Mark Boswell, et al. v. Panera Bread Company, et al.

The central issue in this contracts case is whether certain at-will employees can

hold their employer, Panera, LLC, to its promise to pay them a bonus. The district

court thought so and granted summary 1 judgment to the employees. We agree and

affirm.

In an effort to recruit and retain general managers for its restaurants, Panera

created a program under which qualifying managers were eligible to receive a

relatively large one-time bonus, among other emoluments. A few years after creating

the program, Panera asked the managers to sign an employment agreement that

incorporated a compensation plan providing that the one-time bonus would be paid

about five years after the manager executed the agreement. The amount of the bonus

depended heavily on the profitability of the manager's restaurant over the final two

years of the five-year period. To receive the bonus, the manager had to be a manager

under the program on the date when the bonus was payable.

Panera decided in 2010 that it would set a $100,000 cap on the amount of the

bonus because the bonuses would otherwise be too costly. Panera informed its

managers of the cap in 2011 and explained that it would become effective in January

2012. Panera received no complaints about the cap until 2014 when one of the

managers under the program, Mark Boswell, raised concerns shortly before he

received his bonus. Boswell and two other managers, David Lutton and Vickie

Snyder, then sued Panera for breach of contract on behalf of themselves and a class

of similarly situated managers, maintaining that Panera had violated the agreements

by imposing the cap. Panera responded that the parties had orally terminated and

replaced—or, in legal parlance, novated—the agreement because the managers, by

their words and actions, assented to a new agreement containing the cap. Panera also

asserted that the managers had waived any claims they had regarding the cap by

continuing to work without complaint or were estopped from raising any claims about

1The Honorable Audrey G. Fleissig, United States District Judge for the

Eastern District of Missouri.

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it because it was too late. It argued as well that an economic downturn allowed it to

impose the cap because the purpose of the contract had been commercially frustrated.

The district court certified a class of about sixty-seven managers and eventually

granted them summary judgment. In doing so, the court rejected the managers'

characterization of the agreement as a bilateral contract: The court decided instead

that Panera had extended an offer to enter into a unilateral contract and that the offer

had become irrevocable because all class members had rendered a substantial part of

the requested performance by working at least a year after signing their agreements.

The court noted that, even if the agreement amounted to a bilateral contract, Panera's

novation defense failed: it held that any supposed novation was not supported by

consideration since Panera did not promise to do anything that it was not already

obligated to do. The court also rejected Panera's waiver and estoppel defenses

because Panera's imposition of the cap was a repudiation of its bonus offer, and the

managers were free to continue performing rather than treat the repudiation as an

immediate breach. It also rejected Panera's commercial-frustration defense, holding

that the economic downturn was a foreseeable event that Panera should have

anticipated when making the bonus offer. Panera appeals the district court's grant of

summary judgment—a decision we review de novo. Mackey v. Johnson, 868 F.3d

726, 729 (8th Cir. 2017). The parties agree that we apply Missouri substantive law

in this diversity case. See DeCoursey v. Am. Gen. Life Ins. Co., 822 F.3d 469, 473

(8th Cir. 2016).

We note as a preliminary matter that, like the district court (and contrary to the

managers' continued insistence on appeal), we think that under Missouri law the

agreements amounted to offers by Panera to enter into a unilateral contract. A

bilateral contract is a contract containing mutual promises imposing some legal duty

or liability on each promisor. Mayer Hoffman McCann, P.C. v. Barton, 614 F.3d 893,

903 (8th Cir. 2010). A bilateral contract, like all contracts, must be supported by

consideration, which "consists either of a promise (to do or refrain from doing

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something) or the transfer or giving up of something of value to the other party."

Baker v. Bristol Care, Inc., 450 S.W.3d 770, 774 (Mo. 2014) (en banc).

The managers here were already at-will employees when they signed their

respective agreements, and those documents expressly recognized that the managers

would remain at-will employees during the five-year bonus period. Under Missouri

law, a promise to continue an at-will employment relationship cannot serve as

consideration to create an enforceable contract, see id. at 775, because, as one court

explained, at-will employment is terminable at the will of either party on a momentby-

moment basis, so the employment relationship is not legally enforceable. Morrow

v. Hallmark Cards, Inc., 273 S.W.3d 15, 26 (Mo. Ct. App. 2008). An employee's

promise to work for an employer until the employee decides to quit is therefore not

much of a promise at all, at least not one sufficient to serve as consideration. As a

result, employment at will can be characterized as a unilateral contract because there

is an express or implied promise that the employer will pay if the employee works as

directed. Id.

