FOLEY v. INTERACTIVE DATA CORPORATION

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Court of Appeal, Second District, Division 2, California.

Daniel D. FOLEY, Plaintiff and Appellant, v. INTERACTIVE DATA CORPORATION, etc., Defendant and Respondent.

B 009001.

Decided: November 12, 1985

Gilbert, Cooke & Sackman, Law Corp., Steven J. Kaplan, and Robert W. Gilbert, Beverly Hills, for plaintiff and appellant. Proskauer Rose Goetz & Mendelsohn, Robert V. Kuenzel, Los Angeles, for defendant and respondent.

Daniel Foley appeals from a judgment dismissing his Second Amended Complaint for wrongful termination, after the demurrer of Interactive Data Corporation (IDC) was sustained without leave to amend.   We affirm.

 When reviewing a successful demurrer we accept as true all well-pleaded factual allegations, however odd or difficult to prove.  (Argonaut Insurance Co. v. Superior Court (1985) 164 Cal.App.3d 320, 323, 210 Cal.Rptr. 417.)   We must determine whether the facts alleged, if proved, entitle Foley to relief.

The allegations of Foley's Second Amended Complaint reveal that IDC hired him on June 17, 1976, to be an Assistant Product Manager in its Waltham, Massachusetts office.   IDC does business as Chase Econometrics;  its merchandise is information, or as Foley puts it, “providing computer based decision support services to corporations and financial institutions.”   For this reason, employee discretion and respect for confidentiality is of heightened importance.   IDC required him to sign a Confidential and Proprietary Information and Non-Competition Agreement, which forbade him from divulging certain information or from competing with IDC for a year after termination.   Foley regularly received promotions and pay increases.   He received superior performance evaluations.   In 1979 IDC honored Foley as its Consultant Manager of the Year.

IDC made Foley Branch Manager of its Los Angeles Branch effective May 1, 1981.   His boss was Richard Earnest, in San Francisco.   On January 1, 1983, less than three months before his dismissal, he received an 8% pay increase.   On March 15, 1983, two days before his dismissal, he received a merit bonus of $6,762.00.   Foley alleged that he received periodic assurances of fair treatment and continued employment.   In addition, IDC maintained “Guidelines for Termination.”   Foley alleged that as a result of the foregoing he had an expectation of continued and permanent employment with IDC.

On January 1, 1983, IDC transferred Robert Kuhne to fill the position held until then by Richard Earnest.   The F.B.I. was then investigating Kuhne for suspected embezzlement from his previous employer, Bank of America, a charge to which he pleaded guilty on September 26, 1983, after Foley's dismissal.   There is no allegation that Kuhne misbehaved while working for IDC.

On January 14, 1983, Foley had a private conversation with Earnest.   He told Earnest that he had heard that Kuhne was fired from Bank of America for suspected embezzlement, and that the F.B.I. was looking into the case.   Consequently, he was worried about working for Kuhne, and concerned about Kuhne having a supervisory position at IDC.   Earnest chastised Foley for discussing “rumors” and advised him not to discuss Kuhne's past with anyone.   We may infer that Earnest suspected that Foley's disclosures were inspired by a desire to have Kuhne's job.   Such intra-corporate politics with the accompanying veiled threat of disclosure to outsiders, would compromise the basic principles of IDC's business.

On March 3, 1983, Kuhne told Foley that IDC had decided to replace him for “performance reasons.”   Kuhne said that Foley might be able to transfer to another position in Waltham, Massachusetts.   Refusal to move back to the East Coast might result in demotion.   Foley said only that he would consider it.

On March 10, Earnest told Foley that his performance was inadequate.   Six days later Kuhne told Foley that, instead of being dismissed, Foley could continue as Branch Manager if he agreed to go on a “performance plan.”   Kuhne said that he would fly to Los Angeles the next day with such a performance plan.   However, when the two men met on March 17, 1983, Kuhne presented Foley with a choice:  resign or be dismissed.   Foley refused to resign and was terminated, after nearly seven years of service at IDC.   Foley alleged that he was dismissed because he knew too much and voiced concern about Kuhne and his past criminal conduct.   Foley sued for wrongful termination.   IDC demurred, which demurrer was granted without leave to amend after Foley's third attempt to frame his complaint.

