SCOTT v. PACIFIC GAS AND ELECTRIC COMPANY

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Court of Appeal, First District, Division 3, California.

C. Byron SCOTT et al., Plaintiffs and Appellants, v. PACIFIC GAS AND ELECTRIC COMPANY, Defendant and Appellant.

No. A058456.

Decided: August 31, 1994

Howard V. Colub,J. Michael Reidenbach, Deborah S. Shefler, Maureen L. Fries, San Francisco, for defendant and appellant. Christopher E. Platten, Wylie, McBride, Jesinger, Sure & Platten, San Jose, for plaintiffs and appellants.

This is an appeal by defendant Pacific Gas and Electric Company (PG & E) from an order denying its motion for judgment notwithstanding the verdict and from the judgment rendered on the special verdicts of the jury in favor of plaintiffs C. Byron Scott (Scott) and Al Johnson (Johnson) for breach of an implied contract of employment, breach of the implied covenant of good faith and fair dealing, and violation of Public Utilities Code section 453, subdivision (a).1  Plaintiffs cross-appeal from the order of the trial court granting a new trial on the issue of the amount of damages to be awarded plaintiffs for emotional distress.

FACTUAL 2 AND PROCEDURAL BACKGROUND

Scott and Johnson are engineers who, at the time of trial, had been employed by PG & E continuously for 24 and 20 years respectively.   Both men worked in PG & E's Technical and Ecological Services Unit (TES), an in-house engineering consulting service for other departments within PG & E.

Employment policies at TES permitted outside consulting work.   It was felt that experience obtained by working with other businesses would be of benefit to PG & E.   Several engineers in TES owned outside businesses.

In 1977, Scott and Johnson started S & J Engineering (S & J), a subchapter S corporation.   The company consults on stress analysis, experimental stress analysis, installation of strain gauges, and performs installation and calibration services.   Ray Cayot, Carl Weinberg, and R.C. Thornberry, the successive managers of TES, were all informed of the existence of the company.   Plaintiffs' involvement with S & J was well-known throughout PG & E.   A copy of Johnson's S & J corporate stock certificate hung on his office wall at PG & E.   There is no PG & E rule, practice or policy which prohibits company employees from engaging in an outside business;  nor is there a prohibition against employing the services of other PG & E employees in an outside business owned by a PG & E employee so long as there is no conflict of interest.

Work was done for S & J in the evenings, on vacation days and on the weekends.   Much of the work was done in Johnson's home, where he installed strain gauges or other small instruments on parts.   Some jobs were more extensive and were done on location, such as projects for NASA Ames Research facility in installing instruments in the wind tunnel at Moffitt Field.   Some technicians who worked with plaintiffs at PG & E were employed by S & J for this purpose, but they performed their work on weekends and on vacation days from PG & E.

In April of 1988, Johnson became aware that some technicians under his chain of command at the PG & E Diablo Canyon Nuclear Power Plant might be involved in time card fraud.   PG & E's Internal Auditing Department (IA) was eventually contacted and an investigation was initiated under the direction of lead auditor, Ralph Stewart.   Because two of the technicians and their supervisor had worked at S & J, IA commenced an investigation of plaintiffs' outside business.   Near the end of 1988 Stewart told Johnson he had concerns about plaintiffs' outside businesses, and he asked for and received from plaintiffs, personal tax records, invoices, payroll records, accounts receivable data, contracts and bank statements.   In July 1989, Thornberry informed Johnson that management at PG & E had been briefed by IA.   He pointed out certain concerns PG & E had in respect to plaintiffs' conduct within PG & E and in the operation of S & J.   Subsequent meetings between plaintiffs and Thornberry revealed other allegations of conflict of interest and improper conduct.   On August 2, 1989, plaintiffs wrote Thornberry seeking clarification of the issues.   Evidently Stewart finalized the IA report on August 4, 1989, but plaintiffs were not given an opportunity to review it until September 6, 1989.   On August 9, 1989, Thornberry suspended both plaintiffs.   In the latter part of August 1989, each plaintiff met individually with the member of PG & E management who had ultimate authority in disciplinary matters, but at that time they did not have a copy of the final report of IA.   After plaintiffs received a copy of the report, PG & E asked them to respond and they submitted a detailed response denying the charges.   PG & E then determined that plaintiffs should be demoted to nonsupervisory positions outside of TES, and the demotions became effective on October 6, 1989.   Scott was demoted from a Level 11 to a Level 6 engineer, a position he last held in 1975.   He was stripped of his supervisory authority.   Johnson was demoted from a Level 9 to a Level 5 engineer, a position he held when he was first hired at PG & E.   He was also relieved of his supervisory authority.   Plaintiffs introduced evidence of PG & E's positive discipline policy and that PG & E did not comply with the terms of these policies in dealing with plaintiffs.3

