"At-will" employment in California - What are the exceptions?

Q: What is the "Implied Contract" Exception?

California courts have carved out an exception to the general rule of at-will employment for situations where an implied contract has arisen between employer and employee. An implied contract is an agreement that was not memorialized in writing, but that nonetheless is legally binding. In employment cases, courts will often find that an implied contract existed between an employer and an employee that the job would last for a certain term, or that the employee would not be fired without good cause.

Q: Can I Sue My Employer for Fraud as a Result of Wrongful Termination?

Fraud/misrepresentation can be another exception to the rule of at-will employment that will allow an employee to sue an employer for wrongful termination. To prove a fraud case against an employer, an employee needs to show that: The employer misrepresented facts to the employee (either by lying outright or by concealing or failing to disclose important information); The employer knew that s/he was making a misrepresentation; The employer misrepresented facts in order to persuade the employee to take a particular action; The employee relied on the misrepresentations; and The employee suffered damages as a result.

Q: Can I Sue My Employer under an Exception to At-Will Employment if I Resigned?

In some cases, employees can successfully sue their employers under an exception to the at-will employment rule even if they resigned from their job rather than being fired. This is due to California "wrongful constructive termination" / "constructive discharge" laws. Constructive termination means that a California employer makes working conditions so unpleasant for an employee that s/he has no choice but to resign. The idea behind wrongful constructive termination laws is that, instead of firing an employee in violation of an implied contract or public policy, an employer might instead intentionally create or knowingly permit working conditions so intolerable that the employer would expect a reasonable employee to resign.

5 situations when you CANNOT be fired without a good reason

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California is an “at-will” state in terms of employment law. This means that most jobs can be terminated by the employer at any time.

But there are several exceptions to the at-will employment rule that can allow an employee who loses his/her job to sue the employer under California wrongful termination laws. These exceptions to at-will employment in California are:

An implied contract for continued employment;
An implied covenant of good faith and fair dealing;
Public policy; and
Fraud/misrepresentation.

Losing a job means more than just losing your source of income. It can damage your prospects for future employment and can take a toll on your mental, emotional, and physical health.

Employees who are wrongfully terminated in violation of California employment law have every right to take legal action to pursue compensation for their suffering.

Below, our California labor and employment lawyers answer the following frequently asked questions about wrongful termination lawsuits based on exceptions to the at-will employment rule:

If you have further questions after reading this article, we invite you to contact us at Shouse Law Group.

1. What is the “At-Will” Employment Rule in California?

At-will employment is employment that either party (employer or employee)

can terminate at any time,
for any reason or no reason at all.

Under California Labor Code 2922, all employment in the state is presumed to be “at-will” unless

the parties agree otherwise or
an exception to at-will employment applies.¹

In addition to the presumption of at-will employment, many employment contracts that employers offer their employees will specify that the job is at-will and terminable at any time.

2. What is the “Implied Contract” Exception?

California courts have carved out an exception to the general rule of at-will employment for situations where an implied contract has arisen between employer and employee.²

An implied contract is an agreement that was not memorialized in writing, but that nonetheless is legally binding. In employment cases, courts will often find that an implied contract existed between an employer and an employee

that the job would last for a certain term, or
that the employee would not be fired without good cause.

How would you, or a court, know that the implied contract exception to at-will employment applies?

The key question is what the parties actually intended the terms of the employment relationship to be.³

Sometimes an agreement not to terminate is the result of an oral (spoken) promise by an employer to an employee. But more often it is implied by the conduct and behavior of the parties (mostly the employer).

Circumstances that can help show that there was an implied contract exception to at-will employment for a particular job or employee include:

The employer’s general personnel policies and practices;
The length of time the employee had worked for the employer;
Actions or communications by the employer assuring the employee that s/he could count on continued employment; and
Practices of the industry in which the employee was working.⁴

Example: Lily has worked as a receptionist for 10 years at a dental office with stellar reviews. The dental group’s employee handbook lists a number of reasons why employees might be terminated, including misconduct and poor job performance.

Lily gets fired with no warning, and one of the owners hires his daughter for the job. Lily may be able to sue her former employer for wrongful termination based on the implied contract exception to at-will employment.

It is important to note that, even when there is an implied contract exception to at-will employment, the implied agreement is usually that the employee will not be terminated without good cause.

This means that your employer probably still had the right under the agreement to fire you for

poor performance or
not fulfilling your job responsibilities.

2.1. Can there be an implied contract not to terminate employment?

The “implied agreement” exception to the rule of at-will employment is an exception to the default presumption that applies to all employment agreements in California under Labor Code 2922 LC.

If you were employed under a contract that clearly specified that you were an “at-will” employee, then you will probably not be able to argue that you were wrongfully terminated under the “implied contract” exception to at-will employment.⁵

An explicit at-will employment contract will usually make it impossible to argue for an implied contract for continued employment.

