Breach of Employment Contract No Specified Terms Laws Definition Elements Defense Lawyer

Definition.

An employer breaches an employment contract having no specified term if the contract expressly states or implies that the employee will not be terminated without just or good cause, and the employer terminates the employee without good cause, causing the employee damage. (See, e.g., Iljas v. Ripley Entertainment Inc. (N.D. Cal. 2019) 403 F.Supp.3d 793 quoting Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 677-82; see also Cal. Lab. Code, § 2922; Cal. Civ. Code, §§ 1619-1622.)

Employment for an indefinite term is presumed to be “at-will”. (Cal. Lab. Code, § 2922; Iljas v. Ripley Entertainment Inc. (N.D. Cal. 2019) 403 F.Supp.3d 793, 809.) This presumption may be rebutted by a contract, express or implied, that limits the employer’s right to terminate. (Ibid.)

Under California law, it is presumed that employment with no specified term is at-will and may be terminated at any time for any lawful reason by the employer or employee. (Cal. Lab.Code, § 2922.) This means that generally, in the absence of a written contract that states that an employee is promised employment for a certain period of time or that employee is not to be fired unless there is case, he would be considered an at-will employee.  While the above legal presumption of at-will employment is strong, it does not prevent the parties from agreeing to any limitation, otherwise lawful, on the employer’s termination rights. (Guz v. Bechtel National Inc. (2000) 24 Cal.4th 317, 335-336; see also Iljas v. Ripley Entertainment Inc. (N.D. Cal. 2019) 403 F.Supp.3d 793, 809.)

The at-will presumption may be rebutted by evidence that despite the absence of a specified term of employment, the parties agreed that the employer’s power to terminate would be limited in some way, e.g., by a requirement that termination be based only on good cause. (Ibid.)  The contractual understanding need not be express, but may be implied-in-fact, arising from the parties’ conduct evidencing their actual mutual intent to create such enforceable limitations.

Factors that would determine the existence of an implied-in-fact contract include: (1) the personnel policies or practices of the employer; (2) the employee’s longevity of service, actions or communications by the employer reflecting assurances of continued employment; and (3) the practices of the industry in which the employee is engaged. (Tam v. Qualcomm, Inc. (S.D. Cal. 2018) 300 F.Supp.3d 1130, 1146.) The existence or nonexistence of an implied-in-fact contract under which the employee may be terminated only for good cause has to be considered on a case-by-case basis in light of the unique and specific circumstances of an employment relationship.

Elements of Breach of Employment Contract for Unspecified Term; CACI No. 2401

Paula claims that Daniel breached their employment contract by forcing Paula to resign. To establish this claim, Paula must prove all of the following:

That Paula and Daniel entered into an employment relationship;
That Daniel promised, by words or conduct, to discharge Paula only for good cause;
That Paula substantially performed her job duties;
That Daniel constructively discharged Paula without good cause; and
That Paula was harmed and Daniel’s breach of contract was a substantial factor in causing Paula’s harm.

Element 1: Valid Employment Contract with No Specified Term

A contract of employment is a contract by which one, the employer, engages another, the employee, to do something for the benefit of the employer or a third person. (Cal. Lab. Code, § 2750.) A contract has no specified term of employment if it does not specify the term or if it specifies a term of one month or less. (See Cal. Lab. Code, § 2922.)

The plaintiff must prove the existence of a valid employment contract to prevail on a breach of employment contract claim. (Wise v. Southern Pacific Co. (1963) 223 Cal.App.2d 50, 59.)

Employment contracts are governed by general contract law. (Reynolds v. Electric & Eng’g Co. v. W.C.A.B. (1966) 55 Cal.2d 429, 433 [“a contract of employment is governed by the same rules applicable to other types of contracts.”].)

The only proper defendant in a breach of employment contract is the employer (a party to the employment relationship), not other employees. (See, e.g., Cleary v. American Airlines, Inc. (1980) 111 Cal.App.3d 433, 456 [co-workers were not liable for breach of implied-in-law covenant of good faith and fair dealing].)

A breach of employment contract claim may be maintained for breach of a promise to hire an employee, even if the employment was to be at-will. (Comeaux v. Brown & Williamson Tobacco Co. (9th Cir. 1990) 915 F.2d 1264 [employee was entitled to reliance damages where prospective employer repudiated at-will employment agreement prior to commencement of employment and after employee resigned position with former employer].)

