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    Employment Law Divison

    What Is an “Implied Employment Contract” in California?

    An “implied employment contract” in California labor law is an agreement between you and your employer that is not in writing but is instead formed through both parties’ behavior (including spoken promises).1

    An implied employment contract is an exception to the rule of at-will employment in California. The “at-will” rule says that, absent a contrary agreement between an employer and employee, either party may terminate the employment relationship at any time, for any reason or no reason.2

    But if an implied contract for continued employment exists, and your employer fires you despite that contract, then you may be able to sue for damages under California wrongful termination laws.

    Below, our California employment lawyers answer the following frequently asked questions about implied employment contracts and wrongful termination lawsuits:

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

    1. What is an Implied Contract for Employment in California Law?

    An implied contract is a contract–a binding agreement–that is not set down in writing but is instead formed by the conduct of the parties to the contract.3

    In the employment law context, an implied contract typically means an agreement by the employer not to terminate the employee from his/her job without good cause.

    Under California employment law, the default assumption for employees who do not have an employment contract or collective bargaining agreement is that the employer may fire him/her at any time, regardless of whether there is a good reason for doing so. This is what is known as the “at-will” employment rule.4

    Contract-with-gavel

    An implied employment contract is created by conduct, not set down in writing.

    For example, an employer can fire a loyal and high-performing employee and hire someone else to do the same job just because the new person demands a lower salary, or is a friend or romantic partner of the employer.

    But an implied employment contract is an exception to the rule of at-will employment. (Other exceptions include wrongful termination in violation of public policy.) If you can show that your employer’s past conduct created an implied contract not to terminate employment except for good cause, then you can sue the employer for wrongful termination if you lose your job in a way that violates the terms of that contract.

    2. How Do I Prove that My Employer and I Had an Implied Contract?

    An implied contract is created by your employer’s conduct–that is, its behavior. Thus, the way to prove an implied contract exists between you and your employer is through evidence of the employer’s conduct.5

    When asked to determine whether an implied employment agreement exists, California courts are supposed to look at all of the circumstances of the employee-employer relationship.6

    Factors that are often relevant to the question of whether you and your employer had an implied employment contract include:

    • Your employer’s general personnel policies and practices;
    • The length of time you had worked for that employer;
    • Actions or communications by the employer assuring you that you could count on continued employment; and
    • Practices of the industry in which you were working.7

    Example: Chris is a skilled mechanic who works for an auto repair shop that focuses on luxury cars. He does not have a written employment contract. But his employer does have a written “employee handbook” that lists several reasons why employment may be terminated (including improper behavior at work or unsatisfactory job performance).

    Chris is considered one of the best mechanics at the shop and has a number of loyal customers who ask for him by name. He has been working at this shop for ten years.

    When he and his wife decide to buy their first house, he mentions to his boss that he is nervous about signing up for a thirty-year mortgage. His boss tells him not to worry because his salary at the auto repair shop will guarantee that he can make the payments indefinitely.

    One day Chris is fired from his job without warning. He finds out a few days later from an ex-coworker that his boss only fired him because his new girlfriend’s brother is a mechanic and needed a job, and he wanted to give him Chris’s position.

    Chris may have a claim for wrongful discharge from his job based on an implied contract not to terminate him except for good cause.

    But it is important to understand that, even when there is an implied employment contract, the 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 violating company rules.

    Example: Let’s return to the example of Chris from above. Let’s say that Chris makes a serious error when he is working on the car of a very important customer who owns multiple luxury cars. This error leads to further damage to the customer’s car.

    Shortly after, Chris is terminated from his job, and his boss hires the boss’s girlfriend’s brother instead.

    Chris may not be able to sue the auto repair shop for wrongful termination in this case. Even though there may have been an implied employment contract not to terminate him without cause, in this case his boss had good cause to fire him.

    3. Can I Have an Implied Contract for Continued Employment If My Written Employment Contract Says I Am “At-Will”?

    An implied employment contract providing that you will not be terminated without good cause is only possible in situations where you are an at-will employee under California default employment law.