 The general rule in employment of indefinite duration is that the employee may leave, and the employer may ask the employee to leave, at any time and for any reason or for no reason.  (Lab.Code § 2922.)  Labor Code section 2922 creates a presumption that an employment contract is terminable at will.  (Hillsman v. Sutter Community Hospitals (1984) 153 Cal.App.3d 743, 749, 200 Cal.Rptr. 605.)

Thus, the common law codified in the Labor Code and as judicially construed held in no uncertain terms a contract terminable at will of either party meant what it said.   Its objective was to prevent an employer from enslaving an employee to a contract on terms usually dictated by the employer.1  As a consequence, especially in the field of labor law, statutes have been enacted federally and by the various states generating a large and complex body of law affecting the terms of employment.   Thus, even in a specific situation wherein an employee has a specialized knowledge or talent, the exploitation of which is of great value to the employer and which is the prime reason for such a contract, the contract is limited to 7 years.2  However, recently (within the past five years) the courts have recognized exceptions to this basic rule, giving workers greater protection from capricious dismissal.   Three theories have evolved:  1. Wrongful termination in violation of a public policy.  (Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 164 Cal.Rptr. 839, 610 P.2d 1330);  2. Breach of an implied-in-fact covenant to terminate only for good cause.  (Pugh v. See's Candies, Inc. (1981) 116 Cal.App.3d 311, 171 Cal.Rptr. 917);  3. Breach of the implied covenant of good faith and fair dealing.  (Cleary v. American Airlines, Inc. (1980) 111 Cal.App.3d 443, 168 Cal.Rptr. 722.)   Exceptions 1 and 3 noted above, might be applied to any legal contract, written or oral, for any fixed term, and a breach of the contract would provide mutuality of relief to either party against the other for such damage as may be proved.   The inclusion of exception 2 however, destroys the centuries-old solid and settled principle of vast and demonstrated value to employer and employee, to the world of commerce and to the public, of a contract which either can terminate at will.   To emasculate its meaning results in a contract terminable at will only by an employee, except as to apprentices (see footnote 2, supra, ) with little or no financial risk to him but generally at considerable risk to the employer.   Thus, in literally thousands of situations, employees are hired on a test basis, trained, nursed and often coddled to become competent and expert in their work by an employer, but when after months or years the employee leaves for a better job, does an employer have the right to sue the employee on an implicit or express promise to remain with his original employer?   Thousands of such promises are being broken every year and literally thousands more in the past.   Does the employer have a cause of action to prevent such departure or for damages suffered as a consequence of finding a replacement?

We emphasize that the exceptions noted above to the judicially accepted construction of the common law rule may not swallow the rule.

Thus, if the facts alleged were amended and showed that Foley, when he learned he was to be transferred from Los Angeles to Waltham, had said, “I am leaving,” could IDC have obtained an injunction to prevent his departure?   Could Foley have been sued for general damages for breach of a contract of employment on the theory that the facts over a period of seven years suggested that IDC had every right to seek relief on an implied covenant running to IDC that Foley would continue permanently as its employee?   Or would such a right be of any value to the employer since to take advantage of it would mean the employer's assumption of a dissatisfied employee?

Pragmatically, the reverse situation means IDC has only one remedy, which arises not from the voluntary departure of the employee for a good reason or no reason.   Such remedy would exist only if Foley violated that part of the employment agreement which forbade him from disclosing certain information and/or competing with IDC in less than one year.   And this remedy would be limited to the legal principles which cover such separate action.

“[W]here, as here, the employee occupies a sensitive managerial or confidential position, the employer must of necessity be allowed substantial scope for the exercise of subjective judgment.”  (Pugh v. See's Candies, Inc., supra, 116 Cal.App.3d at p. 330, 171 Cal.Rptr. 917.)   Neither employer and employee should be locked in an unwilling embrace.

