A Return to At-Will Employment

By Heller, Matthew | Workforce, May 2001 | Go to article overview

A Return to At-Will Employment


Heller, Matthew, Workforce


It's a hard fall for some employees, but a decision by the trend-setting California Supreme Court might bring business back to real employment at will.

John Guz appeared to have a lot going for him. He'd started out as an administrative assistant at Bechtel Corp., earning $750 a month, and had risen by age 49 to financial reports supervisor. His salary had increased to $5,940 a month, and his employer, a San Francisco-based defense contractor, had given him generally favorable performance reviews.

But in December 1992, Guz's immediate superior dropped the bombshell. His unit was being disbanded, the manager said, and he was being laid off. A confirmation letter from Bechtel referred to "the downturn in our workload."

Guz did not go quietly. He sued Bechtel, alleging wrongful termination and hoping to take advantage of California law that protects at-will employees. According to the landmark 1988 ruling in Foley vs. Interactive Data Corp., employees who meet certain criteria-including longevity, promotions, raises, and favorable reviews-- can show an "implied-in-fact" contract, to be dismissed only for good cause.

The case of Guz vs. Bechtel National, Inc., went all the way to the California Supreme Court. The court's unanimous ruling, issued in October, turned out to be another bombshell.

The so-called Foley criteria established 12 years earlier do not, in and of themselves, "constitute a contractual guarantee of future employment security," the justices said. Since Bechtel's own written personnel documents "imposed no restrictions upon the company's prerogatives to eliminate jobs or work units, for any or no reason," Guz had no implied-contract case to take to a jury.

Plaintiffs' attorneys were shocked. "The implied contract that [an employee] had an option of proving based on the Foley decision is now almost impossible to prove," laments David H. Fielding, a partner with the firm of Bushnell, Caplan & Fielding in San Francisco.

While the Guz case applies only to California, its impact may be more widely felt. As labor law experts note, the state has led the country in moving away from reliance on at-will language in employee manuals to more nuanced theories of implied contract. At least 20 states from Maine to Hawaii limit discharges in particular circumstances. "Some have been moving [toward implied contracts] a piece at a time, others more rapidly," says Peter Eide, director of labor law policy at the U.S. Chamber of Commerce.

Montana in 1987 enacted a comprehensive statute making termination without good cause unlawful. But the act also severely limited the amount of compensation that employees could receive for a wrongful discharge.

In California, the presumption of at-will employment goes back to the 19th century. Section 2922 of the Labor Code states: "An employment, having no specified term, may be terminated at the will of either party on notice to the other." However, starting in the politically more liberal 1970s, courts began applying the doctrine of implied contracts to the employment relationship.

In 1973, Wayne Pugh was fired by Sees Candies after 32 years with the candy maker. When he asked for a reason, Sees president told him only to "look deep within [him]self" Eight years later, a state court of appeals handed Pugh a landmark victory in his wrongful-- termination case. Reversing a trial judge, the court said there was evidence that Sees had breached an implied promise not to discharge without good cause.

With the Foley case, employers attacked the Pugh precedent. Complaining that it "destroys the centuries-old solid and settled principle" of at-will employment, they urged the state supreme court to accept only express contract provisions as evidence that an employee required good cause for termination. But the court held fast, concluding that the Pugh decision "correctly applied basic contract principles in the employment context. …

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