Dahl v. Brunswick Corp.

⁴⁷⁴ Digges, J., delivered the opinion of the Court. The plaintiffs-petitioners, 21 former employees of the Concorde Yacht Division of the defendant-respondent Brunswick Corporation, alleging that their employment was involuntarily terminated by the sale of the division to Test Corporation, brought this contract action to recover varying amounts of severance pay, accrued vacation pay and two weeks’ pay in lieu of two weeks’ prior notice of separation. Judge H. Kemp MacDaniel, sitting without a jury in the Circuit Court for Baltimore County, held that although these employees had had a contract with Brunswick providing for some such compensation, their subsequent acceptance of employment with a subsidiary of Test constituted a novation which abrogated their right to recover against Brunswick. On appeal, we conclude that the petitioners are entitled to severance pay and possibly pay in lieu of notice, but not vacation pay. 1 The petitioners, while employed in the Concorde Yacht Division, located in Dundalk, Baltimore County, had neither written employment contracts nor a collective bargaining agreement.

The employees, however, were included within the scope of written policy statements issued by Brunswick to govern various aspects of their employment; among the subjects covered by these directives were severance and vacation pay. Additionally, Brunswick had an unwritten general practice of providing its employees, in those cases in which they were entitled to severance pay, with two weeks’ salary if they were not given two weeks’ prior notice of termination. Even though some of the petitioners had not seen copies of Brunswick’s directives, all of them were aware of the existence of the company’s written and unwritten policies and practices. Following extensive negotiations, Brunswick, on September 17, 1970, agreed to sell its Concorde Yacht Division to Test Corporation.

Under the terms of the sales ⁴⁷⁵ contract Test was to form a wholly-owned subsidiary corporation, to be known as Test Concorde, Inc., which was to take title to the division’s assets and control of its operations on October 1, 1970; additionally, Test was required to continue Brunswick’s policies with respect to severance and vacation pay. For its part, the respondent covenanted that it would “not recruit among the personnel of the Division, or in any manner induce any of the said personnel ... to remain in the employ of Brunswick.” The division’s employees were first informed of the sale at a meeting held in mid-September, 1970, at which time they were told they could not remain with Brunswick but rather, effective October 1, they would be employed by Test Concorde in the same positions, at the same salaries and with the same or better benefits. All of the petitioners accepted jobs with Test Concorde on October 1, 1970, and continued to be employed by that corporation until April 27, 1972, when, due to insolvency, it closed its doors. Although Test Concorde did not provide the petitioners with literally all the fringe benefits they had previously enjoyed, it did pay these employees the same salaries and continued Brunswick’s policies with respect to severance pay, vacation pay.and two weeks’ pay in lieu of prior notice of termination.

Having sketched the pertinent facts, we will now consider separately the categories of claims made by the petitioners, beginning with severance pay. The first question is whether Brunswick’s severance pay policy statement became part of the employment contract between it and its employees. Brunswick concedes, as it should, that its policy directive with respect to severance pay constituted an offer of a unilateral contract of which the employees were aware and, by continuing to work for Brunswick, accepted. This Court, when faced with a policy statement regarding bonuses, ironically issued by this very same company, Brunswick Corporation, held, in MacIntosh v. Brunswick, 241 Md. 24, 30-31 , 215 A. 2d 222 (1965), that the provision of the directive which imposed certain post-employment restraints on employees was unenforceable and that consequently the plaintiff-employee was contractually entitled to a bonus. ⁴⁷⁶ Moreover, the Court of Appeals of Michigan, in a case almost identical with the one before us, held that Brunswick's policy statement relating to severance pay had ripened into a contractual obligation of the company.

Clarke v. Brunswick Corp., 48 Mich. App. 667 , 211 N.W.2d 101, 103 (1973), leave to appeal denied, 391 Mich. 765 (1974). Besides those two cases, there is abundant support for the proposition that employer policy directives regarding aspects of the employment relation become contractual obligations when, with knowledge of their existence, employees start or continue to work for the employer. See, e.g., Chapin v. Fairchild Camera and Instrument Corp., 31 Cal.