No Breach of Contract Claim Against Supervisors

Plaintiff had no viable cause of action for inducement of breach of contract against plaintiff’s supervisors because it is “well-established that corporate agents and employees acting for and on behalf of a corporation cannot be liable for inducing a breach of the corporation’s contract.” (Shoemaker v. Myers (1990) 52 Cal.3d 1, 25.)

No Breach of Contract Claim for Public Employees

Generally, public employees may not assert breach of contract claims because “it is well settled in California that public employment is not held by contract but by statute …. [Citations.] (Guarino v. County of Siskiyou (2018) 21 Cal.App.5th 1170, 1183 quoting Miller v. State of California (1977) 18 Cal.3d 808, 813.)

Element 2: Obligation Not to Discharge Employee Except for Good Cause

Employment contracts without a specified term may be terminated at the will of either the employer or the employee unless the employer is subject to an obligation (express or implied) not to discharge the employee, except for just or good cause. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 677; Cal. Lab. Code, § 2922.)

In determining whether the employer had an obligation not to discharge the employee without good cause, the court will examine the following factors: (1) Duration of employment; (2) Promotions, salary increases, commendations, awards and lack of criticism; (3) Assurances of continued employment; (4) Employer’s acknowledged policies, and its customs and past practices; and (5) Industry practice. (Tam v. Qualcomm, Inc. (S.D. Cal. 2018) 300 F.Supp.3d 1130, 1146.)

Express Contracts

An express contract is one in which the terms are stated in words. (Cal. Civ. Code, § 1620.) An express agreement not to terminate except for good cause can be written or oral. (Rabago-Alvarez v. Dart Indus. Inc. (1976) 55 Cal.App.3d 91, 96 [express contract existed where employer orally represented that new hire would not be discharged arbitrarily and without good cause].)

An express written agreement not to terminate except for good cause can stem from written employment contracts, offer letters, and employee handbooks, among other documents. (See, e.g., Chyten v. Lawrence & Howell Inv. (1993) 23 Cal.App.4th 607, 609 [employment contract]; Pomona College v. Superior Court (1996) 45 Cal.App.4th 1716, 1727 n.10. [employee handbook].)

An offer letter stating that “we look forward to a long, pleasant, and mutually satisfying relationship with you” was not an express promise not to terminate but for cause; rather, it was merely a statement of the employer’s “hope” or “expectation.” (Hillsman v. Sutter Community Hosp. (1984) 153 Cal.App.3d 743, 750.)

Implied Contracts

An implied contract is one whose existence or terms are manifested by conduct. (Cal. Civ. Code, § 1621.)

The determination of whether a plaintiff possesses sufficient evidence to overcome the at-will presumption of Labor Code § 2922, and thus proceed to a jury, is a question of law for the court to decide. (Miller v. Pepsi-Cola Bottling Co. (1989) 210 Cal.App.3d 1554, 1558; Davis v. Consolidated Freightways (1994) 29 Cal. App. 4th 354, 366.)

Courts do not require proof of each factor listed above to demonstrate the existence of an implied contract. (Pettus v. Cole (1996) 49 Cal.App.4th 402, 450 n.35 [employer’s “long-standing policy” to terminate employment only for cause was sufficient to create implied contract].)

Generally, it is a question of fact whether the totality of the circumstances is sufficient to overcome the presumption of at-will employment. (Iljas v. Ripley Entertainment Inc. (N.D. Cal. 2019) 403 F.Supp.3d 793, 809.)

If the facts are undisputed, or the parties have entered into an integrated at-will employment agreement, the court may find at-will employment as a matter of law. (Davis v. Consolidated Freightways (1994) 29 Cal.App.4th 354, 366.)

Duration of employment is a factor to be considered in determining the existence of an implied agreement. (Foley v. Interactive Data Corp. (1988) 47 Cal. 3d 654, 681; BAJI 10.12.) Long successful service, standing alone, can demonstrate an implied-in-fact contract right not to be terminated without cause. (Guz v. Bechtel Nat., Inc. (2000) 24 Cal.4th 317.)

