GENERAL DYNAMICS CORPORATION v. ROSE

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Court of Appeal, Fourth District, California.

GENERAL DYNAMICS CORPORATION, Petitioner, v. SUPERIOR COURT OF the STATE OF CALIFORNIA for the COUNTY OF SAN BERNARDINO, Respondent. Andrew D. ROSE, Real Party In Interest.

No. E010883.

Decided: June 08, 1993

Gibson, Dunn & Crutcher, Jack H. Halgren, Nancy P. McClelland and Steven M. Schultz for petitioner. No appearance for respondent. S. Myron Klarfeld for real part in interest.

OPINION

We issued an alternative writ of mandate to address the issue of when, if ever, an attorney employed as “in-house counsel” may sue his employer based on the employer's unilateral termination of his employment.   We conclude that plaintiff may pursue both his claim for wrongful discharge and for breach of an implied contractual provision, and that the trial court therefore correctly overruled defendant's demurrer.1

FACTS

Plaintiff Andrew D. Rose, an attorney, sues his former employer, General Dynamics Corporation, for damages arising out of his discharge from employment.   At issue in the instant petition are the first two causes of action in Rose's complaint, as to which the trial court overruled General Dynamics' demurrer.   The latter seeks extraordinary relief from this court.

We summarize the relevant allegations.

1. The First Cause of Action.

At the time of his discharge, Rose had been employed by General Dynamics for approximately 14 years.   He was originally hired as a “contract administrator” and was told that General Dynamics was seeking “career oriented employees,” and that if he performed in a satisfactory manner he could expect to be permanently employed.

Rose received regular promotions, salary increases, and outstanding performance reviews, in addition to numerous commendations from his superiors.   He was regularly assured that his job was permanent.   As a result of his steady advancement with the company, he was in line to become a Vice President and Division General Counsel.

In 1989, Rose was among those assigned to head up a task force investigating drug abuse by General Dynamics' employees.   As a result of this investigation, 61 employees were fired and others targeted for further investigation;  while Rose was praised for these efforts, some executives of the company were not pleased (presumably by the bad publicity attached to the firings) and Rose was relieved of the assignment.   The investigation was then dropped.

In 1990, Rose informed his superiors that he had heard that the office of the Chief of Security had been “bugged.”   A bug was in fact found.   Rose remained concerned about General Dynamics' failure to follow-up on this serious breach of security, which might have been the result of either industrial or foreign national spying.   His inquiries were rebuffed and he was informed that his reports had again displeased “executives in high places.”

In 1991, Rose informed his superiors that under a recent decision of the United States Court of Appeals, General Dynamics' pay policy appeared to violate federal employment law.   He also pointed out that employees might be due a substantial amount of back pay.   Once again, his superiors were not pleased.

Rose then indicated that he could no longer sign off on General Dynamics' representation letter to its auditors if these pay policy concerns were not reflected.   He hired an attorney to pursue a workers' compensation claim, and was told that this was not “a good corporate idea.”

Finally, after the Chief of Security (who apparently shared many of Rose's concerns) wrote a memo to General Dynamics, the company hired the firm of Gibson, Dunn & Crutcher as independent counsel.   Representatives of this firm interrogated Rose about the matters hereinabove described, and General Dynamics thereupon terminated Rose's employment.   The reasons given were either false or pretextual.

Rose alleges that he was in fact terminated for the following reasons:  his insistence that General Dynamics conform to the recent federal pay policy decision and his refusal to go along with its non-compliance;  his activities in the drug use investigation;  because he hired a private attorney;  because he joined with the Chief of Security in urging further investigation into the bugging incident;  because he contemplated filing a workers' compensation claim;  and because he expressed the belief that General Dynamics' “ethics program was not working as it should.”   Rose also alleged that he was not afforded the procedural protections, including reviews of the proposed actions, to which he was entitled.

In Count One, the express legal basis for Rose's claim is that his discharge constituted a wrongful violation of public policy.

2. The Second Cause of Action.

In Count Two, Rose realleges all of the factual matter recited above.   Although the cause of action is labelled “For Wrongful Termination Without Just Cause,” it actually alleges that a covenant of good faith and fair dealing was created based on his tenure, work performance, promotions, salary increases, and promises of continued employment.   He alleges that under this covenant, he could not be terminated without just cause, but was.

