Employment Contracts

Employment contracts are an exception to the assumption that all employment is “at-will” employment. “At-will employment means the employer or employee may terminate the employment relationship at any time with or without notice and with or without “cause.” Generally speaking the employment relationship under California law is not “contractual” (although the California Supreme Court has said it is “primarily contractual”) it is governed by the general rule of “at-will” employment.

However, if employers are not careful, they can create “contracts” of employment. In the employment setting such contracts include:

• An express contract not to terminate the employment except for “good cause” or to keep the employee employed for a certain period of time;
• Implied contract to the same effect;

Breach Of An express Contract

As CEO you promise your employee they have a job until they are 65 in return for their performing their job in an adequate manner. Contrary to popular belief, this express contract need not be in writing. If the employee can prove an oral contract for that express promise, that will suffice.

Breach Of Implied Contract

This is a little trickier, but applies the same concept, only now you don’t have to expressly say or write it. If your or your manager’s conduct or actions (including failure to act) “imply” other than “at-will” employment, then your business can be held to that implied promise.

An example might help. You have a 15 year employee. He/she has had annual performance reviews all positive (even though you and your managers have had challenges with this employee’s attitude and attendance). Periodically the employee has received pay raises. Employee has been with employer and helped “grow” the business from nothing to a substantial local presence in the market.

One day management decides they are tired of the absences or tardy appearances at work along with the surly attitude. Worse, employee’s immediate supervisor told employee off and on during his/her employment they were doing “fantastic” and “keep up the great work and you’ll have a long career with us . . . .” Management abruptly terminates employee’s employment “at will” with no notice and no advance warning whatsoever.

This is a potential breach of implied contract under California law. Under California law, factors apart from express contract terms may be used to ascertain the existence and content of an employment agreement, including the personnel policies or practices of the employer, the employee’s longevity of service, actions or communications by the employer reflecting assurances of continued employment, and the practices of the industry in which the employee is engaged.

Therefore, Employers:

• Watch what you say or write to your employees. Avoid promises, verbal or written, concerning length of employment, conditions under which employment may or may not be terminated and other employment terms and conditions.
• Confirm in writing (job applications, offer letters, handbooks, handbook acknowledgements, etc.) that employment is at-will.
• Most critically, use integrated at-will language – this certainly does not mean you can make any kind of promise you like and not deliver. Nor does it guaranty you can defense any kind of breach of contract claim or fraudulent inducement action. However, it is a preventive measure that your employment litigation counsel, should the need arise, will be very grateful to have in defending your company.