Welsh v. Commonwealth Credit Union

Citations: 249 Ill. App. 3d 719; 619 N.E.2d 181; 188 Ill. Dec. 817; 1993 Ill. App. LEXIS 1222Docket: No. 3-92-0855

Court: Appellate Court of Illinois; August 10, 1993; Illinois; State Appellate Court

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Harold T. Welsh appeals a summary judgment favoring Commonwealth Credit Union (CCU) regarding his breach of employment contract claim. Welsh asserts that CCU violated the contract by reducing his salary in April 1989, terminating his employment in January 1990 without cause, and failing to secure a three-fourths board vote for his termination. The court reverses the summary judgment. 

Welsh began his role as CCU president in January 1968, and in October 1971, the board established a policy requiring a three-fourths vote for the president's termination. Welsh was present at this policy adoption and received a personal copy. Initially employed under a three-year contract beginning January 1971, he later entered a new three-year contract in 1974, guaranteeing a minimum salary of $24,000 annually, with provisions for automatic renewal and annual salary reviews.

The contract stipulated termination only for specific reasons, including fraud or failure to fulfill job duties, requiring five business days of prior written notice. Upon termination for specified causes, Welsh was entitled to accrued vacation pay and potentially additional salary based on the termination reason. 

Welsh's salary increased annually until 1988, when it reached $91,730, but he received no raises in 1988 or 1989. On April 24, 1989, the board voted to reduce his salary to $60,000 effective May 1, 1989, and approved an incentive plan tied to performance metrics. During a September 11, 1989, meeting, the board, with nine members present, voted five to three (with one abstention) against renewing Welsh's contract, citing reasons such as management issues and failure to address prior review findings.

On October 27, 1989, Welsh was informed via a letter from the board chairperson that his employment contract as Manager would not be renewed after January 26, 1990. The letter indicated that Welsh had been asked to resign but had not complied, and noted the termination was based on conduct detrimental to the corporation's reputation, in accordance with Section 8, Letter C of the contract. His employment was scheduled to end on November 24, 1989, with an additional 60 days of salary provided. 

In his first amended complaint, Welsh raised three counts: Count I claimed a breach of contract due to a salary reduction to $60,000; Count II asserted that the termination was without cause, violating the contract; and Count III argued that termination did not meet the required three-fourths board vote stipulated in the 'Termination Policy.' Count IV, concerning unpaid vacation time, was not part of this appeal.

The court ruled in favor of the defendant on Counts I, II, and III, stating that the contract allowed for termination without cause and that there was no breach when the contract terms were followed. The court noted that the interpretation of contractual language is typically a matter of law appropriate for summary judgment unless ambiguity exists. It found that the use of "may" and "shall" in the contract created inherent ambiguity regarding renewal terms. Summary judgment must be based on clear evidence, and the court emphasized that all interpretations must favor the non-movant, Welsh, in this case. The court's decision was informed by precedents regarding contract interpretation and summary judgment standards.

In re Schwass (1984, 126 Ill. App. 3d 512, 467 N.E.2d 957) addresses the ambiguity in Welsh's employment contract regarding renewal and termination. Two interpretations exist: one suggests the contract renews annually unless there is cause for termination under paragraph 8, while the other implies renewal may be subject to the CCU's discretion to review contract terms. This ambiguity renders the summary judgment on count II inappropriate. The trial court also incorrectly determined there were no factual questions, particularly concerning whether the board intended to terminate Welsh's contract for cause or simply notify him of nonrenewal. Conflicting references in board communications about nonrenewal and termination create factual issues that undermine the summary judgment ruling. 

Welsh argues that the trial court erred in deeming the termination policy unenforceable, allowing for termination by a board vote of less than three-fourths. The court references Duldulao v. St. Mary of Nazareth Hospital Center (1987) to establish conditions under which an employer's policy can create enforceable rights. It concludes that CCU’s acknowledgment of Welsh's awareness of the termination policy and its clear promise that termination required a three-fourths vote form a valid contract. CCU's argument that the termination policy was separate from Welsh’s employment contract is rejected, as the policy was adopted while he was employed under a contract and was republished annually, thus supplementing his contract. Summary judgment on count III is also deemed erroneous.

CCU's termination of Welsh’s employment, based on an affirmative vote from only five out of nine Board members, was legally insufficient. The court examined whether Welsh's employment contract allowed for a reduction in his annual salary. The record did not support the summary judgment favoring CCU regarding this issue. Welsh argued that his contract's paragraph 5 allows for an annual salary review, permitting increases based on economic conditions, and implies that reductions are not allowed. CCU contended that the contract's provision for a minimum salary of $24,000 and the absence of explicit language against reductions meant that Welsh's salary could fluctuate with economic conditions, but not below the minimum. The court found the contract provision ambiguous, allowing for two reasonable interpretations. Consequently, the summary judgment regarding counts I, II, and III was deemed incorrect, leading to the reversal of the circuit court's judgment and remand for further proceedings.