General Dynamics demurred, arguing, with respect to these two counts, that no cause of action could be stated because a client's right to sever the attorney-client relationship is absolute.

DISCUSSION

We begin by repeating briefly the standards upon which we review an order overruling a demurrer.

A demurrer admits the truth of all properly pleaded allegations.  (Peterson v. San Francisco Community College Dist. (1984) 36 Cal.3d 799, 804.)   When a defendant asserts that the complaint does not state a cause of action, “if upon a consideration of all the facts stated it appears that the plaintiff is entitled to any relief at the hands of the court against the defendants, the complaint will be held good, although the facts may not be clearly stated, or may be intermingled with a statement of other facts irrelevant to the cause of action shown, or although the plaintiff may demand relief to which he is not entitled under the facts alleged.”  (Matteson v. Wagoner (1905) 147 Cal. 739, 742, quoted in Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 572.)   The label attached to a pleading or a cause of action is not determinative;  the court independently ascertains whether the facts alleged constitute any cause of action.  (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1392.)   Furthermore, we must give the pleading a “reasonable interpretation by reading it as a whole and its parts in their context.”  (Phillips v. Desert Hospital Dist. (1989) 49 Cal.3d 699, 702.)

Finally, “[w]e wish to emphasize ․ that our action in this matter should not be understood to indicate our willingness to employ the prerogative writs to review rulings on pleadings.   Indeed, we perform such a function of intermediate review with extreme reluctance.”  (Babb v. Superior Court (1971) 3 Cal.3d 841, 851.)   However, the issues presented by the petition are of significant legal impact, and we deem it appropriate to resolve the essential issues of law at this stage.2

Although General Dynamics for the most part argues that its legal authority is applicable uniformly and thus bars both causes of action, the two counts involve different considerations, and we think it preferable to consider them separately.   Because we find the issues somewhat simpler, we begin with the second cause of action.3

I.

Breach of Implied Contract

As indicated above, the second cause of action alleges that, as a result of the course of dealing between Rose and General Dynamics, an implied covenant of good faith and fair dealing arose, under which plaintiff could not be terminated without just cause.   However, an at-will employee cannot rely on the implied covenant of good faith and fair dealing to create such an understanding, because that 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․”  (See Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 698, at fn. 39.)   Insofar as Rose seeks to recover damages based on his termination, the implied covenant does not aid him;  however, under the principles noted above, we may examine the pleading in the context of whether an implied contract existed between the parties.

Where an employee alleges an expectation that he will be terminated only for good cause, and “alleges that a course of conduct, including various oral representations, created a reasonable expectation to that effect ․ his cause of action is more properly described as one for breach of an implied-in-fact contract.”  (Foley, supra, at p. 675.)   An implied-in-fact contract differs from an express contract only in that the parties' mutual assent is manifested by conduct rather than words or a writing.  (Civ.Code, § 1620–1621;  McGough v. University of San Francisco (1989) 214 Cal.App.3d 1577, 1584.)   Here, Rose alleges that he was repeatedly told that General Dynamics wanted “career oriented” employees and that he need not worry about job security if he performed well;  he received regular commendations and promotions.   These allegations are sufficient to show at least an implied promise that Rose would be employed permanently as long as his performance was satisfactory.4

In this context, then, we address defendant's contentions.

As an abstract principle, it is beyond dispute that a client may discharge his attorney at any time, for any reason, and that in so doing the client incurs no liability for breach of contract.   The rule is based on the special nature of the relationship between an attorney and his client, and the importance of the client's freedom to retain the services of counsel only for as long as he retains confidence in those services.  (Fracasse v. Brent (1972) 6 Cal.3d 784, 790–791.)   However, as both sides recognize, there is little California authority directly on the question of an attorney-employee's rights with respect to termination in the specific contexts of tortious wrongful discharge and breach of a promise to terminate only for just cause.

Although Rose cites several similar cases in which the plaintiff was in fact an attorney, and no bar was raised to his suit (e.g. Hentzel v. Singer Co. (1982) 138 Cal.App.3d 290), in none of these cases was the issue before us discussed by the appellate court.5  It is axiomatic that “[a] decision is not even authority except upon the point actually passed upon by the Court and directly involved in the case.”  (Hart v. Burnett (1860) 15 Cal. 530, 598.)