3. What is an Implied Covenant of Good Faith and Fair Dealing?

If you can show that you were employed under an employment contract (express or implied), then you may be able to argue that you were wrongfully terminated under the implied covenant of good faith and fair dealing exception to at-will employment.⁶

The implied covenant of good faith and fair dealing can support a wrongful termination claim if your employer acted in bad faith to deprive you of the benefit of your employment agreement.

Examples include an employer who

terminated you in violation of its own personnel policies,
terminated you in order to keep you from enjoying benefits to which you would have otherwise been entitled under your employment agreement (like a pension or pay already earned), and/or
lied about the reason you were fired.⁷

Example: Steve’s employment agreement provides that he can be terminated for poor performance of his duties. Then he gets fired after dating the supervisor’s ex-girlfriend even though he never had a negative performance review.

Steve may have the right to sue his employer under the exception to at-will employment provided by the implied covenant of good faith and fair dealing.

Here is another situation in which the implied covenant of good faith and fair dealing exception to at-will employment could support a wrongful termination lawsuit: an employee is offered a job that requires him/her to quit his/her current job and move to a new city or state. But the employer then fires the new employee before s/he has had a chance to demonstrate his/her abilities at the new job.⁸

It is important to remember that the implied covenant of good faith and fair dealing applies only where there is some sort of contract governing your employer’s ability to terminate you. (However, that can be an implied contract as discussed in Section 2 above.)⁹

4. What is the “Public Policy” Exception to At-Will Employment?

The public policy exception to at-will employment in California labor law allows an employee to sue his/her employer when his/her termination represents a violation of an important public policy.¹⁰

Law books representing public policy exception

Illegal reasons for employers to terminate employees include their sexual orientation, gender identity, marital status, genetic information, or national origin, affiliations, or other protected class.

In practice, this means that you have the right to sue your employer for wrongful termination if s/he terminates you because you:

refused to violate a law,
performed a legal obligation,
exercised a legal right or privilege, or
reported an alleged violation of law to the government, law enforcement or a supervisor.¹¹

You may have a claim for wrongful termination in violation of public policy even if you were clearly an at-will employee. That is, there was no express or implied contract regarding when you could be terminated.¹²

The major requirements for a wrongful termination lawsuit under the public policy exception to at-will employment are:

The policy that you reported a violation of, or refused to violate yourself, must be set forth in a law, constitutional provision, government regulation or mandatory ethical rule;
The policy must benefit the public (as opposed to just an individual);
The policy must be fundamental and substantial; and
The policy must be well-established at the time when you were terminated.¹³

Policies that California courts have held will support public policy wrongful termination suits include:

Antitrust laws (for example, if an employee is fired for reporting antitrust violations at his/her employer to authorities),¹⁴
Laws against sex discrimination and sexual harassment (for example, if an employee is terminated for refusing to submit to the sexual demands of a supervisor),¹⁵
Laws against disability discrimination,¹⁶
Rules of professional conduct for attorneys (for example, if an employee is fired for refusing to violate these rules),¹⁷ and
Laws against bribery.¹⁸

However, the public policy exception to at-will employment does not apply when:

The law in question is minor or trivial (not fundamental and substantial);¹⁹ or
The employee is unable to show a clear connection between his/her actions in support of the law or policy and his/her termination.²⁰

Example: Armen learns that his company is paying bribes to a city council member in exchange for support for projects they are developing. Armen’s boss wants him to misrepresent these payments in the books, but Armen refuses. A week later, Armen gets laid off.

Armen may have a wrongful termination case against his employer based on the public policy exception to at-will employment.

In addition to the general public policy exception to the at-will rule in California employment law, there are several specific laws (both California and federal) that provide causes of action for employees who are wrongfully terminated for reasons contrary to public policy. These include:

Whistleblower retaliation laws,
The whistleblower provisions of the Sarbanes-Oxley Act (federal law),
Laws against employer retaliation for political activities or speech,
Laws against retaliation against employees who complain about or participate in investigations of workplace harassment or employment discrimination,
Laws against discrimination, retaliation or termination for making a workers compensation claim,
Laws protecting an employee’s right to take time off for jury duty, military service, etc., and
Qui tam retaliation laws.

5. Can I Sue My Employer for Fraud as a Result of Wrongful Termination?

Fraud/misrepresentation can be another exception to the rule of at-will employment that will allow an employee to sue an employer for wrongful termination.

To prove a fraud case against an employer, an employee needs to show that:

The employer misrepresented facts to the employee (either by lying outright or by concealing or failing to disclose important information);
The employer knew that s/he was making a misrepresentation;
The employer misrepresented facts in order to persuade the employee to take a particular action;
The employee relied on the misrepresentations; and
The employee suffered damages as a result.²¹

The fraud exception to the at-will rule usually arises in cases where an employer made specific promises to an employee to persuade him/her to take a job. But then violated those promises and eventually terminated the employee.