It is unnecessary for us to examine the charges and response in any detail because evidence was presented at trial by plaintiffs to refute the charges, and for purposes of this appeal PG & E is not contesting the merits of plaintiffs' contention that the charges were erroneous.

The jury was provided with special verdict forms and as to the causes of action for breach of an implied contract of employment and breach of an implied covenant of good faith and fair dealing, it found that there were implied employment contracts between PG & E and plaintiffs;  that a term of the contract was that PG & E would not discipline or demote plaintiffs without good cause;  that PG & E breached the contract by demoting plaintiffs without good cause;  and that PG & E acted in bad faith in demoting plaintiffs.   In respect to the cause of action for violation of Public Utilities Code section 453, subdivision (a), the jury found that plaintiffs were treated differently than similarly situated employees;  and that PG & E acted in an arbitrary and capricious manner, unrelated to its business needs and goals.   The jury found Scott had suffered $700,000 in economic damages and $75,000 in noneconomic damages for emotional distress;  and Johnson had suffered $625,000 in economic damages and $75,000 in noneconomic damages for emotional distress.

DISCUSSION

Implied–In–Fact Contract

 In Pugh v. See's Candies, Inc. (1981) 116 Cal.App.3d 311, 171 Cal.Rptr. 917 the Court of Appeal ruled that the trier of fact could determine the existence of an implied promise that an employer would not arbitrarily terminate an employee.   In support of this position our Supreme Court said that “[t]he absence of an express written or oral contract term concerning termination of employment does not necessarily indicate that the employment is actually intended by the parties to be ‘at will,’ because the presumption of at-will employment may be overcome by evidence of contrary intent.   Generally, courts seek to enforce the actual understanding of the parties to a contract, and in so doing may inquire into the parties' conduct to determine if it demonstrates an implied contract.”  (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 677, 254 Cal.Rptr. 211, 765 P.2d 373.)   In Foley the employer contended that courts should not enforce employment security agreements in the absence of evidence of independent consideration and express manifestation of mutual assent, but in rejecting that contention the Supreme Court said, “we conclude that [employer's] suggested limitations are inappropriate in the modern employment context.   We discern no basis for departing from otherwise applicable general contract principles.”  (Id., at p. 678, 254 Cal.Rptr. 211, 765 P.2d 373.)   Thus, it is settled law in California that the trier of fact may find an implied-in-fact contract limiting an employer's right to discharge an employee arbitrarily, and the agreement in this regard may be evidenced by the acts and conduct of the parties.

 In the case at bench, however, the critical issue is whether these principles apply when the plaintiffs are still employed by PG & E, but are alleging in their complaint the existence and breach of an implied-in-fact contract that they “would not be demoted, discharged or otherwise disciplined nor would [their] job functions be reassigned for other than good cause.”

We agree with PG & E that plaintiffs cannot maintain a cause of action for the breach of this alleged implied-in-fact contract when there has been no termination of employment.   Such a purported contract is too vague and uncertain to be enforceable.   When we are dealing with discipline and demotions for employees, we may be talking about reductions in rank, pay and benefits;  denial of promotions, raises or bonuses;  transfers to other company locations;  assignments to different departments;  changes in work schedules;  and a myriad of other operational decisions.   And then to establish implied promises by an employer to refrain from taking these actions without good cause, if we follow the lead of the wrongful discharge cases, we would look to such acts and conduct as personnel policies and practices, longevity of service, assurances from the employer, good reviews, and practices in the industry.   It is readily apparent that this creates great uncertainty and speculation as to the relevant relationship of these factors to the establishment of implied promises in respect to demotions and disciplinary action.