On the other hand, General Dynamics relies on Goldstein v. Lees (1975) 46 Cal.App.3d 614, but we do not find that case helpful.   At issue in Goldstein was whether a former in-house counsel had violated the conflict of interest rules by representing a dissident shareholder in a proxy fight against the corporation.   It appears that the lawyer resigned from the corporation before undertaking the conflicting representation, and nothing in the opinion is directed to the question which is now before us.   Although the court did state that “[t]he board of directors thus has the power to retain and discharge corporate counsel” (id. at p. 623), this remark merely set up the holding that to allow a discharged (or resigned) attorney to turn around and represent a dissident shareholder could compel the directors to retain the in-house lawyer in his position, in order to keep his loyalty and prevent this undesirable result.   It is not the product of analysis and is not necessary to the holding.  (See Hart v. Burnett, supra.)

Thus, we turn to sister-state authority for assistance.

Two recent decisions support plaintiff's position that an in-house counsel may, in appropriate circumstances, seek redress for the termination of his employment on contract-based theories.   Our research has disclosed no authority directly opposing this position, and none is cited.

In Mourad v. Automobile Club Insurance Association (Mich.App.1991) 465 N.W.2d 395, plaintiff, employed as an attorney, sued for constructive wrongful discharge in violation of a “just-cause” contract which the jury found to exist based on provisions in the employer's pamphlets and policy manuals.   In upholding the verdict on this claim, the court conceded that Michigan generally permits a client to discharge his attorney at any time, with or without cause.  (Id. at pp. 398–399.)   However, the court refused to “adopt a complete bar to suits brought by an attorney for wrongful termination and breach of a just-cause contract on the basis of the attorney-client relationship.   The general rule ․ does not affect the present action for breach of contractual rights.”  (Id. at p. 399.)   The court held that the employer could validly agree not to terminate the attorney without good cause.  (Id. at p. 400.)

We recognize that the court also noted that plaintiff, as an attorney employed by an insurer, often acted in the capacity of attorney for the insured, and not his employer;  it also observed that plaintiff's duties included administrative functions not traditionally part of the attorney-client relationship.   It is not clear whether these factors were dispositive in the decision to permit the client-employer to assume additional duties and restrictions on its rights;  at the least, we realize that this point prevents the case from being all-fours authority in Rose's favor.

Even more recently, a second court upheld an in-house attorney's right to sue for the employer's breach of contract provisions which provided for progressive discipline.  (Nordling v. Northern States Power Company (Minn.1991) 478 N.W.2d 498.)   Before reaching this conclusion, the court described the relationship of attorney and client in terms consistent with California law:  “At the heart of the attorney-client relationship is the element of trust ․ [if] the client loses this confidence, whether justifiably or not, the client must be able, without penalty, to end the relationship.”   The court also recognized that the client of an in-house counsel may find it difficult to develop such a relationship of trust and confidence if the attorney, once discharged, may “turn on” the employer in contesting his termination.  (Id. at p. 501.)   Although it found it unnecessary to resolve the question of whether the nature of an in-house counsel's relationship with his employer justified a wide exception to the client's freedom to terminate the lawyer, the court did hold that, with respect to the lawyer-employee in the in-house context, “we see no reason to deny the job security aspects of the employer-employee relationship if this can be done without violence to the integrity of the attorney-client relationship.”  (Id. at p. 502.)

In Mourad, as indicated above, the court placed an indefinite quantum of reliance on the dual, or tripartite, nature of the attorney's employment—as counsel for his employer, as counsel for the insureds, and as an administrative or managerial employee.   In Nordling, the court at least suggested that the employer might remain free to terminate the attorney as long as it followed its own rules.6  Thus, neither is directly on point;  both cases, however, contain insights with which we agree.7

In Mourad, the court held that the employer was free to bind itself to terminate its lawyer-employee only for just cause, thus giving up the common-law right to discharge at will.   This is analogous to Civil Code section 3513, which provides that “[a]ny one may waive the advantage of a law intended solely for his benefit.   But a law established for a public reason cannot be contravened by a private agreement.”   Although the right of discharge recognized in Francasse v. Brent, supra, is not based on statute, we see no reason why the same principle should not apply to rights established by common law, if qualified by the same exception.8