App. 3d 192 , 107 Cal. Rptr. 111, 114-15 (1st Dist. 1973); Mace v. Conde Nast Publications, Inc., 155 Conn. 680 , 237 A. 2d 360, 361-62 (1967); Willets v. Emhart Mfg. Co., 152 Conn. 487 , 208 A. 2d 546, 547 (1965); Cain v. Allen Electric & Equip. Co., 346 Mich. 568 , 78 N.W.2d 296, 298-302 (1956); Gaydos v. White Motor Corp., 54 Mich.

App. 143 , 220 N.W.2d 697, 700 , leave to appeal denied, 392 Mich. 800 (1974); Hinkeldey v. Cities Service Oil Co., 470 S.W.2d 494, 499-501 (Mo. 1971); Anthony v. Jersey Central Power & Light Co., 51 N. J. Super. 139, 143 A. 2d 762, 764-66 (App. Div. 1958); Roberts v. Mays Mills, Inc., 184 N.C. 406 , 114 S. E. 530, 532-33 (1922); Hercules Powder Co. v. Brookfield, 189 Va. 531 , 53 S.E.2d 804, 808-09 (1949); Annot., 40 A.L.R.2d 1044 (1955); cf. Adams v. Jersey Central Power & Light Co., 21 N. J. 8, 120 A. 2d 737 (1956) (collective bargaining agreement); Schofield v. Zion's Co-op Mercantile Institution, 85 Utah 281 , 39 P. 2d 342 (1934) (resolution of board of directors). Since it is therefore clear that Brunswick’s severance pay policy directive became a contractual obligation, we must next determine whether the petitioners were entitled to severance pay under the policy statement’s provisions. In September of 1970 Corporate Procedure 1.3331 of Brunswick’s Policies and Procedures Manual provided that severance pay would be granted to employees who were involuntarily terminated, defined as “any separation from the payroll for an indefinite period (more than 30 days) for actions not within ⁴⁷⁷ the direct control of the employee when no other suitable opening is available.” The petitioners first assert that they became “separat[ed] from the payroll for an indefinite period . . . for actions not within [their] direct control” when Brunswick sold its Concorde Yacht Division to Test and informed its employees that they could no longer work for Brunswick. See Clarke v. Brunswick Corp., supra, 211 N.W.2d at 103 .

Although there is a dearth of Maryland authority on point, there is ample support elsewhere for the position that when part or all of a company is sold and the employees are told that they cannot remain with their old employer, their employment has been terminated even though they immediately begin to work for the new owner. See, e.g., Chapin v. Fairchild Camera and Instrument Corp., supra, 107 Cal. Rptr. at 115 ; Willets v. Emhart Mfg. Co., supra, 208 A. 2d at 548 ; Gaydos v. White Motor Corp., supra, 220 N.W.2d at 700-02 ; Clarke v. Brunswick Corp., supra, 211 N.W.2d at 103 ; Matthews v. Minnesota Tribune Co., 215 Minn. 369 , 10 N.W.2d 230, 232 (1943); Hinkeldey v. Cities Service Oil Co., supra; Adams v. Jersey Central Power & Light Co., supra, 120 A. 2d at 740-41 ; Anthony v. Jersey Central Power & Light Co., supra, 143 A. 2d at 763-64 .

In fact, Brunswick concedes that the petitioners satisfied this first portion of the definition. However, the policy directive also required, in order for there to have been an involuntary termination, that “no other suitable opening [be] available.” Whether that prerequisite was fulfilled by the petitioners, which depends on how the phrase should be read, is the first contested issue of this severance pay controversy. Although Brunswick’s brief seems to suggest that the meaning of the language is clear, we, like the trial court, have no difficulty in accepting the employees’ contention that the phrase “no other suitable opening is available” is ambiguous because it could be referring either to jobs within Brunswick alone, or to positions with Brunswick or any other employer. Under the former construction, which the petitioners assert is correct, terminated employees would not be entitled to severance pay if they were offered suitable jobs by Brunswick but ⁴⁷⁸ would receive severance pay if they left the respondent’s employ, whether or not they were offered work elsewhere; under the latter interpretation, championed by Brunswick, employees would not have a right to severance pay if they were offered equivalent jobs by Brunswick or anyone else.