This is particularly true in the instant case where the jury was instructed that “[i]n determining whether any implied agreement existed that [plaintiffs] would not be disciplined or discharged without good cause, it is appropriate for you to consider such facts as PG & E's personnel policies and practices that were communicated to [plaintiffs], any assurances that PG & E gave to [plaintiffs], the lengths of [plaintiffs'] employment, any praise to [plaintiffs] by PG & E, any promotions received by [plaintiffs], any criticisms of [plaintiffs'] work, and any evidence tending to negate the existence of such an implied agreement.”   Unlike a termination of employment where there is a singular and definitive event, the types and forms of discipline and demotions that may take place in the workplace are infinite in number.   Likewise, general terms such as “any assurances,” “any praise” and “any criticisms” encompass a broad spectrum of acts and conduct.   Thus, it cannot be ascertained with any degree of certainty which acts and conduct should be looked at by a trier of fact to determine whether there exists a nonexpressed but implied promise by an employer not to undertake particular disciplinary measures without good cause.

There is little case law directly on point.   This is probably because it is generally accepted that unless there is a violation of public policy, an employee cannot maintain a lawsuit against an employer based on an alleged implied-in-fact contract not to impose disciplinary measures except for good cause.   What authority there is seems to support this proposition.

In Soules v. Cadam, Inc. (1991) 2 Cal.App.4th 390, 3 Cal.Rptr.2d 6, the plaintiff claimed wrongful constructive discharge based on breach of an implied contract of employment.   In affirming the grant of summary judgment the Court of Appeal held that plaintiff's allegations of intolerable working conditions which purportedly forced her resignation consisted of her demotion and poor performance evaluation.   Without discussion of whether good cause existed for the disciplinary measures, the court reasoned:  “The fact that an employee received a poor performance rating will not support a finding of constructive discharge․   Further, demotion of job level, even when accompanied by reduction in pay, does not constitute constructive discharge.  (Wagner v. Sanders Associates, Inc. (C.D.Cal.1986) 638 F.Supp. 742, 745.)”   (Soules v. Cadam, Inc., supra, 2 Cal.App.4th at p. 401, 3 Cal.Rptr.2d 6.)   The Soules court noted that in Cole v. Fair Oaks Fire Protection Dist. (1987) 43 Cal.3d 148, 160, 233 Cal.Rptr. 308, 729 P.2d 743, where the employer's disciplinary measures were alleged to intentionally inflict emotional distress upon the employee, the Supreme Court found the claim was relegated to the exclusive remedy provisions of the workers' compensation law.  Soules analogized similar allegations of wrongful discipline would not constitute the intolerable working conditions required for a constructive discharge claim.  (Soules v. Cadam, Inc., supra, 2 Cal.App.4th at p. 401, 3 Cal.Rptr.2d 6.)

The position expressed in Soules in respect to demotion was reaffirmed by our Supreme Court in the recent case of Turner v. Anheuser–Busch, Inc. (1994) 7 Cal.4th 1238, 32 Cal.Rptr.2d 223, 876 P.2d 1022.   Turner was a constructive discharge case in which the Supreme Court held that the trial court was correct in granting summary judgment in favor of the employer, and in so ruling the majority opinion stated, “[m]oreover, a poor performance rating or a demotion, even when accompanied by reduction in pay, does not by itself trigger a constructive discharge.”  (At p. 1247, 32 Cal.Rptr.2d 223, 876 P.2d 1022, fn. omitted.)

