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At-will employment and the implied-in-fact contract exception


Previously, we began looking at the topic of at-will employment and some of the exceptions to the rule. As we noted, one important exception to the rule is when employers provide special protections to employees by contract.

Employers need to be careful to honor their contractual obligations in terminating the employment relationship as this can be a significant source of liability. This requires not only carefully drafting and negotiating employment contracts, but also coordinating employee handbooks and other documents and literature so that there is no conflict between what is in its employment contracts.  

Employers should watch out not only for contractual exception to at-will employment they set down in writing, but also those they communicate verbally or through their actions. In California, employers can be found to have made an implied-in-fact promise not to discharge an employee without good cause when the evidence shows it would have been reasonable for an employee to come to this conclusion based on the employer’s words or conduct.                

In determining whether an employer made a promise not to discharge without good cause, juries are allowed to consider various relevant factors, including not only personnel policies and practices, but also: the employee’s length of service; raises, promotions, letters of recommendation/reference and positive evaluations; and employer actions or words to assure the employee of continued employment. Unlike personnel policies and practices, these other factors mentioned above are not of themselves enough for a finding of an implied-in-fact contract. This can be an important point in some cases.

Unfortunately, for employers, the implied-in-fact contract exception to the at-will employment rule is rather broad, and this means that employers need to exercise significant caution in this area to ensure they don’t open themselves up to potential liability in terminating an employee who may be able to claim this exception. Working with experienced legal counsel helps ensure an employer has a good handle on how to shape their policies and actions toward employers to minimize potential liability in this area, and that the employer’s rights and interests are zealously advocated when liabilities do arise.

Source: California Civil Jury Instructions, Section 2403

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