Demasse v. ITT Corp., 194 Ariz. 500, 984 P.2d 1138 (Ariz. 1999)
Demasse v. ITT Corp.
Once a seniority-based layoff policy in an employee handbook becomes an implied-in-fact term of employment, may the employer unilaterally modify or eliminate that term by issuing a revised handbook with disclaimers or a reservation-of-rights clause, and is an employee's continued employment sufficient consideration for such a modification?
In Arizona, (1) employee handbooks can create implied-in-fact contract terms that limit an employer's discretion, absent clear and conspicuous disclaimers communicated before contract formation; (2) once a handbook term becomes part of the employment contract, the employer may not unilaterally modify that term; (3) any modification requires mutual assent and consideration; and (4) an employee's continued employment alone is not sufficient consideration to support a midstream modification that reduces or eliminates previously conferred contractual protections.
No. ITT could not unilaterally modify or eliminate the previously binding seniority-based layoff term simply by issuing later handbooks with new layoff criteria, disclaimers, or a reservation-of-rights clause. Any modification required employee assent and valid consideration beyond mere continued employment. Accordingly, the later handbook changes did not defeat the employees' contractual rights created by the earlier handbook's seniority provisions.
Demasse is a cornerstone Arizona case on the contractual force of employee handbooks and the limits on unilateral modification. It teaches that: (1) definite handbook terms can become enforceable promises; (2) after formation, employers cannot retroactively change those terms by issuing new handbooks or adding disclaimers; and (3) continued employment does not constitute consideration for modifications reducing established employee protections. For law students, Demasse is a prime vehicle to test mastery of implied-in-fact contracts, modification doctrine, consideration, the effect of disclaimers/reservation clauses, and the policy concerns around illusory promises in the at-will employment context.