Employee Handbook – Unilateral Contract

Ed Davis v. City of Montevallo, [Ms. 1210016, Jan. 13, 2023] __ So. 3d __ (Ala. 2023). The Court (Mitchell, J.; Bolin, Shaw, Mendheim, and Stewart, JJ., concur; Parker, C.J., concurs in part and concurs in the result; Sellers, J., dissents, which Wise and Bryan, JJ., join) reverses a summary judgment entered by the Shelby Circuit Court in favor of the City of Montevallo (“the City”) in an employment termination case filed by Ed Davis, the former manager of the City’s Golf Course. Davis alleged that an employee handbook created a unilateral contract and that his employment could only be terminated in accordance with discharge procedures set out in the handbook.

The Court first notes that “‘[t]o determine whether an employee handbook constitutes an offer to create a unilateral contract, we apply a three-part test. Hoffman-La Roche, [Inc. v. Campbell,] 512 So. 2d [725,] 735 [(Ala. 1987)]. First, the language in the handbook must be ‘specific enough to constitute an offer.’ Id. Second, ‘the offer must have been communicated to the employee by issuance of the handbook, or otherwise.’ Id. And third, ‘the employee must have accepted the offer by retaining employment after he has become generally aware of the offer.’” Ms. *6.

The Court reiterates that “[a] handbook containing discharge procedures is thus specific enough to constitute an offer when the parties’ outward manifestations are ‘clear enough that an employee ... could reasonably believe that, as long as he worked within the guidelines set out in the handbook, he would not be terminated until all procedures set out in the handbook had been followed.’” Ms. *7, quoting Hoffman-La Roche, 512 So. 2d at 735.

The Court holds:

The Handbook’s pervasive use of “shall” demonstrates that the discharge procedures in Article 9 are binding. See Ex parte Brasher, 555 So. 2d 192, 194 (Ala. 1989) (“The word ‘shall’ ... usually indicates that the requirement is mandatory.”);see also Antonin Scalia & Bryan Garner, Reading Law: The Interpretation of Legal Texts § 11 at 112 (Thomson/West 2012) (“Mandatory words impose a duty; permissive words grant discretion.”). And the mandatory meaning of “shall” here is made clear by examining it alongside the Handbook’s use of “may.” See Ex parte Mobile Cnty. Bd. of Sch. Comm’rs, 61 So. 3d 292, 294 (Ala. Civ. App. 2010) (“Ordinarily, the use of the word ‘may’ indicates a discretionary or permissive act, rather than a mandatory act.”). ... The Handbook’s precise use of mandatory and permissive language demonstrates that the City knowingly chose to draft some provisions that are binding and others that are nonbinding. The use of “shall” in the discharge procedures in Article 9 thus indicates that the City was bound to follow them.

Ms. **10-11.

The Court rejects the City’s argument that a disclaimer signed by Davis prevented the formation of a unilateral contract and holds “the City chose to disclaim only a contract for a certain duration or a contract that altered the at-will nature of the employment relationship, neither of which the Handbook’s discharge procedures affect. The acknowledgment thus does not disclaim those procedures as contractually binding.” Ms. *17.

The Court declines to rule on Davis’s motion for partial summary judgment on the issue whether the City followed the procedures in the Handbook because “[t]he court below did not reach the merits of Davis’s motion for summary judgment because it held that the Handbook did not create a unilateral contract.” Ms. *21.

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