United States: California Supreme Court Bolsters At-Will Employment

On October 6, 2000, the California Supreme Court dealt a blow to the use of the implied covenant of good faith and fair dealing and implied contract as a means for employees to circumvent an express at-will term of employment. In so doing, the Court made it difficult for nonunion employees to bring wrongful termination claims where employers have used express language in their employee handbook which specifically states that employees are at-will.

In the same case, Guz v. Bechtel National, 24 Cal. 4th 317, 100 Cal. Rptr. 2d 352 (2000), the Court also denied the plaintiff's age discrimination claim on the grounds that the employee had no direct or strong circumstantial evidence that the basis for the termination was discriminatory. As a result of the Guz ruling, where an employer can demonstrate with strong evidence a legitimate nondiscriminatory reason for the termination, and the employee has no direct or only weak circumstantial evidence at the contrary, the matter may be decided in favor of the employer on a motion for summary judgment.

Guz began working for Bechtel in 1971 as an administrative assistant. In 1986, he was transferred to BNI, a division of Bechtel. By 1992, Guz was employed as a financial reports supervisor, responsible for supervising the overhead section. In 1986, BNI was consolidated with its in-house management branch, forming BNI-MI. At the time of the consolidation there were cutbacks and layoffs, as positions with overlapping responsibilities were eliminated. In 1992, the new president of BNI decided the best way to reduce costs was to eliminate the BNI-MI unit and transfer the work to the San Francisco Regional Office Management Information Group (SFRO-MI), which already performed similar functions for Bechtel. The result was the layoff of any personnel who were not necessary to SFRO-MI to continue the BNI-MI function. Guz, who was 49 years of age at the time of the discontinuation of BNI-MI unit, was laid off.

During this time, Bechtel maintained a personnel policy manual which contained a policy specifically stating that Bechtel employees have no employment agreements guaranteeing continuous service and may resign at their option or be terminated at the option of Bechtelî The same policy also addressed Categories of Termination, including Layoff and Unsatisfactory Performance. Essentially, the policy regarding unsatisfactory performance provided for progressive discipline before an employee was terminated, and the policy regarding layoffs provided for a holding status that allowed an employee to be rehired if a position became available within three months.

Following his layoff, Guz sued Bechtel claiming wrongful termination, breach of an implied contract not to terminate except for cause, breach of the covenant of good faith and fair dealing, and age discrimination.

Labor Code section 2922 provides that ì[a]n employment having no specified term, may be terminated at the will of either party on notice to the other. Though the "at-will" presumption is strong, it is subject to several limitations. It does not overcome the fundamental right of the parties to contract for terms other than at-will. Obviously, the statute does not prevent parties from agreeing to any otherwise lawful limitation on the terms of employment for which there is mutual assent.

The California Supreme Court, in Foley v. Interactive Data Corp, 47 Cal.3d 654 (1988), set forth several factors that were to be considered in determining whether there was an implied contract that placed limits on an employer's right to terminate an employee: (1) personnel policies and practices; (2) longevity of service; (3) actions or communications by the employer reflecting assurances of continued employment; and (4) the practices of the industry in which the employee is engaged.

The court in Guz made it painstakingly clear that Foley did not intend to establish implied contractual rights beyond what the parties intended. The Guz court explained that the covenant of good faith and fair dealing, formerly a cause of action that plaintiffs could rely upon to support the contention that the employer could not terminate him or her without good cause, exists merely to prevent one contracting party from unfairly frustrating the other party's right to receive the benefits of the agreement already made. It does not impose additional terms on the agreement. Under Guz, a plaintiff may not use the factors set forth in Foley as a means to bootstrap an implied term not to terminate except for good cause onto the actual terms of the contract, whether express or implied.

The Guz court further limited a plaintiff's causes of action for breach of implied contract to those implied-in-fact terms that the evidence demonstrates were agreed upon by the parties. While longevity, promotions and practices in the industry are not evidence of an employer's intent to guarantee that termination will be only for cause, additional implied terms may be found in an employer's policies and procedures which communicate to an employee that certain steps will be taken before termination.

The Bechtel policy and procedures manual not only contained the express at-will language, it also imposed no restrictions on the company's right to reorganize and to eliminate jobs. Consequently, the Court found that Bechtel's policies and procedures did not contradict its express at-will term, therefore, it could eliminate Guz's job when and if it saw fit to do so. However, to the extent that it did not follow its own policies in determining who was to be laid off, the Court concluded that Bechtel may be found liable and, on that basis, remanded that issue to the appellate court for further review.

The Guz court also dealt a blow to plaintiffs pursuing age discrimination cases based upon evidence that the reason proffered by the company was false. As the court noted, The pertinent statutes do not prohibit lying, they prohibit discrimination.

Accusing the employer of lying about the reason for termination is simply not sufficient to prove discrimination, since lying about the proffered reason does not mean that the employer did not have a nondiscriminatory reason for the termination

The result after Guz will be less age discrimination cases brought by plaintiffs, since these claims will be readily subject to summary judgment.

The decision in Guz was obviously supportive of the at-will presumption. However, employers still need to be cautious about terms in their employment manuals. The following suggestions may be helpful:

1. Maintain a strong, unambiguous and express statement that an employee is at-will, as well as an express statement that no terms of the manual are intended to change the at-will status of any employee. Include an express statement that any change in status must be made in writing and signed by the highest ranking corporate executive responsible for employment matters.
2. Eliminate any progressive discipline policy and any other policies that may be construed to be in conflict with the express at-will term of employment.
3. Inform managers and supervisors that they are not to make statements that may be interpreted as promising longevity of employment.