There is little consistency in the decisions determining whether or not a statutory protection is waivable, although there is a regular tendency to protect a weaker party, such as the average employee, from forced waivers.   Thus, in Henry v. Amrol, Inc. (1990) 222 Cal.App.3d Supp. 1, 6, the court invalidated an employee's waiver of his right under Labor Code section 227.3 to be compensated for unused vacation time;  in Covino v. Governing Board (1977) 76 Cal.App.3d 314, 322 the court refused to give effect to an employee's waiver of his right to probationary status under the Education Code;  and in De Haviland v. Warner Bros. Pictures (1944) 67 Cal.App.2d 225, 235 an employee's purported waiver of the statutory ban on personal services contracts of more than seven years' duration was rejected.   In each case, the court found that the statute was enacted to protect large classes of persons, and that such protection was essential to the public welfare in terms of ensuring available services and solvent workers.   Tenants are also prohibited from waiving certain obligations of the landlord.  (See Civ.Code, §§ 1942.1, 1953.)

On the other hand, a seller may waive statutory notice provisions otherwise a necessary precedent to the buyer's commencement of a consumers' action.  (Outboard Marine Corp. v. Superior Court (1975) 52 Cal.App.3d 30, 41.)   Beneficiaries of a trust may waive the statutory requirement that the trustee post a fiduciary bond.  (Estate of Shapiro (1947) 79 Cal.App.2d 731, 733.)   Finally, despite the importance of uniform obedience to traffic laws, it has been held that a pedestrian may waive his right to expect a driver to yield him the right of way, with the effect that the driver cannot be prosecuted for failing to do so if the pedestrian's gestures indicate that he may proceed.  (People v. Noland (1948) 83 Cal.App.2d Supp. 819.)

In summary, as Professor Witkin observes, it is for the court to interpret the “loose statement” of Civil Code section 3513 and apply it to each case.  (1 Witkin, Summary of Cal.Law [9th ed. 1987] Contracts § 645, pp. 586–587.)   Does the recognition of the client's right to discharge an attorney in whom he has lost confidence reflect a policy of benefit to all, or is it designed to safeguard more personal rights?   We think the latter, at least in the context of in-house counsel.

We are cognizant of the concerns expressed in Fracasse v. Brent, supra, 6 Cal.3d at p. 790, and the general necessity for the rule that a client must be free to discharge an attorney he no longer trusts, rather than be compelled to accept services the ineptitude of which may result in substantial losses.   We also accept that, in a broad sense, it is desirable as a matter of public policy that the relationship between attorney and client be maintained at a high level.   However, the right of free dischargeability benefits the client directly and materially, while the benefit to the public as a whole is largely theoretical.9

We limit the above conclusion to the case of in-house counsel, for we also recognize that the individual client may require more protection.10

If such an employer chooses to treat its attorney employees in the same manner as all other employees, and voluntarily to offer, as a term of employment, that they shall be employed permanently unless good cause appears for their termination, we do not find any substantial public policy to be violated by such an agreement.   We agree with the court in Nordling that, by reason of an implied in fact contract, an in-house counsel is entitled to the same job security protections as other employees (478 N.W.2d at p. 502), although we recognize that our holding goes beyond that of that court.

In our view, enforcing a “just-cause” provision against the employer does not “do violence to the integrity of the attorney-client relationship.”   A business employer, even one who has assumed the burden of terminating an employee only for good cause, is allowed substantial latitude under the “business judgment” standard in determining which of its managerial or high-ranking employees to retain;  permissible factors for consideration include “personality, initiative, ability to function as part of the management team ․ the ability to conceptualize and effectuate management style and goals.”  (Pugh v. See's Candies, Inc. (1988) 203 Cal.App.3d 743, 769.)   Even with respect to an employed in-house lawyer, these standards among others afford the corporate employer sufficient leeway to dispose of an unsatisfactory lawyer-employee protected by a “just-cause” contract.   Such dissatisfaction could be solely a loss of confidence in his or her performance of services relating only to the attorney-client relationship.

We also observe that even in those cases in which no good cause for termination can be found, and the corporate employer is contractually liable for the breach of a promise which it made under no compulsion, it remains, of course, free to commit that breach;  a contract for personal services cannot be enforced by or against either party.  (Civ.Code, § 3390, subds. (1) and (2).)   There is no danger that the employer will be forced to retain a lawyer it does not want.   However, we see no reason why the decision of a corporate employer of in-house counsel to fire such counsel for no good reason should be free of the consequences attending the unfair discharge of any other employee.

