unilateral contract, in that the employer would not have the power to alter the conditions or rescind the original offer in the middle of the year, if the employee remained on the job because of the original offer. However, as we said in Walker v. American Optical Corp., 265 Or 327, 330, 509 P2d 439 (1973), concerning a unilateral contract for a bonus, it does not follow that just because this is a unilateral contract the employee automatically becomes entitled to the additional compensation by remaining employed for part of the contract period. There, as here, the employer’s obligation to pay the compensation arises only on the occurrence of the condition precedent as described in the contract. In both cases, the condition precedent is the employee’s employment on a certain named day.² The employee’s rights only vest when he has satisfied all conditions precedent. McHorse v. Portland General Electric Co., 268 Or 323, 331, 521 P2d 315 (1974).

The point that the state ignores is that the principal contract was a contract for employment at will, which was terminable by either party at any time for almost any reason.³ The terms of this vacation contract are qualified by and subject to the terms of the employment contract as a whole. The vacation plan was a secondary contract which stated if and only if the employee were employed on his anniversary date, the employer then would have a duty to grant further compensation in the form of paid vacation. This duty only arises when the condition precedent is met. After the employee’s anniversary date, the employer could not refuse to grant this compensation unless otherwise provided in the contract.⁴

The state, in its argument alleging a unilateral contract, is attempting to change this at will contract into a one year employment contract. This cannot be done.

Were there no express, unambiguous contract in the present case, the dissent’s interpretation of the respective rights and duties would probably be correct. However, we are not free to ignore the contract.

Because the employment was at will, and either party could terminate it at any time, employment on an employee’s anniversary date under this contract is a condition precedent to paid vacation time, and because the employee was not employed on his anniversary date, he is not entitled to wages in lieu of vacation time.

Because of our decision, the employer is necessarily not liable for penalties, attorney fees or costs.

1 Our interpretation of this contract is consistent with that found in some jurisdictions: Moore v. Home Insurance Co., 601 F2d 1072 (9th Cir 1979); Keneally v. Orgain, 606 P2d 127 (Mont 1980); Feola v. Valmont Industries, Inc., 208 Neb 527, 304 NW2d 377 (1981); Briggs v. Electric Auto-Lite Co., 37 Wis 2d 275, 155 NW2d 32 (1967). Other jurisdictions have decided that compensation is earned on a pro rata basis, and must be paid when the relationship is terminated: Local Union No. 186 v. Armour Co., 446 F2d 610 (6th Cir 1971); American Security Life Ins. Co. v. Moore, 37 Ala App 552, 72 So2d 132 (1954); Sinnett v. Hie Food Products, Inc., 185 Neb 221, 174 NW2d 720 (1970). Some cases holding in this fashion can be distinguished because: . (1) there was no express language in the contract, Haag v. Rogers, 9 Ga App 650, 72 SE 46 (1911); (2) the termination was a wrongful discharge, Coleman v. Graybar Electric Co., 195 F2d 374 (5th Cir 1952); (3) there are statutory requirements, Suastez v. Plastic Dress-Up Co., 31 Cal3d 774, 647 P2d 122, 183 Cal Rptr 846 (1982); (4) the employee had actually become entitled to the compensation but had not yet received it at the time of the termination, Lampley v. Celebrity Homes, Inc., 42 Colo App 359, 594 P2d 605 (1979). See generally DeGiuseppe, Employment-at-will Rule, 10 Fordham ULJ 1 (1981); but see Note, Private Pension Plans, 70 Harv L R 490, 497 (1957).

2 A similar situation concerned an employee’s entitlement to pension benefits. In Taylor v. Mult. Dep. Sher. Ret. Bd., 265 Or 445, 510 P2d 339 (1973), we noted that the employer lost the power to revoke the offer when the employee accepted the plan, but also said she would be entitled to the benefits only if she continued to work for the requisite period. 265 Or at 454.

3 We consider the entire agreement. Perkins v. Standard Oil Co., 235 Or 7, 14, 383 P2d 107, 383 P2d 1002 (1963). We note that by clause 544.11 if an employee is dismissed for cause, he receives no vacation pay, even if it has been earned.

4 In this case, there was no allegation that the discharge was wrongful. If there were, this might change our decision, for an implied covenant of good faith and fair dealing bars an employer from terminating an at-will employee for the purpose of depriving the employee of benefits to which he would otherwise have become entitled. Moore v. Home Insurance Co., 601 F2d 1072 (9th Cir 1979).