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Cheek v. City of Greensboro

United States District Court, M.D. North Carolina

July 15, 2015

WENDY CHEEK, et al., Plaintiffs,
v.
CITY OF GREENSBORO, NC, Defendant. MICHAEL BROWNELL, et al., Plaintiffs,
v.
CITY OF GREENSBORO, NC, Defendant. BRETT DAVIS, et al., Plaintiffs,
v.
CITY OF GREENSBORO, NC, Defendant. DAVID MORGAN, et al., Plaintiffs,
v.
CITY OF GREENSBORO, NC, Defendants

          For WENDY CHEEK, BRIAN KEITH COLLINS, JOSEPH CASEY COUNCILMAN, WALTER STEVEN COUTURIER, TIMOTHY FIELDS, WILLIAM C. MORGAN, Plaintiffs (1:12-cv-00981-CCE-JEP): WILLIAM L. HILL, LEAD ATTORNEY, JAMES DEMAREST SECOR, III, FRAZIER HILL & FURY, RLLP, GREENSBORO, NC.

         For CITY OF GREENSBORO, NORTH CAROLINA, Defendant (1:12-cv-00981-CCE-JEP): KENNETH KYRE, JR., LEAD ATTORNEY, DANIELLE N. GODFREY, PINTO COATES KYRE & BOWERS, PLLC, GREENSBORO, NC.

         For MICHAEL BROWNELL, TRAYVEAWN GOODWIN, CHRISTIAN HICKS, TY JENKS, PATRICK KENNEDY, GEORGE SIMMONS, Plaintiffs (1:12-cv-01311-CCE-JEP): JAMES DEMAREST SECOR, III, LEAD ATTORNEY, WILLIAM L. HILL, FRAZIER HILL & FURY, RLLP, GREENSBORO, NC.

         For CITY OF GREENSBORO, NORTH CAROLINA, Defendant (1:12-cv-01311-CCE-JEP): KENNETH KYRE, JR., LEAD ATTORNEY, DANIELLE N. GODFREY, PINTO COATES KYRE & BOWERS, PLLC, GREENSBORO, NC.

         For DAVID MORGAN, ROGERS REYNOLDS, Plaintiffs (1:12-cv-01110-CCE-JEP): JAMES DEMAREST SECOR, III, WILLIAM L. HILL, LEAD ATTORNEYS, FRAZIER HILL & FURY, RLLP, GREENSBORO, NC.

         For CITY OF GREENSBORO, NORTH CAROLINA, Defendant (1:12-cv-01110-CCE-JEP): KENNETH KYRE, JR., LEAD ATTORNEY, DANIELLE N. GODFREY, PINTO COATES KYRE & BOWERS, PLLC, GREENSBORO, NC.

         For BRETT DAVIS, BRIAN CHRIS SMOOT, STEVE SZYMECZEK, Plaintiffs (1:12-cv-00888-CCE-JEP): WILLIAM L. HILL, LEAD ATTORNEY, JAMES DEMAREST SECOR, III, FRAZIER HILL & FURY, RLLP, GREENSBORO, NC.

         For CITY OF GREENSBORO, THE, North Carolina, Defendant (1:12-cv-00888-CCE-JEP): KENNETH KYRE, JR., LEAD ATTORNEY, DANIELLE N. GODFREY, PINTO COATES KYRE & BOWERS, PLLC, GREENSBORO, NC.

         MEMORANDUM OPINION AND ORDER

         CATHERINE C. EAGLES, UNITED STATES DISTRICT JUDGE.

         Before the Court are cross motions for summary judgment filed in four lawsuits brought by certain firefighters and police officers against the City of Greensboro. These cases raise issues related to compensation and benefits. This opinion addresses claims in all four lawsuits that the City is contractually obligated to provide longevity payments to employees when they reach certain milestones and that the City can never reduce or end these payments. Because the City made no offer to provide the plaintiffs with longevity payments for their entire careers, the Court will grant the City's motion in each lawsuit as to all claims that depend on the existence of such a contract.

         OVERVIEW

          For many years, the City paid its employees, including police officers and firefighters, a base salary and, after a certain number of years of service, an annual longevity payment that was calculated as a percentage of salary. The percentage rose every five years and thus resulted in what was essentially a series of annual pay raises or bonuses for experienced employees.

         In 2010, the City froze increases in longevity payments for current employees and ended longevity payments completely for new employees. As a result, when current employees reached their next five-year milestone, their annual longevity payment remained the same and did not increase.