The managers concede that, under Missouri law, continued at-will employment

is not consideration to support a bilateral contract. But, they argue, they made a

number of other promises when they signed their employment agreements that do

amount to consideration, including a "restrictive confidentiality covenant" under

which the managers promised not to disclose "any secret or confidential material or

information relating to any aspect of the business or operations of Panera," promises

to abide by forum-selection and choice-of-law clauses, and waivers of the right to

recover consequential and punitive damages and the right to a jury trial. We cannot,

however, square the managers' argument with Baker, where the Supreme Court of

Missouri held that "[n]either Baker's continued at-will employment nor the incidents

of that employment provide consideration." Baker, 450 S.W.3d at 776. The Baker

court does not go into much detail about what constitutes an "incident" to at-will

employment, so we must predict how the Supreme Court of Missouri would flesh out

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the term, see DeCoursey, 822 F.3d at 476, and we think that that court would

conclude that the managers' promises here fit within that category. The employee in

Baker made a similar confidentiality covenant, see 450 S.W.3d at 785 (Wilson, J.,

dissenting), but the Baker court viewed that covenant as an incident to the at-will

employment. Id. at 776. The managers' other promises stem from boilerplate

contractual provisions that are tied directly to the at-will relationship and not more

broadly to other situations. For example, the waiver of the right to recover

consequential and punitive damages applies to "any claim directly or indirectly

arising from or relating to" the employment agreement. In light of Baker, we think

that the Supreme Court of Missouri would classify the subsidiary promises as mere

incidents to the at-will relationship, so they likewise cannot serve as consideration for

a bilateral contract.

Our conclusion that the agreement does not constitute a bilateral contract does

not, however, conclude the managers' claim. As the district court correctly pointed

out, an employer's "promise to pay a bonus in return for an at-will employee's

continued employment is an offer for a unilateral contract." See Cook v. Coldwell

Banker, 967 S.W.2d 654, 657 (Mo. Ct. App. 1998). An offeror in a unilateral contract

receives performance, rather than a promise, as consideration in return for the

offeror's promise. Id.

The question that arises at this point is whether Panera could modify or

terminate the terms of its offer to pay the one-time bonus by imposing a cap on it.

Generally, an offeror can withdraw an offer at any time before the offeree accepts it.

Id. But the Missouri Court of Appeals has said several times that a party may not

revoke an offer to make a unilateral contract after the offeree has substantially

performed it because the offeree, at that point, has supplied consideration to make the

contract enforceable against the offeror to the extent it has been performed, see id.,

and because "great injustice may arise" if the offeror can revoke an offer after the

offeree has spent time and expense in performing. See 1 Williston on Contracts § 5:13

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(4th ed. 2017). Panera takes issue with the district court's conclusion that all the

managers in the class had substantially performed under the offer as a matter of law

so as to render the offer irrevocable.

We do not think, though, that the Supreme Court of Missouri, if confronted

with the issue, would conclude that the offeree of a unilateral-contract offer must

render a substantial part of the requested performance to make the offer irrevocable.

We think it would conclude instead that an offeree must merely begin performance,

and since each of the managers in the class here had at least begun performing under

the offer, we conclude that Panera could not modify the offer terms as to any

manager.

Panera has not brought to our attention any decision by the Supreme Court of

Missouri regarding how much performance is necessary to make a unilateral-contract

offer unmodifiable. It is true that the Missouri Court of Appeals has said on several

occasions that "substantial" performance is required, see, e.g., Cook, 967 S.W.2d at

657, but only decisions of a state's highest court can bind us on questions of state law:

Though decisions of state intermediate courts can be persuasive, they are not

controlling. DeCoursey, 822 F.3d at 476. The Missouri Court of Appeals appears to

have derived the substantial-performance principle from a treatise that said with

respect to unilateral-contract offers that "the offeror is bound by a contract just as

soon as the offeree has rendered a substantial part of that requested performance." See

Coffman Indus., Inc. v. Gorman-Taber Co., 521 S.W.2d 763, 772 (Mo. Ct. App.

1975) (quoting 1 Corbin on Contracts § 49 (1963)). That court has since repeated that

locution in other cases, but we conclude that, if presented with the issue, the Supreme

Court of Missouri would resolve the matter differently.

