Employment Agreement Tip of The Week No. 2: Once You Get It In Writing, Put Out Future Fires By Making Sure The Writing Is Clear

Time for our second tip of the week about employment agreements.  We’re looking at things many of us think we should do about employment agreements but that, oddly enough, aren’t being done – at least in the two cases we profile this week, each of which made it to a state high court.    

Our first tip was straightforward: if you have an employment agreement, or think you have one but aren’t sure – get it in writing.  

Our second tip follows the first.  Once you’ve reduced your employment agreement to writing, make sure it’s clear – or at least, as clear as possible.  Clarity will reduce the time and money you’ll spend if you get into a dispute over the agreement. 

The City of Sheridan, Wyoming learned that lesson in an opinion handed down by the Wyoming Supreme Court in Sheridan Fire Fighters Local 276 v. City of Sheridan.  That case revolved around a collective bargaining agreement between the small city and its firefighters – not a traditional employment agreement between one executive and her employer, but all the same, a bargained-for, written agreement covering key employment terms, including compensation, benefits, and salary increases. 

Or, at least that’s what the parties thought it covered.  When the city and the firefighters agreed to their collective bargaining agreement for this year, they were also operating from years of past practice in which the city increased a firefighter’s pay when she received a positive performance evaluation.  So, in light of that common experience, perhaps they didn’t pay as much care to the text of the agreement as they should have.  Indeed, they left the compensation and salary increase provisions pretty much the same as prior years’ agreements. 

This problem came to light when the City of Sheridan – facing a financial crunch – decided it could not provide the 5% step increases that it had provided in past years.  The firefighters’ union filed a grievance, arguing that the bargaining agreement required the City to provide those raises to every firefighter who received a positive performance evaluation.  Unsurprisingly, the City denied the grievance. 

The union filed suit in state court, alleging the City was breaching the bargaining agreement, and seeking pay raises for five firefighters who had received good performance evaluations and therefore, the union argued, were entitled to step increases.  The city moved for summary judgment on the suit, arguing that the raises weren’t required by the language of the agreement and that, in any event, Wyoming law requires it to have a balanced budget – even if that means its budget doesn’t comply with its contracted obligations. 

The trial court granted the City’s motion, finding that the bargaining agreement was clear and that, clearly read, it didn’t require the City to pay step increases. The relevant language, accompanied by a pay chart, read:

“When an employee reclassifies...or is re-graded, their pay increase shall be equivalent to five percent within the new grade with no change in their anniversary date.  Increases shall be effective upon the certification of the employee…Management reserves the right to modify job descriptions as it deems necessary.”  

The firefighters’ union appealed to Wyoming’s high court, arguing that the past practice of the City and the union under the same language in earlier bargaining agreements was that this provision provided for a step increase.  But riding side-by-side with that argument, the union contended that the provision in question was ambiguous – it didn’t clearly spell out the step increase – and so, being ambiguous, the court could look outside the contract to other evidence (often called "parol evidence") of what the parties intended.  In this case, the union argued, that other evidence was the past practice between the two sides: which gave good firefighters a five percent raise, regardless of what the bargaining agreement says. 

Ah, the fabled ambiguity argument: contract lawyers like me love it (if we’re using it) or hate it (if it’s being used against us).  It leads us to read weighty articles like this one on “pernicious ambiguity” and speculate on whether a contract has even been formed, if the parties can’t agree on which ship was supposed to carry the purchased load of cotton. But the main effect of ambiguity – which (for our purposes) can be said to mean a phrase in a contract that a reasonable person can understand in more than one way – is that it lets a court go outside the actual words of the contract to look for evidence of what it was the parties thought the contract’s words were supposed to mean. 

And that’s what the Wyoming Supreme Court did here, agreeing with the union’s arguments on appeal.  The contract language is capable of different readings, the court held: it calls for changes in grade and pay raises, but it doesn’t say that that’s the only way an employee can get a step increase.  This part of the bargaining agreement, the court held, was “susceptible to more than one plausible interpretation.” 

After finding the agreement ambiguous, the court set out to look at evidence of what the union and the City thought the agreement meant.  The union submitted a large amount of evidence from prior arbitrations it had with the City over firefighter pay.  Evidence like the mayor of Sheridan testifying at an arbitration that standard practice was that if a firefighter “receive[d] a satisfactory” rating, he received a five percent pay increase.  And the City’s human resources director testifying that an annual five percent raise wasn’t quite automatic, but that firefighters “have to get a satisfactory on their performance appraisal” to get one. And the fire chief testifying to the same thing. 

Which is what the union was arguing all along – except it wasn’t clear in the agreement, but was clear from how the parties had dealt with each other for several years.  The court looked at that evidence, and held it was “undisputed” that, based on that pattern of dealing, the five firefighters were entitled to a five percent raise.  It also rejected the City’s argument that it could get around any contractual obligation for the raises by simply not appropriating money for them.

What is the lesson from the Sheridan case for executives reviewing their employment contracts, or companies preparing drafts of them?  Try to make sure the writing is as clear as you can make it: use examples of key provisions to show how they are supposed to work, define key terms and phrases, and spell out exactly what’s supposed to happen in different circumstances. 

Or, like the City of Sheridan and its firefighters, you can get into protracted and expensive litigation over what everyone intended the contract to do.     

• Breach of Contract
• Executive Compensation
• Summary Judgment