         In 2012, the City replaced the longevity program with a " service bonus program." Under this program, the City stopped longevity payments in favor of an optional bonus. This change immediately affected employees' overtime compensation, as longevity payments had been taken into account in calculating overtime pay while service bonus payments were not. The change also had a cascading effect on retirement benefits, which are calculated as a percentage of total annual compensation, including overtime pay. If the City opts not to pay a bonus in a particular year, the financial effect will be even larger.

         The plaintiffs contend that they had a contract with the City for annual longevity payments and for regular increases in these payments at certain five-year intervals for their entire careers and that the City breached this contract when it froze longevity pay in 2010 and again when it terminated the longevity program in 2012. The plaintiffs assert several other causes of action that depend on the existence of this contract.

         None of the plaintiffs had or have written employment contracts with the City. The plaintiffs contend that the City offered longevity payments when it published a schedule of those payments in certain Benefits Books, that they accepted the City's offer by continuing their employment, and that they thereafter had contractual rights to longevity payments for the rest of their careers. The plaintiffs contend in the alternative that their rights in the longevity program were " vested" such that, after they reached their first five-year milestone, the City could never change the program's terms, or, in another alternative, that the City was contractually obligated to continue making longevity payments because it previously determined that longevity payments were non-discretionary under the Fair Labor Standards Act. The City contends that the longevity program was discretionary and could be changed at any time.

         LEGAL BACKGROUND

         North Carolina law authorizes city councils to set compensation rates for city employees and to offer employee benefits. See N.C. Gen. Stat. § 160A-162. One such benefit, longevity pay, " is a plan under which employees receive additional wages based on [their] number of years of service." Diane M. Juffras, Employee Benefits Law for North Carolina Local Government Employers 27 (2009). Many cities provide longevity pay as an offered benefit, though state law does not require them to do so. See id. at 166.

         Cities " may generally alter benefits, make them more generous or less generous, or eliminate any or all of them--just as they may give pay raises or order across-the-board salary freezes or cuts." Id. at 13-14; see also Abeyounis v. Town of Wrightsville Beach, 102 N.C.App. 341, 344, 401 S.E.2d 847, 849 (1991). However, North Carolina law " protects employees' expectations about what they are to receive in return for a day's work." Juffras, supra, at 14. If an employer distributes materials that promise certain benefits, " the promises are enforceable, and the employer must provide the benefits promised until it clearly informs employees of a change in the benefits offered." See id. ; see also White v. Hugh Chatham Mem'l Hosp., Inc., 97 N.C.App. 130, 131-32, 387 S.E.2d 80, 81 (1990); Roberts v. Mays Mills, Inc., 184 N.C. 406, 114 S.E. 530, 533-34 (1922). Thus, when a city adds, eliminates, or changes a benefit, " the [city] must update any employee handbook or manual that describes the benefits that the [city] offers its employees, and it must be sure that each employee receives a revised copy." Juffras, supra, at 14. " Once the employer changes its handbook or policy and publicizes the changes to employees, the employer is no longer liable for the benefit. When employees report to work, they know that their compensation for the work they do on that day and in the future no longer includes the eliminated benefit." Id. at 15; cf. White, 97 N.C.App. at 131-32, 387 S.E.2d at 81; Brooks v. Carolina Tel. & Tel. Co., 56 N.C.App. 801, 804-05, 290 S.E.2d 370, 372 (1982).

         Under North Carolina law, a party making a breach of contract claim must show: (1) the " existence of a valid contract and (2) breach of the terms of that contract." One Beacon Ins. Co. v. United Mech. Corp., 207 N.C.App. 483, 487, 700 S.E.2d 121, 124 (2010) (citation omitted). In employment-at-will situations, North Carolina courts often use the " unilateral contract" theory to describe the contractual relationship created when an employer promises to provide benefits in its employment materials. See, e.g., White, 97 N.C.App. at 131-32, 387 S.E.2d at 81.

