Offer of Employment at Salaries Neither Approved

November 6, 1987 Subject: State Departments, Institutions, and Agencies; Offer of Employment at Salaries Neither Approved by State Personnel Director nor Authorized by State Personnel Policies.

Requested By: Richard V. Lee, State Personnel Director

Questions: (1)

: Does a written or verbal offer of employment by a state agency or university, with a specific salary amount and without the final approval of the State Personnel Director, create a legally enforceable contract?
(2): Does a written or verbal offer of employment by a state agency or university, with a specific salary amount which violates applicable personnel policies and administrative rules and without the final approval of the State Personnel Director, create a legally enforceable contract?
(3): Does the position, authority or apparent authority of the person making the offer of employment have an impact on whether the offer constitutes a legally enforceable contract?
(4): If an offer of employment by a state agency or university, with a specific salary amount which violates applicable personnel policies and administrative rules, is made and later rescinded as being in violation of applicable personnel policies and rules, what is the liability of the agency?
(5): What is the liability of the person who made the offer?
(6): What is the liability of the Office of State Personnel if it refuses to process a hiring decision which violates State Personnel Commission policy?

Conclusions: (1)

: No.
(2): No.
(3): No.
(4): None.
(5): It seems unlikely that any liability would attach to the person who made the offer, but it might depend on the nature of the person’s position and the circumstances surrounding the offer.
(6): None. The question has arisen as to the effect of an offer of employment, either written or verbal, by a

state agency or university, specifying a specific salary amount when the amount cannot be offered without violating applicable personnel policies and administrative rules or when the approval of the State Personnel Director is required and cannot be obtained. In such instances, the inquiry asks, may a legally enforceable contract be created and, if so, under what circumstances? The question has also been raised as to what liability may exist for the agency which made the offer but cannot in fact employ the person at the offered salary, or for the individual officer or employee who made the offer which cannot be fulfilled, or for the Office of State Personnel if it refuses to process or approve an offer at a rate in violation of Personnel Commission policies.

This inquiry, and the discussion, assume that the position is one covered by the State Personnel Act and subject to State Personnel Commission policies governing salaries and rate of pay. The State Personnel Commission, subject to the approval of the Governor, establishes policies and rules governing a compensation plan for all employees subject to Chapter 126. G.S. § 126-4(2). The Personnel Commission, again subject to the approval of the Governor, also establishes policies and rules governing appointment, promotion, transfer and demotion of employees. G.S. 126-4(6). The Commission has duly adopted policies and rules controlling salaries for new employees and for employees who are promoted, transferred, or demoted. A salary schedule includes a hiring rate and a number of steps, beginning with step 1 and currently going through step 11B, for each pay grade. Policy generally provides that an employee entering into state service shall normally be paid at the hiring rate. Appointment above the hiring rate may be justified either on the basis of a tight labor market and recruitment problems or exceptional qualification of the applicant and operational needs of the employing entity. Approval is required for appointment above the hiring rate. (State Personnel manual, 7-2; 25 N.C.A.C. 1D.0202, .0203) The promotional policy provides that an employee must be raised to step 1 of the new pay grade or by one step, whichever is larger, and may be increased by more than one step, not to exceed the number of salary grades provided by the promotion. Only in very unusual and welldocumented circumstances will salary increases larger than the increase in grades provided by the promotion be approved. (Personnel Manual 7-12; 25 N.C.A.C. 1D .0302). When an employee is demoted, ordinarily he or she may retain the prior salary if it is within the lower range, but the salary must be reduced to the maximum of the lower range if necessary to make the salary fall within the range of the lower pay grade. (Personnel Manual, 7-15; 25 N.C.A.C. 1D .0402). When an employee transfers to a position within the same salary grade, the salary remains the same ordinarily. If the transfer is to a higher class and pay grade, the promotion policy applies. If the transfer is to a lower class and pay grade, the demotion policy applies. (Personnel Manual 7-22; 25 N.C.A.C. 1D .0908)

Personnel Commission policies thus control the level of pay for new appointments and for persons moving into a position by transfer, whether from the same pay grade or a higher or lower pay grade. The Commission has provided for forms by which approval must be sought from the State Personnel Director and the Office of State Personnel for each of these actions, to insure that they comply with applicable policies, and for specific approval and justification in some circumstances, as where an agency seeks to hire above the hiring rate or seeks to provide a promotional increase larger than would be otherwise provided for by the promotional policy. The Commission, throughout its manual and rules, provides that the State Personnel Director (hereinafter "the Director") and the Office of State Personnel (hereinafter "OSP"), both created by G.S. 126-3, process and approve appointments, promotions, demotions and transfers and the resultant pay changes or levels of pay.