In the context of wrongful constructive termination cases, our courts have been reluctant to afford relief to plaintiffs on the basis of employer disciplinary measures, short of termination.   In Tollefson v. Roman Catholic Bishop (1990) 219 Cal.App.3d 843, 268 Cal.Rptr. 550, the Court of Appeal considered whether a wrongful demotion permitted a plaintiff to bring a tort claim for breach of the covenant of good faith and fair dealing.   In this case the parties had an express written agreement for the employment of plaintiff as a school administrator, renewable annually at the school's discretion.   When plaintiff's contract was not renewed, she was offered a teaching position which she accepted.   In affirming the grant of summary judgment, the Tollefson court held that the covenant of good faith and fair dealing does not transform the express contract so as to require the employer to use an objective standard in deciding whether to renew.  (Tollefson v. Roman Catholic Bishop, supra, 219 Cal.App.3d at pp. 853–855, 268 Cal.Rptr. 550.)   The Court of Appeal lauded the trial court's reasoning in distinguishing a wrongful termination case in which a cause of action for breach of the covenant of good faith and fair dealing may lie as compared to the wrongful demotion case which was before the court.  “[T]here exists no California precedent warranting either contractual or tortious relief under these circumstances.”  (Id., at p. 853, fn. 3, 268 Cal.Rptr. 550.)

In Burton v. Security Pacific Nat. Bank (1988) 197 Cal.App.3d 972, 977, 243 Cal.Rptr. 277, a wrongful termination case, the plaintiff was first given a written reprimand for excessive absenteeism.   Subsequently, he was seen in a restricted area reading confidential materials.   Plaintiff was discharged.   The plaintiff alleged that the employer's violation of its personnel policy with respect to the reprimand constituted a breach of contract.   For purposes of discussion, the trial court assumed that the employer's personnel policies became part of plaintiff's oral contract of employment.   Nevertheless, the appellate court affirmed the trial court's grant of summary judgment in favor of the employer, finding no breach of contract claim lies as to the allegation of wrongful discipline because no deprivation of rights occurred upon which a cause of action could be maintained.

Applying California law as to constructive discharge, the federal district court in Wagner v. Sanders Associates, Inc., supra, 638 F.Supp. 742, held that a demotion and a reduction in pay could not be considered such intolerable working conditions that a reasonable person similarly situated would have felt compelled to resign.   The plaintiff in Wagner had accepted a reassignment from one managerial position to another with fewer responsibilities and less salary.   Six months later, upon finding another position, he resigned.   The court noted:  “Demotion of job level, even when accompanied by reduction in pay, cannot constitute ipso facto constructive discharge under California law.  [Citations.]”  (Wagner v. Sanders Associates, Inc., supra, 638 F.Supp. at p. 745.)

The reluctance of our courts to take on the role of arbiter in an employer's disciplinary decisions is apparent.  “Care must be taken ․ not to interfere with the legitimate exercise of managerial discretion.”  (Pugh v. See's Candies, Inc., supra, 116 Cal.App.3d at p. 330, 171 Cal.Rptr. 917, fn. omitted.)   Our Supreme Court wrote in Cole, in discussing the existence of an intentional infliction of emotional distress claim from an employer's disciplinary measures:  “In order to properly manage its business, every employer must on occasion review, criticize, demote, transfer and discipline employees.”  (Cole v. Fair Oaks Fire Protection Dist., supra, 43 Cal.3d at p. 160, 233 Cal.Rptr. 308, 729 P.2d 743.)

Plaintiffs contend that even if under the facts of this case a cause of action cannot be maintained for breach of an implied-in-fact contract when there is no termination of employment, they “prevailed under the legal theory validated in Garcia v. Rockwell Internat. Corp. (1986) 187 Cal.App.3d 1556, 232 Cal.Rptr. 490, namely that the rationale of Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 164 Cal.Rptr. 839, 610 P.2d 1330, is applicable ‘when an employee is wrongfully (tortiously) disciplined and suffers damage as a result of, not a breach of a contract term, but rather, breach of a duty growing out of the contract.’ ”   The Court of Appeal in Garcia relied on the holding of our Supreme Court in Tameny that an employee discharged for refusing to engage in illegal conduct at his employer's request may bring a tort action for wrongful discharge.   The plaintiff, Garcia, brought suit alleging that he was wrongfully suspended and demoted by his employer as a retaliatory measure because he revealed to a governmental agency his employer's mischarging activities.   In ruling that the trial court was in error in granting employer's motion for summary judgment, the Garcia court ruled “that an employee can maintain a tort claim against his or her employer where disciplinary action has been taken against the employee in retaliation for the employee's ‘whistle-blowing’ activities, even though the ultimate sanction of discharge has not been imposed.”  (Garcia v. Rockwell Internat. Corp., supra, 187 Cal.App.3d at p. 1562, 232 Cal.Rptr. 490.)   Applying these principles, plaintiffs in our case say, “[h]ere, as in Garcia, the wrong occurred not because PG & E breached a term of the contract, but because, by subjecting Scott and Johnson to unjust and unreasonable differential treatment, PG & E violated public policy.  (Pub.Util.Code § 453(a).)”