It allows an employee to sue the employer for damages s/he suffered as a result of accepting the employment in the first place (but not for damages that arise out of the wrongful termination itself). In these sorts of cases, an employee still must rely on an exception to the at-will rule such as the implied contract exception in order to receive compensation for the effects of being terminated from his/her job.²²

Example: Andrew moves across country to work at Rykoff, which lies to Andrew about the company being financially stable. Then Rykoff merges with another company, eliminating Andrew’s job.

Andrew may sue the Rykoff company under the fraud exception to at-will employment. He may receive compensation for the damages he incurred by quitting his former job and moving across country.²³

6. Can More than One Exception to At-Will Employment Apply to My Case?

In a word--yes.

It is extremely common for an employee who was wrongfully fired to feel that more than one exception to the general rule of at-will employment applies to his/her case. It is common to sue an employer under more than one theory as to why the at-will employment rule does not apply.²⁴

7. Can I Sue My Employer under an Exception to At-Will Employment if I Resigned?

In some cases, employees can successfully sue their employers under an exception to the at-will employment rule even if they resigned from their job rather than being fired.

This is due to California “wrongful constructive termination” / “constructive discharge” laws. Constructive termination means that a California employer makes working conditions so unpleasant for an employee that s/he has no choice but to resign.²⁵

The idea behind wrongful constructive termination laws is that, instead of firing an employee in violation of an implied contract or public policy, an employer might instead intentionally create or knowingly permit working conditions so intolerable that the employer would expect a reasonable employee to resign.²⁶

For more help…

For questions and legal advice about exceptions to at-will employment and California wrongful termination suits, or to discuss your case confidentially with one of our skilled California employment law attorneys, do not hesitate to contact us at Shouse Law Group.

Our law firm has local employment law offices in and around Los Angeles, San Diego, Orange County, Riverside, San Bernardino, Ventura, San Jose, Oakland, the San Francisco Bay area, and several nearby cities.

See our related articles on collective bargaining agreements (Labor Code 514).

Work in Nevada? See our article on exceptions to at-will employment in Nevada.

Legal References:

