A Straitjacket for Employment At-Will: Recognizing Breach of Implied Contract Actions for Wrongful Demotion

Article excerpt


For over a century, employment at-will has been the law in almost all American jurisdictions.l As a result, employers can fire their employees, and employees can quit, with or without reason.2 In addition, employers have the authority under the at-will rule to regulate all terms and conditions of employment.s During the past two decades a series of judicial exceptions to the at-will rule that prohibit termination of an employee for a variety of reasons have eroded the at-will doctrine.4 These exceptions fall into two categories. First, an employer may not terminate an employee for reasons that violate public policy.5 Second, an employer may not terminate an employee who received an explicit or implied promise that termination would only occur for good cause.6

Until recently, judicial exceptions to the at-will doctrine were limited to actions for wrongful discharge. The terms and conditions of employment, such as demotion,7 reprimand, fringe benefits, promotion, or any other employer action short of termination, remained subject to the employer's complete discretion under the at-will doctrine. In Scott u. Pacific Gas and Electric Company,8 however, the California Supreme Court recognized two employees' wrongful demotion claim. This recognition of wrongful demotion indicates a willingness by one of the country's leading employment jurisdictions to expand the implied contract exception beyond wrongful discharge.

Moreover, since demotion is just one aspect of the terms and conditions of employment, a recognition of wrongful demotion indicates that the implied contract exception is applicable to all the terms and conditions of employment. The implied contract may now govern all phases of the employment relationship. This approach is a radical expansion of settled law and has the potential to reshape American employment law by relegating the at-will doctrine to those few and unimportant portions of unemployment law not subject to an implied contract.

In Part II, this Note will examine the impact of the Scott decision on the employment at-will doctrine by providing a brief background of the events leading to the Scott decision, an overview of the Scott decision and its reasoning, and the position of jurisdictions other than California. This Note will then demonstrate, in Part III, that recognition of wrongful demotion creates a cause of action encompassing almost all terms and conditions of employment.

Wrongful demotion will cover almost all terms and conditions of employment because wrongful demotion has no intrinsic doctrinal limitations and extrinsic limitations prove to be inadequate or unsupported by policy. Part IV will consider the policies underlying wrongful demotion and analyze possible employer responses to its recognition. Finally, Part V will conclude that recognizing wrongful demotion reduces an employer's at-will discretion to the point at which the at-will doctrine is completely circumscribed by an implied contract straitjacket that relegates the at-will rule to regulation of the most minor terms and conditions of employment.


A. Employment At-Will

Employment at-will is generally recognized as the child of Horace Wood, a commentator on American law in the late nineteenth century.9 In 1877, Wood wrote that "a general or indefinite hiring is prima facie a hiring at will, and if the servant seeks to make it out to be a yearly hiring, the burden is upon him to establish it by proof."lo Wood cited four cases in support of this proposition, but none of the cases truly supported the at-will rule.ll A variety of other commentators and courts, however, eventually adopted the doctrine,l2 and by the early twentieth century, the Supreme Court provided constitutional protection for the rule.l3

In 1959, the first crack appeared in the at-will doctrine when California recognized a public policy exception in Peterman v. …