To support the construction it prefers, Brunswick relies on the fact that the policy statement requires both a “separation from the payroll” 2 and that there be “no other suitable opening ... available.” As we understand its argument, Brunswick maintains that if the phrase “no other suitable opening is available” referred only to job openings with Brunswick, as the employees assert, then the phrase “separation from the payroll” would be superfluous because every time an employee qualified for severance pay under the former he would necessarily also qualify under the latter, and every time a worker failed to qualify under the former he would necessarily also fail to qualify under the latter. What Brunswick appears to be contending is that, under the petitioners’ proposed construction, if an employee qualifies for severance pay because there was “no other suitable opening .. . available” with Brunswick, he will no longer be in Brunswick’s employ and therefore would necessarily have been separated from the payroll; and if a worker fails to qualify for severance pay because there was a suitable opening available with Brunswick, he would still be working for Brunswick and therefore he would necessarily not have been separated from the payroll. 3 Consequently, Brunswick says, the employees’ suggested interpretation runs afoul of the rule of construction which states that a “contract must be construed in its entirety and, if reasonably possible, effect must be given to each clause [, phrase and word] so that a court will not find an interpretation which casts out or disregards a meaningful part of the language of the writing ⁴⁷⁹ unless no other course can be sensibly and reasonably followed.” Sagner v. Glenangus Farms, 234 Md. 156, 167 , 198 A. 2d 277 (1964); see Hart v. Hart, 165 Md. 77, 80 , 166 A. 414 (1933); Huber v. Mullan, 246 F. Supp. 8, 11-12 (D. Md. 1964), aff'd, 350 F. 2d 872 (4th Cir. 1965) (per curiam). We reject Brunswick’s argument because, for one, it violates the very rule of construction it relies on by ignoring the word “suitable” in the phrase “no other suitable opening is available.” It is quite possible that Brunswick could have “no other suitable opening ... available” for a terminated employee, such that that prerequisite was fulfilled, yet the worker might, for any number of reasons, accept a nonsuitable 4 job with Brunswick and thus be barred from recovering severance pay because he would not be separated from the payroll. Consequently, Brunswick’s assertion that the employees’ construction of “other suitable opening” makes the requirement of being separated from the payroll superfluous is simply incorrect.

Having found Brunswick’s contention wanting, we turn to the arguments in favor of the employees’ construction. Initially, we think it likely that when Brunswick defined involuntary termination as “any separation from the payroll . .. when no other suitable opening is available” (emphasis added), it was, in an inarticulate manner, really saying “any separation from the payroll... [os a result of there being] no other suitable opening ... available.” If so, then since “payroll” obviously refers only to Brunswick’s payroll, “no other suitable opening .. . available” only makes sense if it refers to jobs within Brunswick alone. Secondly, the employees argue that their reading of the language should be accepted because Brunswick drafted the policy statement and, as this Court has said many times, it is a basic rule of construction that contractual ambiguities will be construed against the party which authored the contract. See, e.g., Canaras v. Lift Truck Services, 272 Md. 337, 356-57 , 322 A. 2d 866 (1974); Kelley Constr.

Co. v. Sanitary Comm., 247 Md. ⁴⁸⁰ 241, 250, 230 A. 2d 672 (1967). Additionally, to read “other suitable opening” as referring to positions with any employer, as Brunswick suggests, would make the severance pay provision of this contract a form of unemployment insurance (money to be paid only if no one offers the employee another job), rather than, as would be the case under the employees’ interpretation, a reward for past services. As the employees point out, it is the latter characterization of severance pay in employment contracts which has become generally accepted. See, e.g., Chapin v. Fairchild Camera and Instrument Corp., supra. 107 Cal.

Rptr. at 115-16 ; Mace v. Conde Nast Publications, Inc., supra, 237 A. 2d at 361 ; Willets v. Emhart Mfg. Co., supra, 208 A. 2d at 548 ; Gaydos v. White Motor Corp., supra, 220 N.W.2d at 700 ; Adams v. Jersey Central Power & Light Co., supra, 120 A. 2d at 740-41 ; cf. Cain v. Allen Electric & Equip. Co., supra, 78 N.W.2d at 299-301 ; Anthony v. Jersey Central Power & Light Co., supra, 143 A. 2d at 764-66 . Finally, the employees’ position is supported by precendent directly on point.