For one thing, Corbin has abandoned the locution, now saying that "the offeror

is bound by a contract just as soon as the offeree has rendered part of the requested

performance." 1 Corbin on Contracts § 2.29 (rev. ed. 1993 & Supp. 2017). In

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addition, the two other authorities the Coffman court relied on in adopting the

substantial-performance principle do not help establish that substantial performance

is required. Nowhere in the single case that the Coffman court cites does the word

"substantial" ever appear, see Am. Publ'g & Engraving Co. v. Walker, 87 Mo. App.

503 (Mo. Ct. App. 1901), and the other treatise that Coffman cites provides that "the

offeror becomes bound from the time performance is begun." See 1 Williston on

Contracts § 60A (3d ed. 1958). The current version of that treatise adopts the same

principle. See 1 Williston on Contracts § 5:13 (4th ed. 2017). Comment d to § 45 of

the Restatement (Second) of Contracts agrees that it is "the beginning of

performance" that renders the offer of a unilateral contract binding so that the offeror

cannot revise its terms, and the Supreme Court of Missouri routinely finds the

Restatement (Second) of Contracts persuasive. See, e.g., State ex rel. Vincent v.

Schneider, 194 S.W.3d 853, 858–59 (Mo. 2006) (en banc). Based on the current state

of the law, therefore, we think that the Supreme Court of Missouri, if faced with the

question, would conclude that the offeree's beginning of performance would render

the offer irrevocable. So Panera's imposition of the cap would be an ineffective

attempt to modify its unilateral-contract offer.

Panera maintains, though, that no matter when a unilateral-contract offer

becomes irrevocable as a general matter, in this specific instance Panera expressly

reserved the power to revoke or modify its offer. It argues that it reserved that power

by conditioning the payment of the bonus on the managers' continued employment,

a matter that Panera controlled since the employment was at will. Further, Panera had

the discretion to modify one of the variables in the formula used to calculate the

bonus, so it could effectively control the amount of the bonus.

In support of its contention, Panera points to a comment in the Restatement that

the general rule against modifying or terminating a unilateral-contract offer after the

offeree begins performance "yields to a manifestation of intention which makes

reliance unjustified," and so the offeror's "reservation of power to revoke [the offer]

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after performance has begun means that as yet there is no promise and no offer." See

Restatement (Second) of Contracts § 45 cmt. b. We do not think that the reservation

of power here accomplishes the goal that Panera hopes. Keeping in mind that the

purpose of the rule precluding an offeror from modifying or terminating a unilateralcontract

offer after the offeree begins performance is "to protect the offeree in

justifiable reliance on the offeror's promise," see id., the alleged reservation of power

here adds nothing beyond what the at-will relationship already provides, so we think

this case in this respect is just like Cook. Panera tries to distinguish Cook by arguing

that the offeree there had fully performed when the offeror attempted to modify the

offer. But that fact is of no moment because the offer's terms were locked in before

full performance, as is the case here. The crucial point is that the at-will employee in

Cook had received a bonus offer from her employer, and the court held the employer

to it. The at-will relationship did not render the bonus promise illusory even though

the employer could have terminated the employee and thus made it impossible for her

to satisfy the prerequisites to receiving the bonus. Likewise here, Panera could have

terminated the managers if it chose and precluded them from receiving the bonus, but

it did not. Or Panera could have adjusted the variable in the formula over which it had

control, but it did not. Since the managers had begun performing the unilateralcontract

offer, Panera was not entitled to move the goalposts on them by imposing a

bonus cap, which was outside the contemplation of the unilateral-contract offer.

To protect the offeree's justifiable reliance on the offer, moreover, the language

of a reservation of power to modify or terminate a unilateral-contract offer should be

clear. The Restatement comment on which Panera relies draws from Spooner v.

Reserve Life Insurance Co., 287 P.2d 735, 737 (Wash. 1955), where an employer

offered employees a bonus but also said that the "bonus is a voluntary contribution

on the part of the Company. It is agreed by you and by us that it may be withheld,

increased, decreased or discontinued, individually or collectively, with or without

notice." No employee who read such a reservation could justifiably rely on actually

receiving a bonus. Here, on the other hand, we have no such clear language, and

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employees are instead left to connect the alleged dots between their at-will status and

a condition to payment. The compensation plans in fact seem to suggest the opposite

of what Panera contends because they expressly contemplate Panera's right to

terminate the plan in its own discretion after it has paid the bonus or determined that

none is due. That Panera may terminate after these events implies that it cannot do so

beforehand.