II.

Termination in Violation of Public Policy

General Dynamics' cited authority is more pertinent to this cause of action;  however, we decline to follow it.

It has been established for a relatively long period of time in California that an employer who discharges an employee for reasons which violate a substantial public policy may be liable for damages.  (Petermann v. International Brotherhood of Teamsters (1959) 174 Cal.App.2d 184, 188.)   This liability, it is now clear, sounds in tort.  (Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 76.)   However, tort liability may only be imposed where the public policy offended “affects society at large rather than a purely personal or proprietary interest of the plaintiff or employer;  in addition, the policy must be ‘fundamental,’ ‘substantial,’ and ‘well established’ at the time of the discharge.”  (Gantt v. Sentry Ins. (1992) 1 Cal.4th 1083, 1090.)   Our Supreme Court has recently cautioned that such a public policy exception to the at-will rule embodied in Labor Code section 2922 must be “carefully tethered to fundamental policies that are delineated in constitutional or statutory provisions․”  (Id., at p. 1095.)

Although General Dynamics briefly argues in a footnote that many of Rose's claims do not meet the appropriate standard, we find that at least some of his allegations sufficiently describe a discharge in violation of a public policy of sufficient importance and foundation.   Giving the complaint a fair and reasonable interpretation, as we are required to do, we find that Rose adequately alleges that his termination was based, at least in part, on his legal advice to General Dynamics' regarding its allegedly unlawful pay policy, his objections to that policy and his refusal to participate in it.  Tameny v. Atlantic Richfield Co., supra, establishes that it is a tortious wrongful discharge to fire an employee for refusing to participate in an illegal act;  by the converse, an employee cannot lawfully be discharged for attempting to persuade his employer to cease an unlawful practice and obey the law.11  (See Hentzel v. Singer Co., supra, 138 Cal.App.3d 290, 298.)   Thus, this allegation alone was sufficient to support the claim of wrongful discharge.12 )

General Dynamics' primary attack, as noted above, is on the availability of any remedy to an in-house attorney whose “client” terminates the relationship.   We turn to this issue in the context of a “public policy” wrongful discharge.

In Herbster v. North American Co. (1986) 150 Ill.App.3d 21, 501 N.E.2d 343, the plaintiff, formerly in-house counsel to an insurance company, alleged that he was terminated because he refused to destroy or secrete documents which would be damaging to his corporate employer in pending litigation.   The court readily found that the employer's alleged reasons for the discharge violated a substantial public policy.  (501 N.E.2d at p. 344.)   However, it was unmoved by plaintiff's description of his status as an employee and his identical position, under company administration, to that of all other employees.   On the contrary, it found that the plaintiff's function as an attorney prevailed over his status as an employee;  it then relied on the special, confidential, and fiduciary nature of the relationship between an attorney and his client in holding that “we can not permit this expansion of the exception to the general rule [i.e. the recognition of “retaliatory discharge” as a limitation upon the employer's freedom to terminate an at-will employee] which would have a serious impact on that relationship.”  (501 N.E.2d at pp. 346–348.)

The holding of Herbster was confirmed in Balla v. Gambro, Inc. (1991) 145 Ill.2d 492, 584 N.E.2d 104, in which the Supreme Court of Illinois dealt with another case closely analogous to that before us.   In Balla, the plaintiff, formerly in-house counsel to a company which distributed medical equipment, claimed that he was fired because he vigorously protested the company's decision to distribute dangerously inadequate or defective equipment, and threatened to “do whatever [was] necessary to stop the sale of [the equipment].”  (584 N.E.2d at p. 106.)

That court also found that the allegations raised the issue of the violation of a fundamental public policy;  it also rejected the attorney's effort to obtain redress.   In so doing, it expanded upon the nature of the attorney's responsibilities in a direction with which we differ.

The Balla court agreed with Herbster that to extend a remedy for retaliatory discharge to in-house counsel would deleteriously affect the attorney-client relationship.   It also took the position that to provide the safeguard of protection against unfair termination was simply not necessary in the case of in-house counsel, because the attorney was ethically obliged to report his employer's wrongdoing under the Illinois Rules of Professional Conduct.   It reasoned that a tort remedy is necessary to encourage ordinary employees to challenge their employer's wrongdoing and thereby protect the public, by assuring them that any unfair retaliation will entitle them to monetary compensation through the judicial system;  however, as an attorney is required by his oath to do so, on pain of disbarment, the public interest will be served without the inducement of a remedy for unjust termination.  (584 N.E.2d at p. 110.)