Plaintiffs cannot prevail on this basis, however, because as we explain, infra, the determination that PG & E violated Public Utilities Code section 453, subdivision (a), must be reversed.

Additionally, militating against plaintiffs being able to maintain a cause of action for breach of an implied-in-fact contract is the fact the measure of damages is speculative and not reasonably certain.   There was evidence of plaintiffs' loss of earnings if they remained at PG & E but no evidence of their earning capacity should they take employment elsewhere.   If other employment was available to plaintiffs as engineers at the same level they had at PG & E before being demoted, there is nothing to prevent them from taking such a new position immediately after receiving a large award from PG & E for loss of future earnings.   By contract, when an employee is actually terminated or constructively discharged, the trier of fact can evaluate the employee's prospects for new employment and project his or her loss of future earnings.   This avoids the uncertainty of an award for a claimed loss that may or may not be incurred by an employee.

Public Utilities Code Section 453, Subdivision (a)

 PG & E contends that plaintiffs in the case at bench cannot maintain an action for violation of Public Utilities Code section 453, subdivision (a).   We find PG & E's position meritorious.

Section 453, subdivision (a) provides:  “No public utility shall, as to rates, charges, service, facilities, or in any other respect, make or grant any preference or advantage to any corporation or person or subject any corporation or person to any prejudice or disadvantage.”

Plaintiffs argue that the statute means just what it says, and whenever there is unreasonable differential treatment in employment by a public utility, such as in our case, it is a misuse of power which is against the public interest, because such conduct is a breach of the special obligations placed on a state-protected utility, and there is a violation of the statute.   We find this argument unpersuasive.   The California Supreme Court made it clear, in Gay Law Students Assn. v. Pacific Tel. & Tel. Co. (1979) 24 Cal.3d 458, 156 Cal.Rptr. 14, 595 P.2d 592, that in applying this statute in respect to employment we are concerned with discrimination of a type which is associated with the characteristics or classification of a person, or which results from a person being a member of some class or group, as distinguished from ones work performance or conduct on the job.

In Gay Law Students four individuals and two associations organized to promote equal rights for homosexual persons filed a class action alleging that Pacific Telephone and Telegraph Company (PT & T) practiced discrimination against homosexuals in hiring, firing and promotion of employees, and asserted the illegality of such employment discrimination.   The class was composed of homosexuals who are past, present and future applicants for employment or employees of PT & T, and have been or will be adversely affected by PT & T's alleged discrimination against homosexuals.  (Id., at p. 464, 156 Cal.Rptr. 14, 595 P.2d 592.)   The complaint alleged that PT & T had maintained and enforced a policy of employment discrimination against homosexuals.  (Id., at p. 465, 156 Cal.Rptr. 14, 595 P.2d 592.)   PT & T's demurrer to the complaint was sustained without leave to amend by the trial court and judgment was entered in favor of PT & T.   The Supreme Court reversed the judgment.   The Supreme Court ruled that the discriminatory employment policy against homosexuals, as alleged in the complaint, violates the explicit statutory prohibition of discrimination by a public utility embodied in section 453, subdivision (a) of the Public Utilities Code.