Labor Code 2922 LC — Termination at will upon notice; employment for a specified term [general rule of at-will employment]. (“An employment, having no specified term, may be terminated at the will of either party on notice to the other. Employment for a specified term means an employment for a period greater than one month.”). See also the California Fair Employment and Housing Act (FEHA) and National Labor Relations Act.
See Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 677. (“As we have discussed, Labor Code section 2922 establishes a presumption of at-will employment if the parties have made no express oral or written agreement specifying the length of employment or the grounds for termination. This presumption may, however, be overcome by evidence that despite the absence of a specified term, the parties agreed that the employer’s power to terminate would be limited in some way, e.g., by a requirement that termination be based only on “good cause.”…The 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.”). See, for example, Mendoza v. Trans Valley Transport (Court of Appeal of California, Sixth Appellate District, 2022) 75 Cal. App. 5th 748.
Same, at 677. (“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. “[I]t must be determined, as a question of fact, whether the parties acted in such a manner as to provide the necessary foundation for [an implied contract], and evidence may be introduced to rebut the inferences and show that there is another explanation for the conduct.””)
Same, at 680. (“In the employment context, factors apart from consideration and express terms may be used to ascertain the existence and content of an employment agreement, including “the personnel policies or practices of the employer, the employee’s longevity of service, actions or communications by the employer reflecting assurances of continued employment, and the practices of the industry in which the employee is engaged.””)
Halvorsen v. Aramark Uniform Services (1998) 65 Cal.App.4th 1383, 1388. (“The flaw in Halvorsen’s argument, however, is that the factors cited in Pugh have no relevance when there is an express contract of employment which states the term of employment. (citations omitted) ‘There cannot be a valid express contract and an implied contract, each embracing the same subject, but requiring different results.’ (citations omitted)The express term is controlling even if it is not contained in an integrated employment contract. (citations omitted) Thus, [the employees’] express at-will agreement precluded the existence of an implied contract requiring good cause for termination.”)
See Kelecheva v. Multivision Cable T.V. Corp. (1993) 18 Cal.App.4th 521, 531-32. (“If plaintiff is able to establish the existence of an employment agreement, California law will supply a covenant of good faith and fair dealing [exception to at-will employment rule], which requires that neither party do anything to deprive the other of the benefits of the agreement. (citations omitted) A breach of the covenant may then be established, inter alia, by a showing that defendant engaged in “ ‘… bad *532 faith action, extraneous to the contract, with the motive intentionally to frustrate the [employee’s] enjoyment of contract rights, …’ ” including the right to continued employment absent good cause for discharge. (citations omitted) The state court inquiry on this claim would likely focus on whether defendant failed to follow its own personnel policies and/or falsified the asserted grounds for discharge. (citations omitted) “)
Same. See also Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 353 fn. 18. (“We do not suggest the covenant of good faith and fair dealing has no function whatever in the interpretation and enforcement of employment contracts. As indicated above, the covenant prevents a party from acting in bad faith to frustrate the contract’s actual benefits. Thus, for example, the covenant might be violated if termination of an at-will employee was a mere pretext to cheat the worker out of another contract benefit to which the employee was clearly entitled, such as compensation already earned. We confront no such claim here.”)
See Sheppard v. Morgan Keegan & Co. (1990) 218 Cal.App.3d 61.
Halvorsen v. Aramark Uniform Services, endnote 5 above.
Turner v. Anheuser-Busch, Inc. (1994) 7 Cal.4th 1238, 1256. (“Tort claims for wrongful discharge [under public policy exception to California at-will rule]typically arise when an employer retaliates against an employee for “(1) refusing to violate a statute … [,] (2) performing a statutory obligation … [,] (3) exercising a statutory right or privilege … [, or] (4) reporting an alleged violation of a statute of public importance.”). See, for example, Tevis v. Spare Time (Court of Appeal of California, Third Appellate District, 2017) 82 Cal. Comp. Cases 1319 (unpublished).
See Labor Code 1102.5 LC — Employer or person acting on behalf of employer; prohibition of disclosure of information by employee to government or law enforcement agency; suspected violation or noncompliance to federal or state law; retaliation [wrongful termination in violation of public policy]. See also Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 178. (“We hold that an employer’s authority over its employee does not include the right to demand that the employee commit a criminal act to further its interests, and an employer may not coerce compliance with such unlawful directions by discharging an employee who refuses to follow such an order. An employer engaging in such conduct violates a basic duty imposed by law upon all employers, and thus an employee who has suffered damages as a result of such discharge may maintain a tort action for wrongful discharge against the employer.”)
Foley v. Interactive Data Corp., endnote 2 above, at 667 fn. 7.
City of Moorpark v. Superior Court (1998) 18 Cal.4th 1143, 1159. (“In Stevenson, we articulated a four-part test for determining whether a particular policy can support a common law wrongful discharge claim [under the public policy exception to at-will employment in California]. The policy “must be: (1) delineated in either constitutional or statutory provisions; (2) ‘public’ in the sense that it ‘inures to the benefit of the public’ rather than serving merely the interests of the individual; (3) well established at the time of the discharge; and (4) substantial and fundamental.””)
Tameny v. Atlantic Richfield Co., endnote 11 above.
Rojo v. Kliger (1990) 52 Cal. 3d 65, 89.
City of Moorpark v. Superior Court, endnote 13 above.
General Dynamics Corp. v. Superior Court (1994) 7 Cal. 4th 1164, 1180.
Collier v. Superior Court (1991) 228 Cal.App.3d 1117, 1123.
See, for example, Silo v. CHW Med. Foundation (2002) 27 Cal. 4th 1097, 1109. (“Thus, even assuming that Silo engaged in such speech only during his work breaks, we can discern no fundamental public policy that places limits on a religious employer’s right to control such speech. In other words, in reading the California Constitution, article I, section 8’s prohibition against religious discrimination in employment together with the free exercise and establishment clauses of the State and Federal Constitutions, and with the FEHA’s explicit exemption of religious organizations from liability for such discrimination, we cannot say there is a fundamental and substantial public policy [supporting public policy exception to at-will employment rule] that prohibits a religious employer from terminating an employee because of his or her objectionable religious speech in the workplace.”)
See Turner v. Anheuser-Busch, Inc., endnote 10 above, at 1258. (“But Turner’s claim of whistle-blower harassment [variation on public policy wrongful termination exception to at-will employment] fails because he cannot demonstrate the required nexus between his reporting of alleged statutory violations and his allegedly adverse treatment by ABI.”)
Lazar v. Superior Court (1996) 12 Cal.4th 631, 638. (“The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.””)
Same, at 648-49. (“Consistent with the foregoing, as to his fraud claim [fraud exception to at-will employment] Lazar may properly seek damages for the costs of uprooting his family, expenses incurred in *649 relocation, and the loss of security and income associated with his former employment in New York. On the facts as pled, however, Lazar must rely on his contract claim for recovery of any loss of income allegedly caused by wrongful termination of his employment with Rykoff. Moreover, any overlap between damages recoverable in tort and damages recoverable in contract would be limited by the rule against double recovery.”)
Based on the facts of the same.
See, for example, Foley v. Interactive Data Corp., endnote 2 above.
See Turner v. Anheuser-Busch, Inc., endnote 10 above, at 1251-52.
Same.

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