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A Better Partnership
July 09, 2014

COA concludes that employer's unilateral promise of severance pay was not an enforceable contract and was merely a policy that could be revoked

In Klein v. HP Pelzer Automotive Systems Inc., No 310670, the Court addressed the enforceability of an employer's promise to pay certain employees a severance package in the event their employment "is terminated or ended in any manner."  Several months later this promise was revoked by the employer, and the employees resigned and then sued to collect the severance pursuant to the earlier promise.  The trial court awarded summary to the employees, finding the promise of severance pay was an enforceable contract.  The Court of Appeals disagreed and remanded the case for an entry of summary disposition in favor of the employer. The Court concluded that as the employer's promise did not require anything of the employees, such as continuing to work for the employer for a specified period of time, it was merely a gratuity.  Additionally, the Court found that this promise was, essentially, a severance pay policy that could be changed at any time by the employer.  Thus, because the employer revoked that policy prior to the employees resignation, the employees could not recover under either an implied contract or promissory estoppel theory.  

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