Opinion ID: 2569285
Heading Depth: 2
Heading Rank: 3

Heading: Implied covenant claim.

Text: Bechtel next urges that the trial court properly dismissed Guz's separate claim for breach of the implied covenant of good faith and fair dealing because, on the facts and arguments presented, this theory of recovery is either inapplicable or superfluous. We agree. [16] The sole asserted basis for Guz's implied covenant claim is that Bechtel violated its established personnel policies when it terminated him without a prior opportunity to improve his unsatisfactory performance, used no force ranking or other objective criteria when selecting him for layoff, and omitted to consider him for other positions for which he was qualified. Guz urges that even if his contract was for employment at will, the implied covenant of good faith and fair dealing precluded Bechtel from unfairly denying him the contract's benefits by failing to follow its own termination policies. Thus, Guz argues, in effect, that the implied covenant can impose substantive terms and conditions beyond those to which the contract parties actually agreed. However, as indicated above, such a theory directly contradicts our conclusions in Foley, supra, 47 Cal.3d 654, 254 Cal.Rptr. 211, 765 P.2d 373. The covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party's right to receive the benefits of the agreement actually made. (E.g., Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36, 44 Cal.Rptr.2d 370, 900 P.2d 619.) The covenant thus cannot `be endowed with an existence independent of its contractual underpinnings.' ( Ibid., quoting Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1153, 271 Cal.Rptr. 246.) It cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement. Labor Code section 2922 establishes the presumption that an employer may terminate its employees at will, for any or no reason. A fortiori, the employer may act peremptorily, arbitrarily, or inconsistently, without providing specific protections such as prior warning, fair procedures, objective evaluation, or preferential reassignment. Because the employment relationship is fundamentally contractual ( Foley, supra, 47 Cal.3d 654, 696, 254 Cal. Rptr. 211, 765 P.2d 373), limitations on these employer prerogatives are a matter of the parties' specific agreement, express or implied in fact. The mere existence of an employment relationship affords no expectation, protectible by law, that employment will continue, or will end only on certain conditions, unless the parties have actually adopted such terms. Thus if the employer's termination decisions, however arbitrary, do not breach such a substantive contract provision, they are not precluded by the covenant. This logic led us to emphasize in Foley that breach of the implied covenant cannot logically be based on a claim that [the] discharge [of an at-will employee] was made without good cause. ( Foley, supra, 47 Cal.3d 654, 698, fn. 39, 254 Cal. Rptr. 211, 765 P.2d 373.) As we noted, [b]ecause the implied covenant protects only the parties' right to receive the benefit of their agreement, and, in an at-will relationship there is no agreement to terminate only for good cause, the implied covenant standing alone cannot be read to impose such a duty. [Citation.] ( Ibid. ) The same reasoning applies to any case where an employee argues that even if his employment was at will, his arbitrary dismissal frustrated his contract benefits and thus violated the implied covenant of good faith and fair dealing. Precisely because employment at will allows the employer freedom to terminate the relationship as it chooses, the employer does not frustrate the employee's contractual rights merely by doing so. In such a case, the employee cannot complain about a deprivation of the benefits of continued employment, for the agreement never provided for a continuation of its benefits in the first instance. ( Hejmadi v. AMFAC, Inc. (1988) 202 Cal.App.3d 525, 547, 249 Cal. Rptr. 5.) Guz cites several decisions suggesting that the implied covenant precludes an employer from terminating even an at-will employee unfairly, such as by refusing to follow its own established policies and practices. ( Rulon-Miller v. International Business Machines Corp. (1984) 162 Cal. App.3d 241, 247, 208 Cal.Rptr. 524 ( Rulon-Miller ) [employer's duty of fair dealing requires that like cases be treated alike; thus, employer's termination rules and regulations, if any, must be followed]; see Gray, supra, 181 Cal.App.3d 813, 820-821, 226 Cal.Rptr. 570 [long service plus violation of employer policies may establish breach of covenant of fair treatment]; Khanna, supra, 