Plaintiffs maintain that Gay Law Students is on all fours with our case, and thus, it was not error for the trial court to instruct the jury that one of the theories of relief claimed by plaintiffs was that PG & E had violated section 453, subdivision (a).   As stated by plaintiffs:  “Evidence was before the jury that Scott and Johnson were subjected to unjust and unreasonable differential treatment․   That is a violation of the plain language of the statute.  Gay Law Students affirms that it is in the public interest for monopolies to conduct themselves in the employment arena without recourse to personal whim and prejudice.   A violation of that obligation is an offense against the public weal.   An award for a breach of that public obligation is a vindication of public policy.   Thus, plaintiffs' claim for breach of public policy, while arising from conduct directed against them as individuals, inures to the benefit of the public at large by forcing the monopoly to adhere to its public obligations.”

We have no argument with the fact that there may be discrimination against a single individual, but that begs the question in our case.   The question is the meaning of the term discrimination as used by the Supreme Court in Gay Law Students.   It is apparent throughout the opinion that the Supreme Court is concerned with a discriminatory employment policy or practice based on some categorization of individuals in our society, and not on differential treatment based on work performance or conduct on the job.   The Supreme Court was careful to state that section 453, subdivision (a) “should be interpreted to prohibit a public utility from engaging in arbitrary employment discrimination, such as alleged in the instant case.”   (Id., at p. 478, 156 Cal.Rptr. 14, 595 P.2d 592, emphasis added.)

PG & E also contends that even assuming section 453, subdivision (a) is applicable to differential treatment of public utility employees based on work performance or conduct on the job, there is insufficient evidence in the instant case to support the finding by the jury in the special verdict that plaintiffs were treated differently than other similarly situated employees.   PG & E's position that there is a lack of evidentiary support is correct.

The question of whether plaintiffs were treated differently than other similarly situated employees was a critical issue in this cause of action.   The trial court instructed the jury that one of plaintiffs' claims and theories of relief was that PG & E violated section 453, subdivision (a) by treating plaintiffs differently than other similarly situated employees.   The court instructed the jury further that “[i]f you find that plaintiffs were treated differently than similarly situated employees, in other words, that PG & E acted in an arbitrary or discriminatory manner, then you may find that PG & E violated the public policy set forth in section 453[, subdivision] (a).”

On this determinative issue the plaintiffs presented evidence in respect to four other employees, Turner, Patzkowski, Kennedy and Pirtz.   It cannot be said, however, that these employees were similarly situated to plaintiffs.   They were of lesser rank than plaintiffs and were subordinates to plaintiffs.   They did not have the same supervisorial responsibilities as given to plaintiffs.   None of the four were engaged in outside business activities of the nature and extent of the plaintiffs'.

Cross–Appeal

In their cross-appeal plaintiffs contend the trial court abused its discretion by granting a new trial on the issue of the amount of damages to be awarded for emotional distress.   In view of our decision that plaintiffs cannot maintain an action for violation of section 453, subdivision (a), no basis remains for recovery of damages for emotional distress, and the cross-appeal should be dismissed as moot.

DISPOSITION

The cross-appeal of plaintiffs Scott and Johnson is dismissed.   The order granting a new trial on noneconomic damages is vacated.   The order denying PG & E's motion for judgment notwithstanding the verdict is reversed.   The judgment in favor of Scott and Johnson and against PG & E is reversed in its entirety.   It is ordered that judgment be entered in favor of PG & E and against Scott and Johnson.

PG & E shall recover its costs on appeal.

I respectfully dissent.

I agree with the majority that plaintiffs cannot maintain an action for violation of Public Utilities Code section 453, subdivision (a), but I would affirm the judgment on the breach of contract theory.

In Pugh v. See's Candies, Inc. (1981) 116 Cal.App.3d 311, 171 Cal.Rptr. 917, the Court of Appeal held that the “presumption that an employment contract is intended to be terminable at will is subject, like any presumption, to contrary evidence.   This may take the form of an agreement, express or implied, ․ that the employment relationship will continue indefinitely, pending the occurrence of some event such as the employer's dissatisfaction with the employee's services or the existence of some ‘cause’ for termination.”  (Id., at pp. 324–325, 171 Cal.Rptr. 917, fn. omitted.)

In Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 676, 254 Cal.Rptr. 211, 765 P.2d 373, our Supreme Court concluded that Pugh correctly applied basic contract principles in the employment context.   The high court stated the employer and employee are free to contract;  “[t]heir agreement will be enforced so long as it does not violate legal strictures external to the contract, such as laws affecting union membership and activity, prohibitions on indentured servitude, or the many other legal restrictions already described which place certain restraints on the employment arrangement.”  (Id., at p. 677, 254 Cal.Rptr. 211, 765 P.2d 373.)

The continued validity of implied-in-fact contracts between employers and employees was recently recognized in General Dynamics Corp. v. Superior Court (1994) 7 Cal.4th 1164, 1177, 32 Cal.Rptr.2d 1, 876 P.2d 487.   “As the name suggests, an implied-in-fact contract claim as a limitation on an employer's historical at-will power to terminate one of its employees is rooted in the conduct of the parties to the employment relationship itself.   As such, it is a branch of the law of contracts and subject to the time-honored notion that contractual bargains ought to be enforced unless there is some imperative—generally rooted in policies external to the employment relationship—that prevents a court from doing so.”

As this court has previously observed, “the Foley court noted that the existence and content of an implied-in-fact agreement may be ascertained from the employer's personnel policies or practices, the length of the employee's service, the employer's actions or communications reflecting assurances of continued employment and the industry practices.  [Citation.]  Foley prescribed that a court must look to the ‘totality of the circumstances' in determining the nature of the implied contract.”  (Walker v. Blue Cross of California (1992) 4 Cal.App.4th 985, 993, 6 Cal.Rptr.2d 184.)

I perceive no reason why the contract principles articulated in Pugh, Foley and General Dynamics are not equally applicable to implied contracts not to discipline employees without good cause.   For instance, in Perez v. Curcio (D.Ariz.1989) 710 F.Supp. 259, a former city employee brought suit for breach of an employment contract among other things.   She contended that the city's personnel rules that no person shall be demoted or dismissed because of age became an implied-in-fact contract term that was breached by her wrongful demotion and termination based on her age.   The court held the question of whether the city's personnel rules became part of the plaintiff's employment contract was a question of fact for the jury.  (Id., at p. 263.)

Defendant's cited authority does not preclude the possibility there can be an implied contract not to discipline an employee without just cause.   In Cole v. Fair Oaks Fire Protection Dist. (1987) 43 Cal.3d 148, 233 Cal.Rptr. 308, 729 P.2d 743, a firefighter filed suit against his employer for intentional infliction of emotional distress.   The high court held an employee may not maintain a civil action for intentional infliction of emotional distress when the conduct complained of results in total, permanent, mental and physical disability compensable under workers' compensation law.  (Id., at p. 151, 233 Cal.Rptr. 308, 729 P.2d 743.)   In reaching this determination the Cole court stated:  “In order to properly manage its business, every employer must on occasion review, criticize, demote, transfer and discipline employees․  [¶] ․ [W]hen the misconduct attributed to the employer is actions which are a normal part of the employment relationship, such as demotions, promotions, criticism of work practices, and frictions in negotiations as to grievances, an employee suffering emotional distress causing disability may not avoid the exclusive remedy provisions of the Labor Code by characterizing the employer's decisions as manifestly unfair, outrageous, harassment, or intended to cause emotional disturbance resulting in disability.”  (Id., at p. 160, 233 Cal.Rptr. 308, 729 P.2d 743.)   The case never considered, let alone held, that a term of an employment contract may be not to demote the employee without just cause.   Nor was the issue ever addressed or discussed in Soules v. Cadam, Inc. (1991) 2 Cal.App.4th 390, 3 Cal.Rptr.2d 6, Wells Fargo Bank v. Superior Court (1991) 53 Cal.3d 1082, 282 Cal.Rptr. 841, 811 P.2d 1025, Tollefson v. Roman Catholic Bishop (1990) 219 Cal.App.3d 843, 268 Cal.Rptr. 550, and Burton v. Security Pacific Nat. Bank (1988) 197 Cal.App.3d 972, 243 Cal.Rptr. 277.