Assuming that a particular position is subject to the State Personnel Act and the pay policies of the Personnel Commission, there is no authority in other agencies or officials to offer or pay a salary rate higher than that authorized under Personnel Commission policies and approved by OSP and the Director pursuant to those policies. Without authority to authorize or establish specific pay rates, an agency and its officials and employees cannot enter into legally enforceable contracts to pay salaries not consistent with State Personnel policies or approved by the Director and OSP. Only a contract validly entered into by one with authority to bind the State is legally enforceable against the State. See, e.g., Smith v. State, 289 N.C. 303, 320, 222 S.E.2d 412 (1976); Stewart v. Graham, 72 N.C. App. 676, 325 S.E.2d 53, disc. rev. den’d, 313 N.C. 611, 330 S.E.2d 616 (1985). Thus, it has been held that an agency whose employees are subject to the Personnel Act cannot enter into a contract or create an enforceable right to hire an employee or allow an employee to continue in employment contrary to the Personnel Commission policies adopted under Chapter 126. Bean v. Taylor, 408 F.Supp. 614 (M.D.N.C.), aff’d, 534 F.2d 328 (4th Cir. 1976). In that case, the plaintiff was employed by the Stokes County Health Department as a Sanitarian II in violation of State Personnel rules. The court concluded that any implied contract which plaintiff might otherwise establish would be unenforceable on the grounds of being contrary to law or public policy as tending to undermine the State’s merit system of personnel administration and violating the state policy of a state-wide personnel system embodied in Chapter 126.

The purpose of Chapter 126 and thus public policy would be frustrated by enforcement of contracts made in violation of the valid rules established pursuant to N.C.G.S. § 126-4(3). This frustration of public policy would require nonenforcement of any such contract.

Id. at 621. The reasoning of the Middle District in Bean v. Taylor is equally applicable in considering the frustration of public policy which would result were offers to employ people at salary rates not authorized by Personnel Commission policies or approved under those policies to be construed as enforceable contracts.

The Court of Appeals of Georgia concluded that a state employee promoted to a higher level position in the Georgia Department of Human Resources was not entitled to a pay level higher than that authorized under Personnel Board rules despite the fact that he was notified in writing that he had been appointed at the higher pay level. The court there stated that no employee of the employing department had authority to promise a salary level higher than authorized under Georgia personnel policies. Stanley v. Dept. of Human Resources, 146 Ga. App. 450, 461, 246 S.E.2d 459 (1978).

For these reasons, it is our conclusion that no legally enforceable contract is created by a written or verbal offer of employment by a state agency or university with a specific salary amount which violates applicable personnel policies and administrative rules or which lacks the final approval of OSP and the Director. (This opinion does not speak to the question of any rights which might be asserted should the Director and OSP arbitrarily or discriminatorily withhold approval of a salary amount within Personnel Commission policies.) The position, authority or apparent authority of the person making any such offer of employment would have no impact on whether the offer constitutes a legally enforceable contract. Regardless of the position of the individual in question, he or she would not have the authority to enter into an agreement for a salary not consistent with personnel policies.

If a state agency or university makes an offer of employment with a specific salary amount which violates applicable personnel policies and administrative rules, the agency is not liable for rescission of that offer at that salary. In holding that state agencies were not immune from suits to enforce contracts or for breach of contract, the Supreme Court specifically limited its ruling to valid contracts. Smith v. State, supra, 289 N.C. at 320. Thus, where state officials orally agreed to enter into a lease for certain facilities on the state fairgrounds, the agreement was not binding and the state could not be sued for breach of that agreement because the lease had not been entered into by the Department of Administration and approved by the Governor and Council of State, as required by law. Stewart v. Graham, supra.

The inquiry also asks what liability, if any, the employee or official who made the offer would have. The answer to this question is less clear-cut, but it appears unlikely that he or she would have any liability, under most circumstances.

