                   IN THE COURT OF APPEALS OF TENNESSEE

                                      AT KNOXVILLE

                                                                  Filed
                                                                  September 15, 1999

MICHAEL PHILLIPS,                              ) C/A NO. 03A01-9901-CH-00030
                                               )
       Plaintiff-A ppellant,                   ) UNICOI CHANCERY
                                               )
v.                                             ) HON . THO MA S J. SE ELE Y, JR.,
                                               ) CHANCELLOR
MO RRIL L EL ECT RIC, IN C.,                   )
                                               ) VACATED AND
       Defendant-Appellee.                     ) REMANDED




TONY SEA TON and LEE H ERRIN, LAW O FFICES OF TON Y SEATON , Johnson
City, for Plaintiff -Appellan t.

WILLIAM C. BOVENDER and STEPHEN M. DARDEN, HUNTER, SMITH &
DAVIS, LLP, Johnson City, for Defendant-Appellee.




                                        O P I N IO N


                                                              Franks, J.


                 In this action f or breach o f employm ent contrac t, the defend ant-

employer was granted summary judgment by the Trial Court, and plaintiff-employee

has app ealed.

                 On November 10, 1994, plaintiff-employee and defendant-employer

entered into an employment agreement providing that plaintiff was to be employed for

a term of five years as a Special Assistant to the President of the company. The

agreement contained a clause regarding termination that stated:

                      5. Termination for Cause: For good and sufficient cause,
                 Employer may terminate this Agreement at any time upon giving written
              notice to Employee specifying the reasons for such termination. The
              following specific gro unds, wh ile not exclus ive, shall con stitute
              sufficient reasons for termination of this Agreement for cause:

                    A. If the Employee shall engage in any conduct or activity which
              would be a material breach of his obligations under this Agreement; or

                    B. If the Employee shall be convicted of any offense or crime
              punishable as a felony or otherwise involving moral turpitude; or

                     C. If Em ployee shall en gage in an y act or condu ct which w ould
              be a violation of any rule, law or regulation relating to the conduct of
              Employer’s business and which would subject Employer to civil or
              criminal liabilities.

              Defendant’s President,Giles Morrill, died unexpectedly on May 22,

1997. Vice President, William E. “Bud” King, assumed the role of President of the

company and King began to restructure the company, and eliminated several positions,

including that of Special Assistant to the President. He stated that in his new

“organizational chart” there was no place for an Assistant to the President, regardless

of who had worked in that capacity. He reassigned plaintiff to a production job at the

com pany’s Ro cky Fork f acility.

              After the death of Morrill, his widow and daughter approached Paul

Farnor and asked him to become a member of the Board of Directors. Mr. Farnor was

elected to Chairman of the Board in June of 1997, and between July 18, 1997, and

August 18, 1997, Farnor evaluated the plaintiff’s performance. He reviewed the

documents in plaintiff’s personnel file and interviewed co-workers as to plaintiff’s job

performance. Farnor concluded that plaintiff was making no contribution to the

comp any.

              On Au gust 18, 19 97, Farno r met with P hillips and ask ed Phillips to

leave the company “quietly” with six months benefits and pay. He told plaintiff that

he had not bee n contr ibuting to the co mpan y, and tha t he “ha d been move d aroun d,”

and that his peers were giving negative feedback about him. Farnor gave plaintiff a

copy of the notes from that meeting. On September 8, 1997, Farnor gave Phillips a

                                             2
“separation notice.” This notice stated that Phillips was discharged for cause “because

he engaged in conduct and activities which are a material breach of his obligations

under his employment agreement.” Plaintiff then brought this action, alleging that he

had been wrongfully terminated in violation of his employment contract, and that he

did not receive adequate notice of termination in accordance with the employment

agreement, which also constituted a breach of the agreement. This appeal ensued,

following the Trial Co urt’s grant of summa ry judgment to defenda nt.

               In evaluatin g a motion for summ ary judgmen t, a trial court shou ld

consider “(1) whether a factual dispute exists; (2) whether the disputed fact is material

to the outcome of the case; and (3) whether the disputed fact creates a genuine issue

for a trial.” Byrd v. H all, 847 S.W.2d 208, 214 (Tenn. 1993). When reviewing the

action of th e Trial Co urt, this Cour t must view the eviden ce in the light m ost favora ble

to the oppo nent of the motion, an d all legitimate c onclusion s of fact m ust be draw n in

favor o f the op ponen t. Gray v. Amos, 869 S .W.2d 925 (T enn. A pp. 199 3).