Defendant's only valid authority for the proposition there cannot be an implied contract to demote an employee without good cause is Fischhaber v. Gen. Motors Corp. (1988) 174 Mich.App. 450, 436 N.W.2d 386.   Despite the fact the Michigan Supreme Court held there can be an implied contract not to terminate employment except for good cause in Toussaint v. Blue Cross & Blue Shield of Mich. (1980) 408 Mich. 579, 292 N.W.2d 880, the Fischhaber court stated, “we cannot agree with plaintiff that a proposed demotion may be equated with termination of employment under Toussaint․  Toussaint was strictly limited to instances of employee discharge, and we find no indication in that case that the Court intended its holdings to be expanded to include changes in job assignments.”  (Fischhaber, supra, 436 N.W.2d at p. 389.)   However, the Fischhaber decision fails to explain why the same contract principles that apply to termination cases are not equally applicable to implied contracts not to impose discipline short of termination without just cause.

My colleagues take the position that an implied-in-fact contract not to discipline an employee without good cause is too vague and uncertain to be enforceable.   However, as with any contract, the carefully drafted personnel policy can alleviate any ambiguities.

In the instant action plaintiffs presented evidence of defendant's express personnel policies and practices regarding the discipline of employees.   These included specific steps and procedures to be followed prior to the discipline or discharge of any employee.   The just cause principle, i.e., not to discipline employees without just cause, was contained in the company's constructive discipline policy and subsequently in the positive discipline policy.1  Testimony was offered that these policies and practices were not followed when disciplining plaintiffs.   Plaintiffs were never informed they were doing something for which they could be disciplined prior to August 9, 1989;  nor were they informed there was substantial evidence they had violated a policy.

Although I am mindful that care must be taken not to interfere with the legitimate exercise of managerial discretion (Pugh v. See's Candies, Inc., supra, 116 Cal.App.3d at p. 330, 171 Cal.Rptr. 917), where, as here, management provides specific rules for discipline, those rules are deemed part of the employment contract, and management fails to follow their own rules, the implied employment contract has been breached.   I would affirm the jury verdict on the breach of contract theory.

FOOTNOTES

1.   Additionally, plaintiffs alleged causes of action against defendants PG & E, R.C. Thornberry and Ralph Stewart for invasion of privacy, violation of Labor Code section 923 for failing to negotiate the terms and conditions of plaintiffs' employment;  and against R.C. Thornberry and Ralph Stewart for intentional interference with a contractual relationship.   At the close of evidence at the trial, the court granted defendants' motions for nonsuit as to these causes of action.

2.   With the exception of the amount of damages, the issues raised in this appeal are primarily legal.   Accordingly, we limit our discussion of the evidence produced at trial to those facts which are necessary to determine the legal issues.   We also view the evidence in the light most favorable to the prevailing parties.  (Hasson v. Ford Motor Co. (1982) 32 Cal.3d 388, 398, 185 Cal.Rptr. 654, 650 P.2d 1171;  City and County of San Francisco v. Golden Gate Heights Investments (1993) 14 Cal.App.4th 1203, 1211, 18 Cal.Rptr.2d 467.)

3.   The positive discipline policy provides in pertinent part:  “Therefore, before taking any formal discipline steps, it's wise to conduct a formal investigation.   Listed below are the five classic questions that arbitrators ask in deciding to uphold a disciplinary penalty which has been grieved.   These five questions should form the basis of your investigation.   They are important even in non-union organizations, since today almost any adverse action taken against an individual may be subject to outside third-party review:“1. Did the employee clearly understand the rule or policy that was violated?“2. Did the employee know in advance that such conduct would be subject to disciplinary action?“3. Was the rule that was violated reasonably related to the safe, efficient and orderly operation of the organization?“4. Is there substantial evidence that the employee actually did violate the rule?“5. Is the disciplinary action planned reasonably related to:  [¶] a. the seriousness of the offense?  [¶] b. the employee's record with the organization?  [¶] c. disciplinary action taken with other employees who have committed similar offenses?”

1.   See footnote 3 in the majority opinion.

MERRILL, Associate Justice.

STEIN, J.,* concurs.

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