170 Cal.App.3d 250, 262, 215 Cal.Rptr. 860 [implied covenant may be violated by termination of at-will employee where employer engaged in bad faith actions, extraneous to the contract, to frustrate benefits of employment]; Pugh, supra, 116 Cal.App.3d 311, 327-329, 171 Cal.Rptr. 917 [termination after long service, in violation of employer policies, may breach implied covenant to refrain from arbitrary treatment]; Cleary, supra, 111 Cal.App.3d 443, 455-456, 168 Cal.Rptr. 722 [same]; see also Kern v. Levolor Lorentzen, Inc. (9th Cir.1990) 899 F.2d 772, 777 [covenant requires cooperation in carrying out the contract and honesty in creating or settling disputes; breach of covenant may thus be shown where employee establishes lengthy satisfactory service and violation of employer's termination policies].) But insofar as these authorities suggest that the implied covenant may impose limits on an employer's termination rights beyond those either expressed or implied in fact in the employment contract itself, they contravene the persuasive reasoning of Foley, and are therefore disapproved. Similarly at odds with Foley are suggestions that independent recovery for breach of the implied covenant may be available if the employer terminated the employee in bad faith or without probable cause, i.e., without determining honestly and in good faith that good cause for discharge existed. ( Walker, supra, 4 Cal. App.4th 985, 997, 6 Cal.Rptr.2d 184; see also, e.g., Wilkerson, supra, 212 Cal. App.3d 1217, 1231, 261 Cal.Rptr. 185; Burton v. Security Pacific Nat. Bank (1988) 197 Cal.App.3d 972, 979, 243 Cal.Rptr. 277; Rulon-Miller, supra, 162 Cal.App.3d 241, 253, 208 Cal.Rptr. 524.) Where the employment contract itself allows the employer to terminate at will, its motive and lack of care in doing so are, in most cases at least, irrelevant. (But see fn. 18, post. ) A number of Court of Appeal decisions since Foley have recognized that the implied covenant of good faith and fair dealing imposes no independent limits on an employer's prerogative to dismiss employees. (E.g., Camp, supra, 35 Cal. App.4th 620, 631, 41 Cal.Rptr.2d 329 [implied covenant did not preclude unfair termination where there was no express or implied-in-fact contract limiting employer's termination rights]; Flait v. North American Watch Corp. (1992) 3 Cal.App.4th 467, 480-481, 4 Cal.Rptr.2d 522 [employment contract contained express at-will term; because employee thus could not show her termination broke any contractual covenant or promise, implied covenant claim must fail]; Slivinsky v. Watkins-Johnson Co. (1990) 221 Cal.App.3d 799, 806, 270 Cal.Rptr. 585 [where contract contained express at-will clause, implied covenant claim must fail because employee could not show her termination without good cause frustrated the [parties'] intentions and reasonable expectations ... within the contract].) We affirm that this is the law. [17] Of course, as we have indicated above, the employer's personnel policies and practices may become implied-in-fact terms of the contract between employer and employee. If that has occurred, the employer's failure to follow such policies when terminating an employee is a breach of the contract itself. A breach of the contract may also constitute a breach of the implied covenant of good faith and fair dealing. But insofar as the employer's acts are directly actionable as a breach of an implied-in-fact contract term, a claim that merely realleges that breach as a violation of the covenant is superfluous. This is because, as we explained at length in Foley, the remedy for breach of an employment agreement, including the covenant of good faith and fair dealing implied by law therein, is solely contractual. In the employment context, an implied covenant theory affords no separate measure of recovery, such as tort damages. ( Foley, supra, 47 Cal.3d 654, 682-700, 254 Cal.Rptr. 211, 765 P.2d 373.) Allegations that the breach was wrongful, in bad faith, arbitrary, and unfair are unavailing; there is no tort of bad faith breach of an employment contract. We adhere to these principles here. To the extent Guz's implied covenant cause of action seeks to impose limits on Bechtel's termination rights beyond those to which the parties actually agreed, the claim is invalid. To the extent the implied covenant claim seeks simply to invoke terms to which the parties did agree, it is superfluous. Guz's remedy, if any, for Bechtel's alleged violation of its personnel policies depends on proof that they were contract terms to which the parties actually agreed. The trial court thus properly dismissed the implied covenant cause of action. [18]