The Court of Appeals of Michigan, when faced with the exact same policy statement in Clarke v. Brunswick Corp., supra, 211 N.W.2d at 103 , accepted the employees’ construction, stating that: “The trial judge ... found that the term ‘other suitable opening” meant an opening with [Brunswick] corporation. As the trial judge said, ‘Clearly this language “suitable opening” was not referring to a vacancy in a comparable position with the Ford Motor Company, Whirlpool Corporation, American Seating Company, or any other employer than Brunswick Corporation.’ We agree.” We find the support for the employees’ position persuasive, and accordingly hold that “other suitable opening” refers only to other suitable jobs with Brunswick. Since Brunswick’s contract with Test prevented the employees of the Concorde Yacht Division from being retained by the respondent, there were no openings available with ⁴⁸¹ Brunswick for the petitioners; thus, this last prerequisite to being involuntarily terminated was also satisfied. We conclude, as did the trial court, that the employees were involuntarily terminated within the meaning of the policy statement and therefore were entitled to severance pay under their contract with Brunswick unless otherwise legally barred from recovery.

The trial court, although initially concluding that the employees were entitled to severance pay, nevertheless held that these petitioners were barred from recovery because, when they accepted jobs with Test Concorde, they entered into a novation which released Brunswick from its responsibility to compensate them. This State’s general rules of law with respect to novations are well-settled and are in accord with the prevailing views elsewhere in the nation. As Judge O’Donnell said for the Court in I. W. Berman Prop. v. Porter Bros., 276 Md. 1, 7-8 , 344 A. 2d 65 (1975), our most recent decision discussing novations: “A ‘novation’ is a new contractual relation made with intent to extinguish a contract already in existence. It ‘contains four essential requisites: (1) a previous valid obligation; (2) the agreement of all the parties to the new contract; (3) the validity of such new contract, and (4) the extinguishment of the old contract, by the substitution of the new one.’ BarGale Industries, Inc. v. Robert Realty Co., Inc., 275 Md. 638, 646 , 343 A. 2d 529, 535 [(1975)]; Leisner v. Finnerty, 252 Md. 558 , 250 A. 2d 641 (1969); Hudson v. Md. State Housing Co., 207 Md. 320 , 114 A. 2d 421 (1955); Baltimore Academy of the Visitation v. Schapiro, 169 Md. 332 , 181 A. 731 (1935).

See also 6 A. Corbin, Contracts § 1297, et seq. (1962). * * * “A novation is never presumed; the party asserting it must establish clearly and satisfactorily that there was an intention, concurred in by all the parties, that the existing obligation ⁴⁸² be discharged by the new obligation. Harford Bank of Bel Air v. Hopper’s Estate, 169 Md. 314, 330 , 181 A. 751, 758 (1935); District Nat’l. Bank of Washington v. Mordecai, [ 133 Md. 419, 427 , 105 A. 586 (1919)]____ “The intention to substitute a new agreement for a previous contract need not be expressed however, since facts and circumstances surrounding the transaction, as well as the subsequent conduct by the parties, may show such an acceptance as clearly as an express agreement; but such facts and circumstances, when shown, must be such to establish that the intention to work a novation is clearly implied.

Leisner v. Finnerty, supra, 252 Md. at 565 , 250 A. 2d at 645 (1969), citing Cole, Adm’x v. Wilbanks, 226 Md. 34 , 171 A. 2d 711 (1961) [(per curiam)]; Swift v. Allan, 211 Md. 588, 594 , 128 A. 2d 260, 263 (1957); 2 S. Williston, Contracts § 353, at 816 (3d ed. 1959).” While conceding that the first prerequisite to there being a novation is fulfilled by their contract with Brunswick and that the third requirement is satisfied by their contract with Test Concorde, the employees “deny ... that there is any evidence to show that they intended to' accept Test Concorde, Inc. as a new debtor in place of [Brunswick] or that they ■intended to discharge [Brunswick] from its obligations under the old contract of employment.” Clearly there was no express intention, concurred in by all the parties, to discharge Brunswick’s obligation and substitute Test Concorde’s contract in its place; the question then is whether the evidence permits such an intent to be implied. More specifically, the issue is whether the facts and circumstances