San Francisco Employment Law Firm Blog

California workplace operates under the basic presumption that in the absence of agreement otherwise, a worker is an at-will employee. This means that an employee can be terminated for any reason, arbitrary reason, or no reason, but not for illegal reason such as discrimination, harassment, and retaliation. This presumption is codified in California Labor Code section 2922, which provides that an employment, having no specified term, may be terminated at the will of either party on notice to the other.

This presumption of at-will employment may be superseded by an express or implied contract limiting the employer's right to discharge employee. The landmark California Supreme Court case on the issue of existence of implied employment contract is Foley v. Interactive Data Corporation (1988). In that case, the Court stated the general principle that courts seek to enforce the actual understanding of the parties to a contract, and in so doing may inquire into the parties' conduct to determine if it demonstrates an implied contract. The Court further noted that in the employment context, several factors may be considered to determine whether implied employment contract existed, including (1) personal policies or practices of the employer; (2) the employee's 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 Foley court, considering the above factors, came to the conclusion that there was an implied contract to not terminate employment where the employee, who worked for his employer for over 6 years, received excellent performance evaluations and promotions, was told that if he was going to do a good job, his future was secure, and where the employer admitted that it did not normally fire employee without cause.

These factors, however, don't have much weight if the employee actually signed a written form, stating that he understands that he is an at will employee and may be terminated at any time with or without cause.

Many employment contracts and the majority of the union collective bargaining agreements provide that the employee should not be terminated unless for good cause. It is important to understand what the "good cause" standard exactly means, as the meaning of "good cause" in this instance is quite different from the ordinary meaning of the words "good cause."

In the context of express or implied contracts not to discharge without good cause, "good cause" means "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. A reasoned conclusion supported by substantial evidence gathered through an adequate investigation that includes notice of the claimed misconduct and a chance for the employee to respond.

Employee misconduct on the job is, of course, good cause for termination. But employers do not need to prove that the alleged misconduct actually took place. "Good cause" exists if the employer reasonably believed the alleged misconduct took place and otherwise acted fairly.

Several California court cases held that the depressed condition of the employer's business and its decision to reduce its staff with the result that an employee's services are no longer needed is "good cause," for discharging employee. Similarly, sale or divestiture of a portion of the employer's business can be "good cause" for terminating the employees involved.

However, economic reasons for layoff do not automatically insulate an employer from liability for wrongful termination. Where the employee alleges that he was terminated for unlawful reasons, such as discrimination and retaliation, courts will not accept a reduction in force as the conclusory explanation for the employee's termination.

It is presumed in California that unless agreed otherwise between employer and his employee (such as through contract or the union's collective bargaining agreement), the employment is "at will." Generally, at-will employee may be terminated for any reason, no reason, or arbitrary reason, as long as it is not an illegal reasons such as harassment, discrimination or constructive discharge (objectively intolerable working conditions that force the employee to quit).

However, in some circumstances an employer may be estopped from claiming that an employment is at will where the employer has made a promise that it should reasonably have known would cause the employee to believe a more permanent employment relationship existed, and the employee has relied to his or her detriment thereon. Under such circumstances, the promise is binding. This kind of obligation upon employer is called "promissory estoppel." To prove the existence of promissory estoppel, the employee must show that (1) a clear promise was made by his employer, (2) he relied on that promise, (3) to his substantial detriment (by giving up some benefit, such as then existing job), and (4) damages measured by the extend of obligation assumed by the employer and not performed.

The courts have invoked the above principle where an employer changes his mind and rejects a new employee before giving the new employee a good faith opportunity to perform the duties for which he or she was hired. If the new employee has detrimentally relied on the new employment, the employer may be estopped from asserting that the employer was at will.

An employee who resigns from at-will employment in reliance on an unfulfilled promise of other at-will employment may be entitled to recover, on a promissory estoppel theory, the wages plaintiff would have earned had plaintiff remained in the former job. The lost wages must not be speculative or remot, and must be supported by substantial evidence such as a testimony by a qualified expert as to how long the employee was likely to have retained the former job and the wages he or she was likely to have earned.

Promissory estoppel claims are unnecesary where an employee has entered into performance of the services called for in the employment contract. In such cases, traditional breach of contract analysis governs the employer's liability.