         " [T]he distinctive features of [a] unilateral contract are that the offeror is the master of his offer and can withdraw it at any time before it is accepted by performance, and that while the offer is still outstanding the offeree can accept it by meeting its conditions." Id. at 132, 387 S.E.2d at 81. In the employment benefits context, an employee accepts an employer's unilateral offer to provide benefits by entering or continuing employment. See, e.g., Leone v. Tyco Elecs. Corp., 407 Fed.Appx. 749, 751 (4th Cir. 2011); Hamilton v. Memorex Telex Corp., 118 N.C.App. 1, 10-11, 454 S.E.2d 278, 283 (1995); Roberts, 184 N.C. 406, 114 S.E. at 533-34. North Carolina courts have applied the " unilateral contract theory with respect to various types of employment benefits." Garcia v. Frog Island Seafood, Inc., 644 F.Supp.2d 696, 719 (E.D.N.C. 2009); see also Hamilton, 118 N.C.App. at 10-11, 454 S.E.2d at 283 (vacation benefits); White, 97 N.C.App. at 131-32, 387 S.E.2d at 81 (disability benefits); Brooks, 56 N.C.App. at 804-05, 290 S.E.2d at 372 (severance payments); Roberts, 184 N.C. 406, 114 S.E. at 533-34 (bonus payments).

         One category of employee benefits is an exception to the general rule that employers can reduce or eliminate benefits and does not depend on the unilateral contract theory: An " employer may not change or eliminate benefits in which employees have 'vested.'" Juffras, supra, at 15; see also Simpson v. N.C. Local Gov't Emps.' Ret. Sys., 88 N.C.App. 218, 223-24, 363 S.E.2d 90, 93-94 (1987); Faulkenbury v. Teachers' & State Emps.' Ret. Sys. of N.C., 108 N.C.App. 357, 369-71, 424 S.E.2d 420, 426-27 (1993). Generally, vested benefits are those in which the employee has agreed to postpone payment or enjoyment to a time in the future such that the benefit becomes " a form of deferred, rather than current, compensation." Juffras, supra, at 15; see also Simpson, 88 N.C.App. at 223-24, 363 S.E.2d at 93-94. Whether longevity payments are a vested benefit " is an open question in North Carolina." Juffras, supra, at 167.

         FACTS[1]

         The City of Greensboro has approximately 3,000 full-time employees. (Doc. 68-7 at 10.) Only three of the City's employees--the Coliseum Director, the City Manager, and the City Attorney--have written employment contracts. (Doc. 68-7 at 10; Doc. 78-1 at ¶ 3.) All other City employees are hired as at-will employees without any written employment contracts. (Doc. 78-1 at ¶ ¶ 3-4; see also Doc. 68-7 at 10.) The City published information about its offered employment benefits, including longevity, in several ways. These included the City Personnel Manual,[2] a collection of policies implemented and updated over time; Employee Handbooks; [3] and " Benefits Books." [4]

         As part of its benefits program, the City for many years paid annual longevity payments to employees who had worked at least five years. ( See, e.g., Doc. 78-23; Doc. 81-3 at 19; Doc. 81-5 at 6; see also Doc. 68-1 at 49.) The oldest document in evidence that embodies the terms of the City's longevity program is Policy E-5, which was part of the Personnel Manual and became effective January 1, 1977. ( See Doc. 78-23; see also Doc. 68-7 at 35.) Policy E-5 provided that " [a]s of December 1, 1960, and thereafter as budgeted by the City Council, the City of Greensboro shall make longevity payments in accordance with this procedure." (Doc. 78-23 at 1.) Under Policy E-5, an employee became eligible for longevity payments once the employee met certain conditions, including, inter alia, " complet[ing] at least five (5) years of continuous service." (Doc. 78-23 at 1.) The longevity payment started at 2.5% of annual salary for five years of service and rose to a maximum of 7.5% of annual salary for 20 or more years of service. ( See Doc. 78-23 at 1.)

         In 1993, the City adopted a number of policies, also published in the Personnel Manual, that dealt with benefits generally. Policy A-2, effective January 1993, provided that " [n]othing stated in this manual guarantees an employee any vested rights as [the City's] benefits and policies are subject to change without notification at the discretion of the City Manager." ( See Doc. 78-20 at 1-2.) Policy E-1, effective August 1993, stated that the City offered its employees a number of benefits but that " [s]pecific benefit programs will vary from time to time and the type, level, eligibility and cost of such programs . . . are subject to change at any time at the sole discretion of the City" and that " [n]othing stated in this policy guarantees an employee any vested benefits rights." ( See Doc. 78-22 at 1.) Finally, Policy G-1, also effective August 1993, stated that:

The purpose of the City's compensation program is to recruit, retain, motivate and reward employees to fulfill the mission of the City in providing service to its citizens[.] . . . Some benefits offered by the City are mandated by law but most are voluntary[.] . . . Benefit program content, design and cost sharing may change over time in response to ...

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