1. Public Policy.

 This cause of action sounds in tort.   In the past, the courts have recognized public policy exceptions to Labor Code section 2922.  (See Tyco Industries, Inc. v. Superior Court (1985) 164 Cal.App.3d 148, 155, 211 Cal.Rptr. 540.)   However, only public policies grounded in statutes have been so recognized.  “ ‘Although there is dictum in Tameny suggesting that there can be a public policy sufficient to support a cause of action for wrongful discharge absent statutory authority, no California cases have so held;  however, one Court of Appeal case has expressly stated that courts have no power to declare public policy in wrongful discharge cases without statutory support.  (See Mallard v. Boring (1960) 182 Cal.App.2d 390, 6 Cal.Rptr. 171․)’ ”  (Tyco Industries, Inc. v. Superior Court, supra, at p. 159, quoting Shapiro v. Wells Fargo Realty Advisors (1984) 152 Cal.App.3d 467, 477, 199 Cal.Rptr. 613.)   To successfully plead a cause of action under this theory, plaintiff must allege that he was terminated in retaliation for asserting his statutory rights, or for his refusal to perform an illegal act at the request of his employer, or that his employer directly violated a statute by dismissing him.  (Shapiro v. Wells Fargo Realty Advisors, supra, 152 Cal.App.3d at p. 477, 199 Cal.Rptr. 613.)

 Foley claims that his termination penalizes him for obeying his duty of loyalty and duty to report relevant information to management.   The problem for Foley is that he can find no statutory basis for his alleged duty to report on fellow employees.   He cites no legislative expression congruent with his position, and we have uncovered none.   We conclude that the Legislature has indicated by its silence that it does not intend for workers to police their fellows.   We do not say that the practice is necessarily undesirable;  only that its practitioner is not legislatively protected from consequent dismissal.   Since there was no statutory violation and no claim that IDC asked him to perform an illegal act, we conclude that the trial court properly sustained the demurrer to the first cause of action.

2. Covenant to Terminate Only for Good Cause.

“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.”  (Pugh v. See's Candies, Inc., supra, 116 Cal.App.3d at pp. 324–325, 171 Cal.Rptr. 917, fn. omitted.)

The trial court properly relied on this court's decision in Newfield v. Insurance Co. of the West (1984) 156 Cal.App.3d 440, 203 Cal.Rptr. 9, holding that a claim such as Foley's is barred by the statute of frauds, which states in part:  “The following contracts are invalid, unless the same, or some note or memorandum thereof, is in writing and subscribed by the party to be charged or by his agent:  1. An agreement that by its terms is not to be performed within a year from the making thereof;  ․”  (Civ.Code, § 1624, subd. (1).)

“Appellant alleged an oral contract for ‘permanent’ employment.   As a general rule this type of contract does not come under Civil Code section 1624, subdivision (1).   The traditional view is that such a contract could conceivably be performed within one year by termination of the employment agreement by one party or the other.   Since such an employment agreement has long been interpreted as being for an indefinite period, it is terminable at will by either party.  [Citation.]  This is still the rule in California today as evidenced by California Labor Code section 2922 and Pugh v. See's Candies, Inc., supra, 116 Cal.App.3d 311, 326, 171 Cal.Rptr. 917.  [¶] Appellant alleges that respondent did not have the option of terminating him at will without good cause.   In other words, allegedly only appellant had the right to terminate the contract.   Equality or justice between the parties would no longer exist in this alleged kind of oral contract.  [¶] Appellant cannot have it both ways.   Either his employment relationship was a contract in which both parties had equal rights to terminate at will (in which case it was not in violation of the statute of frauds), or it was a contract where the employer did not have the right to terminate at will, and there was a reasonable expectation of employment for more than one year (in which case the statute of frauds does apply, barring this action).”  (Newfield v. Insurance Co. of the West, supra, 156 Cal.App.3d at p. 446, 203 Cal.Rptr. 9;  see Santa Monica Hospital v. Superior Court (1985) 172 Cal.App.3d 698, 218 Cal.Rptr. 543.)

