Employer’s promise enforced by estoppel

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Where an employer reneges on a promise made to induce an employee to stay, promissory estoppel requires that the promise be enforced, the Wisconsin Court of Appeals held on Oct. 24.

William Skebba, a salesman, worked for many years for M.W. Kasch Co., which was owned by Jeffrey C. Kasch.

When M.W. Kasch Co. experienced serious financial problems in 1993, Skebba was solicited by another company to leave Kasch and work for them. When Skebba told Kasch he was accepting the new opportunity, Kasch asked what it would take to get him to stay.

Skebba requested a payment of $250,000 if one of these three conditions occurred: (1) the company was sold; (2) Skebba was terminated; or (3) Skebba retired.

Nothing in Writing

Kasch agreed, but no written agreement was ever drawn. In 1999, the company assets were sold, but Kasch denied the existence of the agreement, and refused to pay.

Skebba sued, alleging breach of contract and promissory estoppel.

The jury found that there was no contract, but that Kasch had made the promise to Skebba. It also held that Skebba relied to his detriment on the promise, that the reliance was foreseeable, and that Skebba suffered damages in the amount of $250,000.

However, in motions after verdict, Milwaukee County Circuit Court Judge Kitty K. Brennan held that Skebba failed to prove damages, because he did not prove what he would have earned had he taken the other job.

Skebba appealed, and the court of appeals reversed in a decision by Judge Joan F. Kessler.

Promissory Estoppel

The conditions of promissory estoppel were set forth in Hoffman v. Red Owl Food Stores, 26 Wis.2d 683, 698, 133 N.W.2d 267 (1965), as follows:

(1) Was the promise one which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee?

(2) Did the promise induce such action or forbearance?

(3) Can injustice be avoided only by enforcement of the promise?

The first two conditions are factual, for the jury to decide, but in U.S. Oil Co., Inc., v. Midwest Auto Care Servs., 150 Wis.2d 80, 440 N.W.2d 825 (Ct.App.1989), the court of appeals adopted five policy considerations for the court to employ in determining whether the third condition is met.

The court found that the trial court failed to apply the policy considerations from U.S. Oil, but instead relied on a law review article which states, “damages should not exceed the loss caused by the change of position, which would never be more in amount, but might be less, than the promised reward.” Seavy, “Reliance on Gratuitous Promises or Other Conduct,” 64 Harv. L. Rev. 913 (1951).

Rejecting the rule, the court concluded that it was inconsistent with a statement by the court in Hoffman that, “In determining what justice requires, the court must remember all of its powers, derived from equity, law merchant, and other sources, as well as the common law. Its decree should be molded accordingly.” Hoffman, 26 Wis. 2d at 701-02.

The court noted that later commentators have classified Wisconsin as one of a small number of states that “recognizes that to fulfill the purpose of promissory estoppel — i.e., prevent injustice — a court must be able to fashion a remedy that restores the promisee to where he or she would be if the promisor had fulfilled the promise.”

“Skebba Performed”

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Applying that standard, the court concluded, “Skebba performed — he remained at M.W. Kasch — in reliance on Kasch’s promise to pay $250,000 to him if one of three conditions occurred. Kasch enjoyed the fruits of Skebba’s reliance — he kept on a top salesperson to help the company through tough financial times and he avoided the damage that he believed Skebba’s leaving could have had on M.W. Kasch’s reputation in the industry. Accordingly, to prevent injustice, the equitable remedy for Skebba to receive is Kasch’s specific performance promised — payment of the $250,000.”

Rejecting the trial court’s analysis, the court found that Skebba’s loss has nothing to do with what he might have earned had he accepted the other job, because “Income from the rejected job was never a part of the calculus of the promise made and relied upon.”

Stating, “Preventing injustice is the objective,” the court held, “specific performance is the necessary enforcement mechanism to prevent injustice for Skebba’s reliance on the promise the jury found Kasch had made to him.”

Accordingly, the court reversed and remanded the case.

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