Years of Terms of Employment That Were Sufficient to Establish an Implied Agreement to Terminate Only for Cause

Twenty-five years (with a one-year leave of absence) (Haycock v. Hughes Aircraft Co. (1994) 22 Cal.App.4th 1473, 1489.)
Nineteen and one-half years (Walker v. Blue Cross (1992) 4 Cal.App.4th 985, 993.)
Eighteen years (Cleary v. American Airlines, Inc. (1980) 111 Cal.App.3d 443, 447.)
Fifteen years (Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 170.)
Six years, nine months (Foley v. Interactive Data Corp., (1988) 47 Cal.3d 654, 681.)
Eighteen months (McLain v. Great American Ins. Cos. (1989) 208 Cal.App.3d 1476.)

Years of Employment That Were Insufficient to Establish an Implied Agreement to Terminate Only for Cause

Eleven years (Miller v. Pepsi-Cola Bottling Co. (1989) 210 Cal.App.3d 1554, 1559.)
Three and one-half years (Shapiro v. Wells Fargo Realty Advisors (1984) 152 Cal.App.3d 467, 478.)
Three years (Gould v. Maryland Sound Indus. (1995) 31 Cal.App.4th 1137, 1151.)
Less than two years (Newfield v. Insurance Co. of West (1984) 156 Cal.App.3d 440, 445.)
Nine months (Schneider v. TRW, Inc. (9th Cir. 1991) 938 F.2d 986, 988-90.)

Short Term Employees May Have Implied Contract

No per se rule bars short-term employees from establishing an implied contract. (Khanna v. Microdata Corp. (1985) 170 Cal.App.3d 250, 262-63.)

Factors Courts Consider In Determining Implied Obligation

The court will consider the employee’s promotions, salary increases, commendations, and awards in determining whether an implied obligation exists. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654. 681.)

Promotions and salary increases are natural occurrences of long-term employment and are insufficient alone to convert an at-will employment relationship into one terminable only for cause. (Davis v. Consolidated Freightways (1994) 29 Cal.App.4th 354, 366.)

The court will consider an employer’s lack of criticism of an employee’s work in determining whether an implied contract exists. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654. 681.)

Existence of a progressive discipline system did not create a triable issue of fact with regard to the issue of an implied contract. (Davis v. Consolidated Freightways (1994) 29 Cal.App.4th 354.)

The court will consider the employer’s assurances of continued employment in determining whether an implied contract exists. (Tam v. Qualcomm, Inc. (S.D. Cal. 2018) 300 F.Supp.3d 1130, 1146.)

An employer’s lack of oral assurances regarding continued employment may be a critical component. (Davis v. Consolidated Freightways (1994) 29 Cal. App. 4th 354, 368 [“conspicuously absent from plaintiff’s pleadings or evidence is any hint that he was ever told at any time that he had permanent employment or that he would be retained so long as he was doing a good job”].)

The court will also consider the employer’s acknowledged employment policies and its customs and past practices. (BAJI 10.12.)

Employee must be aware of the employment policies in order to rely on them. (Funk v. Sperry Corp. (9th Cir. 1988) 842 F.2d 1129, n.1.)

Court found an implied contract based, in part, on policy and procedures manuals which provided that no employee would be discharged without good cause. (Hejmadi v. AMFAC, Inc. (1988) 202 Cal.App.3d 525, 541.)

Court’s reversal of a summary judgment in favor of an employer was based, in part, on the employer’s written progressive discipline policy. (Wood v. Loyola Marymount Univ. (1990) 218 Cal.App.3d 661, 668.)

An implied contract existed where, among other things, a personnel policy provided that unsatisfactory employees should be “discharged for cause, after following appropriate disciplinary procedures.” (Haycock v. Hughes Aircraft Co. (1994) 22 Cal.App.4th 1473, 1489-1495.)

A “long-standing policy” to terminate only for cause constitutes evidence of an implied contract. (Pettus v. Cole (1996) 49 Cal.App.4th 402, 450 n.35.)

No implied contract existed where an employer had a policy of at-will employment, but also had implemented a system of progressive discipline. (Davis v. Consolidated Freightways (1994) 29 Cal.App.4th 354 [use of techniques other than immediate termination to encourage compliance with production goals proves nothing; otherwise, an employer would be forced to purposefully terminate employees for any and every infraction – or none at all – in order to maintain the presumption of at-will employment].)

Ambiguous language in pre-hiring documentation did not preclude finding an implied contract where the document, signed by the employee, stated that “no representation of employment conditions or rates of pay, other than set forth above, shall be valid.” (Soules v. Cadam, Inc. (1991) 2 Cal. App. 4th 390, 400.)