For these reasons, and given that we should construe a contract to avoid

rendering terms meaningless or illusory, see Parker v. Pulitzer Publ'g Co., 882

S.W.2d 245, 250 (Mo. Ct. App. 1994), we reject Panera's contention that it reserved

the power to modify or terminate its bonus offer before the managers began

performing in accordance with that offer.

We likewise reject Panera's derivative argument that the district court should

have revisited its decision to certify the class after determining that the bonus offers

were offers to make a unilateral contract. We disagree with Panera that, under

unilateral-contract principles, a court would have to determine on a case-by-case basis

whether each manager had worked enough to render the offer irrevocable. By

working for more than a year in accordance with the unilateral-contract offer, each

class member had necessarily begun performance, so no individual analysis is needed,

and the class is no less certifiable now than it was when certified.

Panera next argues that the district court erred in rejecting its novation, waiver,

and estoppel defenses. A novation is the substitution of a new contract for an old one.

Ponze v. Guirl, 794 S.W.2d 699, 702 (Mo. Ct. App. 1990). A waiver is the intentional

relinquishment of a known right, and, to constitute a waiver, "conduct must be so

manifestly consistent with and indicative of an intention to renounce a particular right

or benefit that no other reasonable explanation of the conduct is possible." Acetylene

Gas Co. v. Oliver, 939 S.W.2d 404, 409 (Mo. Ct. App. 1996). Equitable estoppel

arises from the unfairness of allowing parties to assert their rights belatedly if they

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knew about those rights but did nothing to enforce them until the other party has,

acting in good faith, been disadvantaged by changed conditions. Comens v. SSM St.

Charles Clinic Med. Grp., Inc., 258 S.W.3d 491, 496 (Mo. Ct. App. 2008). Missouri

courts do not favor equitable estoppel and do not allow it to be invoked lightly. Id.

Since continued at-will employment does not constitute consideration, Panera's

novation defense fails as a matter of law because, when Panera imposed the cap, the

only promises, if any, exchanged by Panera and the managers was continued at-will

employment. The parties therefore did not form a new contract. We also agree with

the district court that Panera's imposition of the cap constituted a repudiation of the

contract. A party's renunciation of a contractual duty before the time fixed for

performance is a repudiation; but a repudiation ripens into a breach only if the

promisee elects to treat it as such since the promisee can elect either to wait till the

time for performance or to treat the repudiation as a breach and a final assertion by

the promisor that he is no longer bound by the contract. Franconia Assocs. v. United

States, 536 U.S. 129, 143 (2002). By proceeding as they did, the managers cannot be

said to have waived their claims or be equitably estopped from asserting them; they

were allowed to perform their part of the agreement and wait and see if Panera

followed through on its repudiation.

Panera also suggests that, by continuing to work, the managers accepted the

cap. But silence is not automatically acceptance; something more than the employee's

mere continuance of work is needed to show acceptance of a unilateral modification

to employment terms. See Katz v. Anheuser-Busch, Inc., 347 S.W.3d 533, 545 (Mo.

Ct. App. 2011). Panera insists that, if continuing to work is not enough to show

acceptance, then the managers' mere continuing to work did not amount to an

acceptance of their underlying employment agreements because such performance

must be done with the intent to accept those agreements. See Monsanto Co. v. Garst

Seed Co., 241 S.W.3d 401, 412–13 (Mo. Ct. App. 2007). That is true, but Panera

forgets that the managers also signed their employment agreements, and "signatures

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remain a common, though not exclusive, method of demonstrating agreement."

Morrow, 273 S.W.3d at 22–23.

Finally, Panera takes issue with the district court's rejection of its

commercial-frustration defense, a defense available if the happening of an event not

foreseen by the parties and not caused by or under the control of a party destroys or

nearly destroys either the value of the performance or the object or purpose of the

contract. Clean Unif. Co. St. Louis v. Magic Touch Cleaning, Inc., 300 S.W.3d 602,

609 (Mo. Ct. App. 2009). If the event is foreseeable, though, the parties should

provide for its occurrence in the contract, and when they do not, the risk falls on the

promisor. Id. Panera imposed the cap essentially because a change in general business

conditions made the bonus payments too expensive. We can hardly fault the district

court's finding on this ample record that a decline in general business conditions was

foreseeable. Indeed, everyone knows that business is risky and markets undependable.

