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Supreme Court Of California Holds That An "At Will" Employment Contract Means Just What It Says

By: Veronica M. Gray
09/07/06

In a unanimous decision, the Supreme Court of California in Dore v. Arnold Worldwide, Inc. (August 3, 2006) held that the term "at will" in an employment contract means "at any time without cause."  In Dore, the plaintiff employee asserted that the "at will" provision in his employment contract was ambiguous concerning whether his employment could be terminated without cause, and, therefore, evidence other than his offer letter of employment ("letter") should be considered to prove that an implied agreement existed so that Dore could only be terminated for cause.  The Court disagreed, ruling that the "at will" provision in the letter was not ambiguous and therefore could not be overcome by evidence of a prior or contemporaneous implied-in-fact contract requiring good cause for termination. 

In April 1999, Dore received a verbal offer from Arnold Worldwide, Inc. ("AWI"), followed up on April 16, 1999, with an official letter which confirmed his offer, and discussed key employment terms such as compensation, benefits, and start date.  In the letter, in a separate paragraph central to the Court’s decision, AWI stated: 

"Brook, please know that as with all of our company employees, your employment with Arnold Communications, Inc. is at will.  This simply means that Arnold Communication has the right to terminate your employment at any time just as you have the right to terminate your employment with Arnold Communications, Inc. at any time."

Dore read, signed and returned the letter to AWI and began working at AWI shortly thereafter.

In August 2001, Dore’s employment was terminated.  AWI failed to cite a reason for Dore’s termination, and Dore filed suit against AWI seeking redress for multiple causes of action related to wrongful termination.  Dore alleged that the letter was ambiguous concerning AWI’s right to terminate an employee without cause in light of the inclusion of "at any time" language, that an "implied-in-fact" contract existed which required termination for cause, and therefore evidence other than the letter should be considered to prove that an implied agreement existed between the parties that the employee may only be terminated for cause.  The Court ruled in favor of AWI that no such ambiguity existed, and upheld the trial court’s dismissal of Dore’s multiple causes of action for wrongful at will termination. 

In prior cases, the California Courts of Appeal have been in conflict over whether a provision in an employment contract providing for termination "at any time" is reasonably susceptible to an interpretation allowing for the existence of an implied-in-fact agreement that termination will occur only for cause.  However, in Dore, the Court explicitly disagreed with the Court of Appeal’s ruling that the language "at any time" in the termination clause of an employment contract is "per se ambiguous" because it does not expressly speak to whether cause is required.  The Court reasoned that logic dictates that the phrase "at any time" without further clarifying language "ordinarily entails the notion of ‘with or without cause’" and does not in itself create an ambiguity with regard to requirements for termination.

Use of Extrinsic Evidence to Prove Ambiguity

Although the Court found the "at will" termination language to be clear and unambiguous, it still went on to consider the ambiguity of the letter within the greater context of existing extrinsic evidence.  As the Court stated:  "That the phrase "at any time" is not in itself ambiguous does not preclude the possibility that AWI’s letter, when considered as a whole, contains ambiguity on this topic."  Further, the Court recognized that the presumption of at will employment, as codified in Section 2922 of the California Labor Code ("Section 2922"), "can be overcome by an express or implied agreement to the contrary." 

In its analysis of extrinsic evidence, the Court first looked at other provisions in the employment letter itself which may provide for a reasonable belief by Dore that notwithstanding the "at will" termination language, he could only be fired for cause.  The Court reasoned that the existence of other provisions in the letter relating to a "90 day assessment" and an "annual review" "neither expressly nor impliedly conferred on Dore the right to be terminated only for cause."  Next, the Court pointed out that in defining at will employment in the letter, AWI used language similar to and in compliance with Section 2922 which states in pertinent part that "employment, having no specified term, may be terminated at the will of either party on notice to the other."  The Court drew a key parallel between "at any time" and "having no specified term" and held again that the existence of an unambiguous at will employment clause in the letter, which is compliant with California law, negated the existence of any causes of actions for wrongful at will termination on behalf of Dore.  Finally, the Court reasoned that for the parties to specify that Dore’s employment was at will (and could be terminated "at any time") "would make no sense if their true meaning was that his employment could be terminated only for cause."

The Court next turned its attention to extrinsic evidence other than the letter.  It found that such extrinsic evidence was insufficient to establish a reasonable belief on Dore’s behalf that he could only be fired for cause.  As the Court noted, verbal statements that Dore’s role "would be critical" because AWI needed "a long-term fix", that AWI wanted Dore to "build a relationship" with the new client, and that a "family relationship" existed at AWI, did not support a reasonable inference that an implied contract existed between the parties such that Dore could not be fired at will.

Lessons from Dore

·         In short, the Court confirmed that the term "at will" means just what it says - ‘at will’ in an employment context conveys the intent that employment may be ended by either party "at any time without cause."

·         The existence of clear, unambiguous "at will" language in an employment contract will protect an employer’s right to terminate an employee at will.

·         Careful drafting and review of employment-related documents by counsel are important because ambiguities may be construed in favor of employees. 

·         Employees will be given the "benefit of the doubt" in rebutting the presumption of at will employment, including allowing for consideration of extrinsic evidence outside the bounds of the employment agreement.

·         Employers must be careful in instructing their employees during the interview process not to make promises of employment for a specific duration, or to discuss circumstances of the termination of prior employees, as such statements may be used as extrinsic evidence in support of an employee’s right to only be terminated for cause.

Veronica M. Gray is Chair of Nossaman’s Employment Practice Group and represents employers in all areas of employment law including, but not limited to, wrongful termination, discrimination and harassment, wage and hour, hiring and firing, audits, unfair competition & trade secrets and drafting of policies and procedures, handbooks, employment agreements, severance packages, and nondisclosure agreements.  She can be reached at (949) 477-7663 or vgray@nossaman.com.

     
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