Element 3: Employee Substantially Performed Job Duties

Unless excused, the employee must demonstrate that he or she was performing his or her duties adequately. (See Cal. Civ. Code, §§ 1439-1440; Cal. Lab. Code, §§ 2854, 2856-2859; BAJI 10.04.)

The plaintiffs bear the burden of proving that they stood ready to or actually did perform their duties adequately. (Wise v. Southern Pacific Co. (1963) 223 Cal. App. 2d 50, 59.)

The employees must not only use ordinary care and diligence in the performance of their duties, but also must substantially comply with all directions of their employers unless the directions are impossible, unlawful or would impose new and unreasonable burdens on the employees. (Cal. Lab. Code, §§ 2854, 2856.)

Moreover, the element of substantial performance should not be confused with the “good cause” defense: “The action is primarily for breach of contract. It was therefore incumbent upon plaintiff to prove that he was able and offered to fulfill all obligations imposed upon him by the contract. Plaintiff failed to meet this requirement; by voluntarily withdrawing from the contract he excused further performance by defendant.” (Kane v. Sklar (1954) 122 Cal.App.2d 480, 482; see also CACI No. 2420.)

Element 4: Discharge Without Good Cause

“ ‘Good cause’ in the context of implied employment contracts is defined as: ‘fair and honest reasons, regulated by good faith on the part of the employer, that are not trivial, arbitrary or capricious, unrelated to business needs or goals, or pretextual.’ ” (Serri v. Santa Clara University (2014) 226 Cal.App.4th 830, 872.)

The employer discharges without good cause if the termination is not based on a fair and honest cause or reason, regulated by good faith. (Serri v. Santa Clara University (2014) 226 Cal.App.4th 830, 872.)

Where the employment contract itself allows the employer to terminate at will, its motive and lack of care in doing so are, in most cases, irrelevant. (Guz v. Bechtel Nat., Inc. (2000) 24 Cal.4th 317.)

Good cause is not properly found where the asserted reasons for discharge are trivial, capricious, unrelated to business needs or goals, or pretextual. Ultimately, the employer does not have the right to terminate for an arbitrary or unreasonable decision. (Serri v. Santa Clara University (2014) 226 Cal.App.4th 830, 872.)

Employers are obligated to act in good faith and upon a reasonable belief, supported by substantial evidence gathered through an adequate investigation, that good cause for terminating a for-cause employee exists. (Serri v. Santa Clara University (2014) 226 Cal.App.4th 830, 872.)

Breach of contract claims founded on an explicit promise that termination will not occur except for just or good cause may require the employer to adhere to a higher standard than that needed for an implied contract, depending upon the precise terms of the contract provision. (Serri v. Santa Clara University (2014) 226 Cal.App.4th 830, 872.)

A termination may be either actual or constructive. A termination is actual when the employer tells the employee, orally or in writing, that the employment is terminated. A termination is constructive when the employee is effectively forced to resign due to intolerable working conditions which the employer either created or knowingly permitted. (Turner v. Anheuser-Busch, Inc. (1994) 7 Cal.4th 1238, 1245 [“a constructive discharge is legally regarded as a firing rather than a resignation”].)

Examples Where Discharge Constituted “Good Cause”

Poor Performance

A violation of employer’s security procedures (leaving $50,000 worth of jewelry unattended resulting in its loss) warranted discharge. (Moore v. May Dep’t Stores Co. (1990) 222 Cal. App. 3d 836, 839. Additionally, unsatisfactory performance constitutes good cause for termination. (Knights v. Hewlett Packard (1991) 230 Cal.App.3d 775, 781.)

Reduction-In-Force

Individual terminations resulting from reduction-in-force are per se undertaken for good cause. (Malmstrom v. Kaiser Aluminum & Chem. Corp. (1986) 187 Cal.App.3d 299, 321.)

Unfair Competition

An employer is entitled to an employee’s “undivided loyalty” and can terminate employee for cause when employee’s plans to engage in outside activities progress to the point that conflicts of interest compromised employee’s ability to give employer undivided loyalty. (Stokes v. Dole Nut Co. (1995) 41 Cal.App.4th 285, 295-96.)