Panera could have accounted for lower-than-anticipated profits when it devised the

program and changed the formula to the bonus payment, but it did not. So it bears the

risk.



* * *



LOKEN, Circuit Judge, concurring.

I agree that Panera is liable to pay the general managers the bonuses Panera

initially promised, but I reach that end traveling a somewhat different, and perhaps

significantly narrower, path.

Each general manager had an at-will employment relationship with Panera.

This relationship is sometimes called a “unilateral contract.” It is not a legally

enforceable contract of employment because it is terminable at will. Morrow v.

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Hallmark Cards, Inc., 273 S.W.3d 15, 26 (Mo. App. 2008). Typically, an at-will

relationship consists of a unilateral offer by the employer to compensate the employee

at an offered rate for services performed. After performance, the employee is entitled

to receive “the definite amount [offered] and no more, if the agreement is definite as

to amount.” Restatement (Second) of Agency § 443(a) (1958). Until the relationship

is terminated, “either party can announce at any time that there are new conditions on

either working or on providing work. The other can say yes or no.” Morrow, 273

S.W.3d at 26. “A promise to pay a bonus in return for an at-will employee’s

continued employment is an offer for a unilateral contract which becomes enforceable

when accepted by the employee’s performance.” Cook v. Coldwell Banker, 967

S.W.2d 654, 657 (Mo. App. 1998).

In this case, to provide a financial inducement to retain its at-will general

managers, Panera offered a performance bonus program that altered the at-will

relationship. The program was reflected in two written agreements signed by each

party. First, an Employment and Confidentiality Agreement terminated all prior

agreements, confirmed that employment was on an at-will basis, specified the general

manager’s base salary and benefits, and provided that “Employee also shall be

eligible to receive additional compensation . . . as set forth in the Compensation

Plan.” Second, the Joint Venture General Manager Compensation Plan provided, as

relevant here, that the general manager would receive “a one-time JV GM Buyout . . .

on the terms and conditions set forth herein,” provided he is performing the duties of

general manager on the date the JV GM Buyout is made. The Compensation Plan set

forth a detailed formula for calculating the Buyout. One specific part of the formula

was subject to change by “the Panera JV Board, in the exercise of its sole discretion.”

Of critical importance, in my view, the Compensation Plan also provided: (i) “your

employment relationship with Panera is terminable at will,” (ii) the Plan is “final,

complete and exclusive” except as otherwise provided in the Employment Agreement,

and (iii) “No modification or waiver shall be valid unless in writing signed by the

party against whom the same is sought to be enforced.”

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As Morrow makes clear, the terms of a typical at-will employment relationship

can be unilaterally changed by the employer; the employee can either accept the

change or quit. But an employer who offers a unilateral contract is bound by terms

promised in the offer, if the employee then accepts the offer by performance. Here,

because the Compensation Plan offer was a future bonus intended to encourage

extended at-will employment, Panera understandably limited its freedom to change

or revoke the Plan by including a no-modification provision. Panera subsequently

and unilaterally changed the bonus formula to the general managers’ disadvantage,

a change not authorized by the terms of the Compensation Plan and not agreed to by

the general managers as the no-modification provision required. This was not breach

of a bilateral contract, as the general managers argued, but it did breach a promise that

was an essential term of the unilateral contract Panera offered. Therefore, the

modification was unenforceable and the general managers, after they continued to

work and fully performed the services required to accept the offered bonuses, were

entitled to hold Panera to the terms of the unilateral contract and collect the bonuses

they were initially offered. Cf. Supermarket Merch. & Supply, Inc. v. Marschuetz,

196 S.W.3d 581, 586-87 (Mo. App. 2006).

Because I would resolve this dispute within the four corners of the operative

contract documents, I need not decide what measure of part performance by the

offeree makes a unilateral contract binding. Here, unlike the facts in Cook, the

general managers earned no part of the bonus until the JV GM Buyout was payable,

which is why the no-modification provision was essential to make it an effective

financial inducement. In more typical at-will employment disputes, I have grave

doubt the Supreme Court of Missouri would apply general principles applicable to

other kinds of unilateral contracts to conclude that merely beginning at-will

employment renders the terms and conditions of that employment irrevocable, as the

court seems to conclude.