California employment law: at-will employment and implied oral contracts

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This presumption of at-will employment may be superseded by an express or implied contract limiting the employer’s right to discharge employee.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.