Essentially Foley is asserting that he is free of the requirement of mutuality of contract.   Foley would be at liberty to quit after the first year, or the tenth or twentieth, regardless of the fact that IDC may have renewed his employment on his promise that he would continue to work for IDC.   However, without a written contract IDC would be bound to Foley by the alleged implied contract.

 Since Foley was employed for nearly seven years, he plainly is asserting that his oral employment contract was for more than one year.   Thus, the statute of frauds bars his action.

 Foley seeks to avoid this result by pointing to the “Non-Competition Agreement” and the “Termination Guidelines.”   He claimed that this is the sort of “note or memorandum” that satisfies the requirements of the statute of frauds.   We have examined these documents.   They are vague and oblique.   We have previously noted that “oblique language will not, standing alone, be sufficient to establish agreement.”  (Newfield v. Insurance Co. of the West, supra, 156 Cal.App.3d at p. 445, 203 Cal.Rptr. 9, quoting Pugh v. See's Candies, Inc., supra, 116 Cal.App.3d at p. 329, 171 Cal.Rptr. 917.)

The trial court correctly sustained the demurrer to the second cause of action.

3. Covenant of Good Faith and Fair Dealing.

 A covenant of good faith and fair dealing is implied in every employment contract.  (Crosier v. United Parcel Service, Inc. (1983) 150 Cal.App.3d 1132, 1137, 198 Cal.Rptr. 361.)   To prove a violation of the covenant, plaintiff must show longevity of service, and breach of an express employer policy regarding the adjudication of employee disputes.  (Cleary v. American Airlines, Inc., supra, 111 Cal.App.3d at p. 455, 168 Cal.Rptr. 722.)   We respectfully disagree with Khanna v. Microdata Corp. (1985) 170 Cal.App.3d 250, 215 Cal.Rptr. 860, which states that “the theory of recovery articulated in Cleary is not dependent on the particular factors identified in that case.”  (Id., at p. 262, 215 Cal.Rptr. 860.)

Foley's seven years at IDC fell short of the necessary longevity.  (See Cleary v. American Airlines, Inc., supra, 111 Cal.App.3d 433, 168 Cal.Rptr. 722 [18 years];  Pugh v. See's Candies, Inc., supra, 116 Cal.App.3d 311, 171 Cal.Rptr. 917 [32 years];  Cancellier v. Federated Department Stores (9th Cir.1982) 672 F.2d 1312 [17, 18 and 25 years of service].)  Moreover, Foley does not adequately allege express formal procedures for terminating employees.   As noted above, the “Termination Guidelines” are “oblique language,” falling short of the requirements of Cleary.   The trial court properly sustained IDC's demurrer to the third cause of action.

The judgment is affirmed.

FOOTNOTES

1.   Thus in Corbin on Contracts (1960) Chapter 34, § 674 it is written:  “The relations between master and servant, employer and employee, have been subject to constant evolution during the history of Anglo-American law.   It is not too much to say that this is the most important and far-reaching manifestation of the evolution of society, of human civilization, of the legal, social, political, and economic relations of men and women with each other.   There are no longer the old relations of owner and slave;  and one who decries ‘wage slavery’ is merely indulging in figure of speech to emphasize his grievance, to impress his audience, and to arouse emotion.   The phrase ‘master and servant,’ used for centuries to connote a body of fairly well defined relations between two persons, now grows even less appropriate because of the rapid and fundamental changes in those relations.   The mere use of the term may arouse resentment because its connotation is disagreeable as well as inaccurate.”  (Emphasis added.)

2.   Labor Code section 2855 states:  “A contract to render personal service, other than a contract of apprenticeship as provided in Chapter 4 of this division, may not be enforced against the employee beyond seven years from the commencement of service under it.   Any contract, otherwise valid, to perform or render service of a special, unique, unusual, extraordinary, or intellectual character, which gives it peculiar value and the loss of which can not be reasonably or adequately compensated in damages in an action at law, may nevertheless be enforced against the person contracting to render such service, for a term not to exceed seven years from the commencement of service under it.   If the employee voluntarily continues his service under it beyond that time, the contract may be referred to as affording a presumptive measure of the compensation.”

ROTH, Presiding Justice.

BEACH and GATES, JJ., concur.

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