               In an action for wron gful discha rge in breac h of contra ct, the burde n is

on the plaintiff to prove all facts essential to his cause of action. The employee

establishes a prima fac ie case by prov ing the con tract, his perfo rmance th ereof up to

the time of his discharge, and the damage resulting from the discharge that is in breach

of the contract. 30 C.J.S. Employer-Employee Relationship §89(a) (1992). Where the

contract requires good cause for a discharge, the employer has the burden of proving

such g ood ca use. Id. At §89(b).

               It is plaintiff’s position that he was discharged due to the restructuring

of the company, and therefore was not discharged for cause as required under the

Employment Agreement, and further that the defendant further breached the

Agreement by not giving plaintiff adequate notice of his termination and the reasons.

               Plaintiff was hired to the specific position of “Special Assistant to the


                                              3
President” with such duties and responsibilities as assigned to him by the President or

Board of Directors. The Employment Agreement states that initial duties will include

assistance in the establishment and codification of corporate policies and procedures,

and also to formulate and provide implementation for enhancement of manufacturing

productivity. It was further agreed that future assignments would include duties and

responsibilities commensurate with a senior management position for employer. The

term of employment would continue through November 27, 1999.

              When King took over the role of President following the death of

Morrill, he vacated plaintiff from his position and reassigned him to a production job,

which plaintiff described as work on the production line and “helping with department

assessments and review, which was essentially process engineering or plant

engineerin g kind of work.” H e also stated th at by the time he left work w ith

defenda nt, his position “ had been reduced f ive levels.” N either his pay no r benefits

was cut with the change of positions.

              When an employee is hired to fill a particular position, any material

demotion or change of duties constitutes a breach of the contract, unless the contract

contemplates a change in rank and nature of job. 30 C.J.S. Employer-Employee

Relatio nship § 52 (19 92); D avid J. O liveiri, A nnotatio n, Reduction in Rank or

Authority or Change of Duties as Breach of Employment Contract, 63 A.L.R.3d 539

(1975 ). Also see Smith v. American General Corporation, NLT, 1987 WL 15144

(Tenn .App. 1 987).

              In Moore Coal Co. v. Brown, 64 S.W.2d 3 (Tenn. 1933), involving a

change of duties under an employment contract, the parties were held to have

modified the employment agreement resulting in no breach. In Balderac chie v. Ruth ,

256 S.W.2d 390 (Tenn. App. 1953), the Court held that modification of an existing

contract cannot be acc omplished by the unilateral action of one of the parties. Rather,


                                             4
there must be the same mutuality of assent and meeting of minds as required to make a

contract, and new ne gotiations ca nnot affe ct a comp leted contrac t unless they resu lt in

a new agreement. Moreover, a modification of an existing contract cannot arise from

an ambiguous course of dealing between the parties from which diverse inferences

might reasonably be drawn as to whether the contract remained in its original form or

was ch anged . Id.

                 The reassignment of plaintiff to a job “five levels” lower than the job for

which he was hired without more, would constitute a breach of the employment

contract. Plaintiff was hired for a specific position of Special Assistant to the

President, and his duties were described in the employment agreement as being

compara ble to that of s enior man agemen t. While his sa lary remained the same, h is

duties we re significan tly diminished w ith his reassign ment to a p roduction jo b, and it

has been held that such a demotion can be characterized as a discharge of the

emplo yee. See 30 C.J.S. Employer-Employee Relationship §52 (1992). The

defendant has the burden of showing the modification of the contract by mutual assent

or of establishing facts either constituting an accord or forming the basis of an

estopp el. Id.

                 A contract for a definite term may not be terminated before the end of

the term except for cause or by mutual agreement, unless the right to do so is reserved

in the contract. 30 C.J.S. Employer-Employee Relationship §38. An employer has a

right to discharge an employee at any time for just cause. The fact that the employer

bears with the incompetency or irregularities of such employee for a time does not

estop the em ployer from d ischarging the emplo yee for such in compete ncy if it

continu es. Little v. Federal Container Corp., 452 S.W.2d 87 5 (Tenn. App . 1969),

citing Glasgow v. Hood, 57 S.W. 162 (Tenn.Chan.App. 1900) and Jackson v. Texas

Co., 10 Tenn.App . 235 (Tenn.Ap p. 1929).