In other words, the court held that because an attorney may be cudgelled by the threat of disbarment into altruistic conduct, he need not be given the carrot of legal protection once he has lost his job through such noble behavior.   Still more remarkably, the court opined that it would be “inappropriate” to make the employer bear the costs where in-house counsel “adher[ed] to their ethical obligations” by reporting employer misdeeds;  the court held that the lawyer must pay the price if his duty as an attorney conflicts with his duty as an employee.13  (Ibid.)

To begin with, we observe that the Balla court was able to premise its decision on the existence of a specific Rule of Professional Conduct which would require the attorney to disclose publicly the specific action planned by his employer, because it constituted a threat of serious bodily injury or death.  (Rules of Prof. Conduct, rule 1.6(b).)   It is unclear how the principle expounded would apply if the attorney's discharge concerned a matter affecting public policy, but which he was not ethically bound to report and which would not ethically require him to resign.   There are many instances in which an employee's failure to disclose wrongdoing will subject him to personal tort liability—for example, an agent who, in dealing with a third party, fails to correct the known fraudulent representations of his principal will become independently liable for the fraud.  (See Rest.2d Agency, § 348, pp. 189–192.)   An employee with knowledge of planned criminal activity risks criminal liability as an abettor.  (See Pen.Code, § 31.)   Indeed, in Tameny v. Atlantic Richfield Co., supra, the employee was faced with just such a choice:  participate in a crime, or be fired.   Our Supreme Court never suggested that because the threat of criminal charges or tort liability would naturally encourage not only a refusal to co-operate, but arguably also a report to the appropriate law enforcement agency, a remedy for wrongful discharge was unnecessary to protect the public.  (See also Petermann v. International Brotherhood of Teamsters, supra, in which the employee refused to obey a request that he give perjured testimony, and instead testified truthfully—in effect, disclosing the employer's wrongdoing under threat of criminal prosecution if he did otherwise.)

Furthermore, Balla and Herbster do not stand unopposed.   In Parker v. M & T Chemicals, Inc. (N.J.Super.1989) 566 A.2d 215, decided before Balla but after Herbster, the court held that New Jersey's “whistle-blower act” extended its protections against retaliation to an in-house lawyer.   The employer argued that the act unconstitutionally interfered with the judicial branch's power to regulate attorney conduct, and, specifically, the standards and conditions relating to the termination of the attorney-client relationship.   The court, however, found that the policy in favor of encouraging the reporting of unlawful conduct, and protecting those who did so, required that the employers of attorneys be subject to the act's provisions.   (566 A.2d at pp. 218–221.) 14  It also noted, contrary to the view in Balla, that its rule would serve the public good because it would “encourage an attorney's resolve to resist” requests for assistance in improper designs.  (566 A.2d at p. 220.)

We agree with the Parker court that a rule which makes it safer, as a matter of employment or financial security, for an in-house lawyer to object to or report violations of public policy, serves the public interest;  more fundamentally, we disagree with the Balla court's essential approach insofar as it would apparently deny to any attorney the rights provided by law to other employees simply because the state has imposed on the attorney-employee an ethical obligation not shared by non-attorney employees.

We recognize that an attorney, by virtue of his status as an officer of the court (see 1 Witkin, Cal.Procedure [3d ed. 1985] Attorneys, § 2, p. 22), and the critical role he plays in matters involving not only property but liberty, is properly subject to regulation.   He may be held to high standards of ethical conduct in the interests of protecting not only his clients, but public confidence.  (See Stanley v. State Bar (1990) 50 Cal.3d 555, 565.)   However, the imposition of duties is one thing;  the deprivation of rights is another.   (See Spevack v. Klein (1967) 385 U.S. 511, holding that an attorney may not be disbarred for exercising his privilege against self-incrimination.)