Honest But Mistaken Belief Employee Engaged In Wrongdoing

An employee hired under implied agreement not to be discharged without good cause, was properly terminated where employer, after appropriate investigation and for reasons that were not arbitrary or pretextual, had reasonable grounds for believing an employee engaged in sexual harassment. (Cotran v. Rollins Hudig Hall Int’l, Inc. (1998) 17 Cal.4th 93, 100.)

Examples Where Discharge Did Not Constitute “Good Cause”

An employer’s explanation for discharge cannot be pretextual (Walker v. Blue Cross (1992) 4 Cal.App.4th 985, 994.)

Element 5: Causation and Damages

The termination must cause the employee damage. (Wise v. Southern Pacific Co. (1963) 223 Cal. App. 2d 50, 59; Cal. Civ. Code, §3300; see also BAJI 10.04.)

“The plaintiff has the burden of proving his damage. The law is settled that he has the duty of minimizing that damage. While the contract wages are prima facie [evidence of] his damage, his actual damage is the amount of money he was out of pocket by reason of the wrongful discharge.” (Erler v. Five Points Motors, Inc. (1967) 249 Cal.App.2d at pp. 567-568.)

Remedies

Contract Damages

Contract damages are of two types – general damages (sometimes called direct damages) and special damages (sometimes called consequential damages). (Lewis Jorge Construction Management, Inc. v. Pomona Unified School Dist. (2004) 34 Cal.4th 960, 968.)

“ ‘Contract damages are generally limited to those within the contemplation of the parties when the contract was entered into or at least reasonably foreseeable by them at that time; consequential damages beyond the expectation of the parties are not recoverable. This limitation on available damages serves to encourage contractual relations and commercial activity by enabling parties to estimate in advance the financial risks of their enterprise.’ ‘In contrast, tort damages are awarded to [fully] compensate the victim for [all] injury suffered.’ ” (Erlich v. Menezes (1999) 21 Cal.4th 543, 550.)

Equitable Remedies Not Available

The obligation to employ another in personal service cannot be specifically enforced. (Cal. Civ. Code, §3390.)

Punitive Damages Not Available

California courts do not recognize a right to punitive or exemplary damages for breach of contract, unless the breach occurs in connection with an intentional tort. (Foley v. Interactive Data Corp. (1988) 47 Cal. 3d 654, 700.)

Emotional Distress Damages Typically Not Available

Cases permitting recovery for emotional distress typically involve mental anguish stemming from more personal undertakings the traumatic results of which were unavoidable. Thus, when the express object of the contract is the mental and emotional well-being of one of the contracting parties, the breach of the contract may give rise to damages for mental suffering or emotional distress. (Erlich v. Menezes (1999) 21 Cal.4th 543, 559.)

Attorney’s Fees if Provided For in Employment Contract

“In the absence of a statute authorizing attorneys’ fees as an element of damages, or of a contract to pay such fees in event of the party’s recovery, attorneys’ fees paid by a successful party in an action are never recoverable against the unsuccessful party.” (Jen–Mar Constr. Co. v. Brown (1967) 247 Cal.App.2d 564, 573; Cal. Code Civ. Proc., § 1021.)

Statute of Limitations

The statute of limitations for breach of a written contract is four years. (Cal. Civ. Proc. Code, §337(1).) The limitations period for breach of an oral contract is two years. (Cal. Civ. Proc. Code, §339(1).) If you are alleging tortious breach of contract causing personal injury, then the statute of limitations is two years. Note: Prior to 2003, the statute of limitations for personal injury actions was one year from the date of injury. (Cal. Civ. Proc. Code, §340.) Effective January 1, 2003, the new Code of Civil Procedure §335.1 extends the statute of limitations to two years.

Affirmative Defenses

Employee’s Duty to Mitigate Damages

“[T]he contract compensation for the unexpired period of the contract affords a prima facie measure of damages; the actual measured damage, however, is the contract amount reduced by compensation received during the unexpired term; if, however, such other compensation has not been received, the contract amount may still be reduced or eliminated by a showing that the employee, by the exercise of reasonable diligence and effort, could have procured comparable employment and thus mitigated the damages.” (Erler v. Five Points Motors, Inc. (1967) 249 Cal.App.2d 560, 562.)

“The burden of proof is on the party whose breach caused damage, to establish matters relied on to mitigate damage.” (Steelduct Co. v. Henger-Seltzer Co. (1945) 26 Cal.2d 634, 654.)

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