                                              5
               The Trial Judge h eld that plaintiff was fired for g ood cause, and there

was no genuine issue of material fact as to the cause of termination. Good cause for

discharge is found w hen the employee acts in a w ay that tends to injure his employer’s

busine ss, intere sts, or rep utation. 3 0 C.J.S . Emplo yer-Emp loyee Re lationsh ip §60.

Whether good cause exists to terminate an employment contract is a determination

made on a case-by-case basis, and ex ists only where the discharg e is “objective ly

reasonable.” Video Catalog Channel, Inc. v. Blackwelder, 1997 WL 581120

(Tenn.App. 19 97) citing 30 C.J.S. Employer-Em ployee Relationship §60 (1 992).

               The Trial Judge relied heavily on an admission by the plaintiff that he

was fired for cause. W hen aske d why he w as terminate d from the job at Mo rrill

Moto rs, plaintif f respo nded “ for cau se.” Ho weve r, this state ment is n ot dispo sitive.

Plaintiff cou ld have m erely been rep eating the rea son he w as given fo r his

termination. This may evince the fact that plaintiff knew the company was

discharging him for cause and not for some other reason. Nonetheless, the stated

reason for termination and the actual reason for termination may not coincide.

               There are disputed issues of material fact as to the true cause of

plaintiff’s termination. On the one hand, plaintiff’s position was eliminated in the

restructuring of the comp any, and on the other hand there is evidence that plaintiff’s

job perfor mance w as not acce ptable to the d efendan t.

               Section 5 of the Employment Agreement states that “for good and

sufficient cause, Employer may terminate this Agreement at any time upon giving

written notice to the employee specifying the reasons for such termination.”

(Emphasis added). Plaintiff contends there is a dispute as to whether he received

adequ ate writt en notic e for the reason s for his termina tion.

               Defend ant points to th ree written d ocumen ts as eviden ce of ade quate

notice of the termination and the reasons therefor. First, defendant points to a memo


                                               6
dated May 9, 1997, reprimanding plaintiff’s job performance. Next, defendant relies

on a hand-written copy of the minutes of the August 18, 1997 meeting, that was

furnished to plaintiff. Defendant states that it was in that meeting that plaintiff was

terminated, and the notes contain notice, in writing, of plaintiff’s deficiencies. At the

time plaintiff was advised that “he was simply not contributing to the company, and he

had been moved around and his peers are giving negative feedback about him.”

Plaintiff counters that in the meeting “there was no discussion of termination for

cause.” However, the notes from the meeting indicate that plaintiff was being

terminated from his position. The third written notice to plaintiff was the separation

notice completed on September 8, 1997. This stated that plaintiff was discharged

because “ he engag ed in cond uct and ac tivities which are a materia l breach of his

obligati ons un der his e mploym ent agre emen t.”

               Plaintiff relies upon the deposition of Farnor to support his position that

he was not given adequate notice of his termination. Farnor was asked if he had, at

any time, given plaintiff “written notice specifying the reasons for his termination”,

and Farnor responded that he did not. Farnor was then asked if any other written

reprimand s in plaintiff’s f ile specified a reason fo r termination , to which F arnor again

replied “no.” Farnor further stated that he had no knowledge of anyone else in the

company giving plaintiff anything in writing specifying the reasons for termination.

               There is a genuine issue of fact as to whether any of the written

documents cited by the defendant satisfy the notice requirement. While defendant

argues that it did satisfy this requirement, the Chairman of defendant’s Board of

Directors a dmits that he never gav e plaintiff w ritten notice of the reasons for his

termination, nor knew of anyone else in the company providing such notice.

               On this issue, an employee who is summarily discharged with less notice

than spec ified under the con tract may recov er co mpe nsation f or the notice p eriod on ly,


                                              7
and no t for the balanc e of the contrac t period . See 27 Am .Jur.2d, Employment

Relationsh ip §43 (1996).

              There are disputed issues of material fact to be resolved, and we

therefore vacate the summary judgment and remand for trial on these issues.

              We vacate the summary judgment and remand with cost of the appeal

assessed to the defen dant.




                                           __________________________
                                           Herschel P. Franks, J.


CONCUR:




___________________________
Charles D. Susano, Jr., J.




___________________________
D. Michael Swiney, J.




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