Accordingly, we do not think that the attorney's status, vis-a-̀vis the public, justifies treating him differently than other employees where his status is clearly that of an employee.   However, the closer question is whether his status, vis-a'-vis his client, justifies the distinction drawn in Balla.15  The issue is further complicated by the problem of whether all employee-attorneys should be subject to the same bar, or permitted the same rights.   This latter question, however, we leave for future resolution.   As a matter of pleading, plaintiff Rose falls well within the category of those attorney-employees who may sue for wrongful discharge as we will loosely define it, and we need not determine whether a particular relationship between an attorney-employee and company-employer will bar the assertion of a remedy in tort.

Accordingly, the trial court correctly overruled the demurrer of General Dynamics.

The alternative writ, having served its purpose, is discharged.   The petition is denied.

FOOTNOTES

1.   The term “in-house counsel” has not, to the best of our knowledge, been definitively defined.   Without attempting to do so, we use the term to describe an attorney who provides legal services to a single client—a business entity of relative size and sophistication—in return for a fixed salary.   In most cases, the “in-house counsel” will be subject to the same rules, regulations and working conditions as other employees, and will receive the same benefits (insurance, pension, etc.), as non-attorney employees of the client-employer;  the existence of these circumstances will be helpful in determining whether the attorney is “in-house counsel” within the meaning of this opinion.We use the phrases “attorney-employee,” “lawyer-employee,” and “corporate attorney” with the same meaning as “in-house counsel,” for the purposes of this opinion.

2.   Real party Rose asserts that this case is not appropriate for extraordinary relief.   By our issuance of the alternative writ, we conclusively determined that petitioner had no adequate remedy at law.   (Payne v. Superior Court (1976) 17 Cal.3d. 908, 925.)

3.   General Dynamics argues that Rose's claims must be barred because to permit them to stand would necessarily involve the eventual disclosure of matters protected by the attorney-client privilege.   Although it was not properly submitted as matter cognizable in connection with the demurrer, we note that a letter from Rose's counsel to General Dynamics included a representation that Rose fully intends to abide by his ethical duty of confidentiality.We cannot say, at the pleading stage, that all of Rose's claims will necessarily involve the potential disclosure of communications made in confidence in the course of the attorney-client relationship.   We also note that the rule of confidentiality is subject to exceptions.  (See e.g. Evid.Code, §§ 956 [crime or fraud], 958 [communication relevant to issue of breach, by the lawyer or the client, of a duty arising out of the relationship].)

4.   In opposition to the demurrer, Rose presented the General Dynamics ethics manual and a certain implementing memorandum relating to employee grievances, which arguably support his position that General Dynamics intended its employees to understand that discipline would be imposed only for specified reasons and that fair procedures would be followed.   These materials were improperly submitted, as was the detailed declaration of plaintiff;  a demurrer is concerned only with the face of the pleading, augmented by judicially noticeable matter.  (Code Civ.Proc., § 430.30.)   It is not designed for the resolution of factual matters.However, in subsequent proceedings the contents of any employment manuals may constitute evidence of an implied, or even an express, contract.  (See Foley, supra, 675, at fn. 20.)

5.   The same considerations apply to cases like Jones v. Flagship Int'l. (5th Cir.1986) 793 F.2d 714 (cert. den. 479 U.S. 1065), in which the court entertained a lawsuit by an attorney-employee based on a state law sex discrimination charge;  the theory of the client's freedom to terminate the attorney-client relationship was not raised as a defense.

6.   The court in Nordling had some difficulty in ascertaining the precise nature of plaintiff's claims;  it commented that “[a]pparently we do not have a ‘just cause’ type of discharge, nor quite the damages flowing from such a discharge” and “[a]pparently no one is claiming that Nordling might not be discharged if this ultimately should be the employer's decision”.  Nordling, supra, at pp. 502–503.)   Thus, the court did not reach the question of whether or not, as a matter of policy, the employer could be held barred by its own promises from discharging plaintiff without cause.

7.   Rose does allege that General Dynamics failed to afford him the administrative reviews concerning his termination to which he was entitled under purported formal policies which are not themselves clearly alleged or set forth.   Unlike the plaintiff in Nordling, he does not sue strictly for the violation of these alleged rights.   In Nordling, it appeared that plaintiff was discharged by the decision of an immediate supervisor and that this decision, based on personal animosity, did not represent the interests or wishes of the employer itself.   Here, it appears that the decision to discharge Rose did represent a policy-level determination of General Dynamics, and it is certainly not clearly alleged that the decision would have been reversed if a full review process had been undertaken.