The well-established rule in North Carolina is that an employment contract which contains no provision concerning its duration is ordinarily terminable at will, for any reason or for no reason, as long as it is not a specifically prohibited reason. E.g., Nantz v. Employment Security Commission, 290 N.C. 473, 226 S.E.2d 340 (1976); Still v. Lance, 279 N.C. 254, 182 S.E.2d 403 (1971); Humphrey v. Hill, 55 N.C.App. 359, 285 S.E.2d 293 (1982). If an employment contract can be terminated completely, the employer should be equally able to continue the contract only upon a reduced salary. Thus, if an offer is to a person outside of state government or an employee without sufficient service to be protected from dismissal without just cause, the offeree or newlyhired employee normally has no legally cognizable claim. Nor should he or she be able to assert a claim of promissory estoppel, either against the employer or the individual forwarding the offer. See, Tatum v. Brown, 29 N.C. App. 504, 224 S.E.2d 698 (1976).

There do not appear to be any cases alleging negligence as a basis for relief in the context of actions relating to employment contracts or attempted employment contracts. However, the general rule in North Carolina is that no tort action arises from a breach of contract. See, State Ports Authority v. Lloyd A. Fry Roofing Co., 294 N.C. 73, 240 S.E.2d 345 (1978); accord, Asheville Contracting Co. v. City of Wilson, 62 N.C.App. 329, 342, 303 S.E.2d 365 (1983). By analogy, no tort should arise from what is essentially in the nature of a breach of contract action although occasioned not simply by refusal of the defendant to comply with an actual contract, but instead arising from the lack of a contract validly entered into under state law.

Even if negligence may be the basis for a claim against the individual making the offer, the position of that individual will have a significant bearing on his or her potential liability. Under North Carolina law, public officers or officials, as opposed to employees, are not liable for negligence in the performance of their jobs in matters involving judgment and discretion, but may be liable when they act outside the scope of their authority or with malice or corruption. E.g., In re Grad v. Kaasa, 312 N.C. 310, 313, 321 S.E.2d 888 (1984); Smith v. State, supra, 289

N.C. at 331; Smith v. Hefner, 235 N.C. 1, 7, 68 S.E. 2d 783 (1952). Thus, if the offer is made by one considered a public official, such as the head of a department or independent agency, assuming there is no malice or corruption involved, there should not be any liability. Making an offer of employment and indicating the expected salary would seem to be within the authority of the department or agency head even though he or she might be mistaken as to the salary that could actually be paid. On the other hand, an employee may be liable for negligence in the performance of his duties. E.g., Givens v. Sellars, 273 N.C. 44, 159 S.E.2d 530 (1968); Smith v. Hefner, supra, at 235 N.C. 7; see also Pigott v. City of Wilmington, 50 N.C. App. 401, 402-04, 273 S.E.2d 752, disc. rev. den’d, 303 N.C. 181, 280 S.E.2d 453 (1981). When the person making the offer is considered an employee rather than a public official, he or she might be liable for negligence in making an offer at a salary which cannot in fact be paid. However, given the unwillingness generally of the courts to extend liability for tort claims to actions basically arising from breach of contract, it seems probable that no liability would be imposed on the employee for simple negligence in such circumstances. We also note that the Court of Appeals refused to find any duty resulting in liability for employees who made negative reports about another employee who claimed that the negative reports were made negligently and resulted in her dismissal. Osborne v. Walker, 48 N.C.App. 627, 269 S.E.2d 281, disc. rev. den’d, 301 N.C. 402 273 S.E.2d 447 (1980).

To sum up the foregoing, it seems likely that the individual making the offer will not be liable for offering a salary higher than is allowed or approved under personnel policies. However, in the absence of any clear case authority on the basis of similar facts, the possibility of liability cannot be ruled out entirely if the offer is made by an employee who acts negligently or by an employee or public official acting maliciously or corruptly or outside the scope of his or her authority. The primary instance in which the possibility of liability exists, if all the issues discussed above are resolved against the official or employee, would be when an individual transfers from one agency to another under circumstances such that his salary ends up lower than the salary he previously had, especially if he or she had sufficient service to be protected from dismissal or reduction in pay or position without just cause.

The inquiry also asks what the liability of the Office of State Personnel would be if it refused to process a hiring decision which violated State Personnel Commission policy. There should be no liability on OSP for refusing to process such a hiring decision. Under those circumstances, OSP and the Director would merely be carrying out their own responsibilities under state law and the Personnel Commission policies adopted pursuant thereto. No liability could attach to them for lawfully performing their jobs regardless of the representations made by officials or employees of other departments or agencies.

Lacy H. Thornburg Attorney General

Norma S. Harrell

Assistant Attorney General