Opinion ID: 1159643
Heading Depth: 2
Heading Rank: 1

Heading: California Employment Law

Text: We held in Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 254 Cal.Rptr. 211, 765 P.2d 373 ( Foley ), that an implied-in-fact contract term not to terminate an employee without good cause will rebut the statutory presumption of Labor Code section 2922 that employment for an indefinite period is terminable at will. (47 Cal.3d at p. 677, 254 Cal.Rptr. 211, 765 P.2d 373.) The Foley court observed that the trier of fact can infer an agreement to limit grounds for an employee's termination based on the employee's reasonable reliance on company policy manuals. ( Id at pp. 681-682, 254 Cal.Rptr. 211, 765 P.2d 373.) In Scott, we stated that, in light of Foley, we could find no rational reason why an employer's policy that its employees will not be demoted except for good cause, like a policy restricting termination or providing for severance pay, cannot become an implied term of an employment contract. In each of these instances, an employer promises to confer a significant benefit on the employee, and it is a question of fact whether that promise was reasonably understood by the employee to create a contractual obligation. ( Scott, supra, 11 Cal.4th at p. 464, 46 Cal.Rptr.2d 427, 904 P.2d 834.) Both Scott and Foley emphasized that employment policies, manuals, and offers were not exempt from the rules governing contract interpretation. ( Scott, supra, 11 Cal.4th at p. 469, 46 Cal.Rptr.2d 427, 904 P.2d 834; Foley, supra, 47 Cal.3d at p. 681, 254 Cal.Rptr. 211, 765 P.2d 373.) In some cases, an employer adopts a no-layoff policy or provides employees with an employment security policy in order to earn the employees' loyalty in exchange for granting them job security. This exchange is fair and it may, depending on the facts, provide the basis for an enforceable unilateral contract, i.e., one in which the promisor does not receive a promise in return as consideration. (1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, § 213, pp. 221-222; see Befort, Employee Handbooks and the Legal Effect of Disclaimers (1991/1992) 13 Indus. Rel. L.J. 326, 342.) In a unilateral contract, there is only one promisor, who is under an enforceable legal duty. (1 Corbin on Contracts (1993) § 1.23, p. 87.) The promise is given in consideration of the promisee's act or forbearance. As to the promisee, in general, any act or forbearance, including continuing to work in response to the unilateral promise, may constitute consideration for the promise. (1 Witkin, Summary of Cal. Law, supra, Contracts, § 213, p. 221; 2 Corbin on Contracts (1995) § 5.9, pp. 40-46; Rest.2d Contracts, §§ 71, 72; Civ.Code, § 1584.) [4] As a Court of Appeal observed, Of late years the attitude of the courts (as well as of employers in general) is to consider [employment security agreements] which offer additional advantages to employees as being in effect offers of a unilateral contract which offer is accepted if the employee continues in the employment, and not as being mere offers of gifts. They make the employees more content and happier in their jobs, cause the employees to forego their rights to seek other employment, assist in avoiding labor turnover, and are considered of advantage to both the employer and the employees. ( Chinn v. China Nat. Aviation Corp. (1955) 138 Cal.App.2d 98, 99-100, 291 P.2d 91 ( Chinn ) [employer's agreement to pay severance benefits becomes enforceable unilateral contract if employee accepts benefit offer by continuing employment]; see also Lang v. Burlington Northern R. Co. (D.Minn.1993) 835 F.Supp. 1104, 1106 [continued employment constitutes acceptance of arbitration policy added to employment manual after employment commenced]; Hunter v. Sparling (1948) 87 Cal.App.2d 711, 723, 197 P.2d 807 [continuing services of employee is adequate consideration for employer's promise to pay future pension].) The parties agree that California law permits employers to implement policies that may become unilateral implied-in-fact contracts when employees accept them by continuing their employment. We do not further explore the issue in the context here, although we note that whether employment policies create unilateral contracts will be a factual question in each case. ( Chinn, supra, 138 Cal.App.2d at pp. 99-100, 291 P.2d 91.) The parties here disagree on how employers may terminate or modify a unilateral contract that has been accepted by the employees' performance. Plaintiffs assert that Pacific Bell was not entitled to terminate its MESP until it could demonstrate a change materially affecting its business plan, i.e., until the time referred to in a clause in the contract. Pacific Bell asserts that because it formed the contract unilaterally, it could terminate or modify that contract as long as it did so after a reasonable time, gave affected employees reasonable notice, and did not interfere with the employees' vested benefits (e.g., pension and other retirement benefits). Even if we were to require additional consideration, Pacific Bell contends it gave that consideration by offering enhanced pension benefits to those employees who chose to remain with the company after the modification took effect. Both parties rely on cases from other jurisdictions to support their respective positions.