8.   The Fracasse court found statutory authorization for the rule of free dischargeability of one's attorney in Code of Civil Procedure section 284.  (6 Cal.3d at p. 790.)   That section relates only to the change of counsel “in an action or special proceeding”;  further, it permits substitution either upon the consent of both client and attorney, or on the application of either, “by order of the court.”   Where there is the possibility of disruption to pending litigation, the court may deny substitution.  (People v. Ortiz (1990) 51 Cal.3d 975, 983, involving retained counsel.)   To that extent, the statute recognizes that the right to discharge an attorney is not absolute.   Thus, we take Fracasse as a statement of decisional law, creating an implied term of free dischargeability in all attorney-client contracts.  (6 Cal.3d at p. 791.)

9.   In the attorney-client context, the court in Fineberg v. Harney & Moore (1989) 207 Cal.App.3d 1049, 1055, held that the client could not waive those provisions of Business & Professions Code section 6146, enacted as part of MICRA, which limited the contingent fees payable to plaintiff's counsel.   As the court found that the provisions were intended to protect members of the medical profession, it is apparent that the client, suing his doctor for malpractice, could not validly waive them.

10.   However, even if an individual client could waive the right of free discharge, the client in a truly unfavorable bargaining position would retain the legal defense of adhesion and unconscionability in a proper case.

11.   The federal case to which Rose refers in his complaint is Abshire v. County of Kern (9th Cir.1990) 908 F.2d 483, which involved the application of the Fair Labor Standards Act, 29 U.S.C. § 201 et seq.

12.   Insofar as Rose appears to allege that General Dynamics eventually wished to cover up drug use by its employees, and for that reason was dissatisfied with his successful investigation, a public policy would also seem to be implicated.   Finally, the allegations that Rose was fired because he hired an attorney to represent him and expressed a need to file a workers compensation claim clearly supports an action for tortious wrongful termination.

13.   To similar effect is Willy v. Coastal Corp. (S.D.Tex.1986) 647 F.Supp. 116, 118, decided under Texas law.   There, the court found that plaintiff could not state a cause of action, because once his employer indicated dissatisfaction with him, he was ethically bound to withdraw from employment;  further, that the attorney was ethically bound to voluntarily resign if the employer insisted upon pursuing an illegal course of conduct.   We agree that the California standards applicable to attorneys as a group are similar;  Fracasse establishes that the lawyer cannot resist an effort to discharge him, and rule 3–700(C)(1)(b) of the Rules of Professional Conduct permits (but does not require) an attorney to withdraw from employment where the employer seeks to pursue an illegal course of conduct, which latter situation would constitute a wrongful constructive discharge.

14.   General Dynamics argues that Parker “is of no relevance” because that court's primary concern was to save the constitutionality of the whistle-blower statute at all costs.   We question whether the opinion reflects such an overriding concern.   The court could have found the statute unconstitutional as applied to lawyers, thus exempting them from its protections but leaving the statute otherwise intact (see 566 A.2d at p. 220);  although the court repeated the general rules on the desirability of upholding the constitutionality of statutes if possible, it is apparent that a finding of unconstitutionality limited to lawyers would not have resulted in substantial interference with the legislative intent.We read Parker as exhibiting a conscientious effort to balance and accommodate two policies, rather than a desire to find some justification for saving a statute.General Dynamics also argues that Parker is inapposite because it deals with a specific New Jersey statute (the California version of which—Lab.Code § 1102.5—appears not to be directly applicable to Rose, as it is not alleged that a report of unlawful conduct was actually made to a governmental agency), while Balla buttresses its decision by reference to a California case, Fracasse v. Brent, supra.   We think that the principles underlying both the statute and the decision in Parker are relevant to this case, and we are uncertain how much weight must be given to another state's citation of California authority;  in all modesty, we consider this court to be as capable of interpreting California case law as is the Supreme Court of Illinois.

15.   In Nordling, the court found that plaintiff had not stated a cause of action for retaliatory discharge, and therefore found it unnecessary to decide whether, as an in-house attorney employee, he could do so as a matter of law.  (478 N.W.2d at p. 504.)

DABNEY, Acting Presiding Justice

TIMLIN and McDANIEL,* JJ., concur