    But if you do have a written employment contract, and it specifies that you are an at-will employee, then typically courts will NOT decide that there was an implied contract not to terminate you. The written contract will control over any implied employment contract.8

    However, in some cases, an express at-will employment agreement can be overridden by a later agreement not to terminate employment without good cause.

    In these sorts of cases, the later agreement must be explicitly spelled out, either in writing or orally. It cannot be implied by behavior alone.

    The employee also must provide some sort of “consideration” for the employer’s new promise not to terminate employment without cause–for example, a promise not to work for a competitor (a non-compete agreement), or a promise not to leave the job until a certain project is complete.9

    4. What Kind of Damages Can I Recover in an Implied Contract Wrongful Termination Lawsuit?

    If you sue your former employer for wrongful termination based on the implied employment contract theory, the damages you can recover will generally be limited to the value of the implied contract.10

    So the damages for a broken implied employment agreement will consist of:

    1. The amount you would have earned from your employer up to the day you receive your court verdict, including the value of benefits and pay increases you could have expected; PLUS
    2. The present value of the amount (including benefits and pay increases) you would have earned from your employer from the date of your court verdict for as long as the employment could reasonably have been expected to continue;11 MINUS
    3.  The amount you could have earned from other substantially similar employment in the same time periods.12

    The last item in the list above comes as a surprise to many employees who are suing their employers for breach of implied employment contracts. California contract law requires plaintiffs in contract suits to “mitigate damages”–that is, do their best to make up the money that they lost because the other party to the contract broke their promise.

    In wrongful termination suits based on an implied contract theory, that means that your damages may be reduced by the amount you could have earned in another job after you were fired, IF your employer is able to show that:

    1. A job that was substantially similar to your old job was available to you; and
    2. You failed to seek and retain such a job.13

    So, for example, if you were wrongfully fired from a job as an engineer in spite of an implied contract and were unable to find new work in your field, your damages will not be reduced by the amount that you could have earned in a fast-food job. But they could be reduced by the amount you could have earned in another engineering job IF such a job was available to you.14

    5. What is the Deadline for Filing a Wrongful Termination Lawsuit Based on an Implied Employment Contract?

    The “statute of limitations” (aka the deadline) for filing a wrongful termination lawsuit based on breach of an implied employment contract is two (2) years from the date of your termination.15

    This may seem like a long time. But it also takes time to do research and gather evidence before beginning a lawsuit, in order to make sure that you can put forth the strongest possible case.

    If you think you have a case for breach of implied employment contract against a former employer, you should contact a wrongful termination employment lawyer as soon as possible to discuss your options and work to gather evidence in your case.

    Call us for help…

    For questions about implied employment contracts under California wrongful termination law, or to discuss your case confidentially with one of our skilled California labor and employment attorneys, do not hesitate to contact us at Shouse Law Group.

    We have 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.

    Legal References:

    1. 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 [an implied employment contract].”)
    2. Labor Code 2922 LC — Termination at will upon notice; employment for a specified term. (“An employment, having no specified term, may be terminated at the will of either party on notice to the other [an implied employment contract is an exception to this]. Employment for a specified term means an employment for a period greater than one month.”)
    3. Civil Code 1621 CC – Implied contract defined. (“An implied contract is one, the existence and terms of which are manifested by conduct.”)
    4. Labor Code 2922 LC — Termination at will upon notice; employment for a specified term, endnote 2 above.
    5. Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 336-37. (“The contractual understanding [implied employment contract] need not be express, but may be implied in fact, arising from the parties’ conduct evidencing their actual mutual intent to create such enforceable limitations. (Foley, supra, 47 Cal.3d 654, 680.) In Foley, we identified several factors, apart from express terms, that may bear upon “the existence and content of an … [implied-in-fact] agreement” placing limits on the employer’s right to discharge an employee. (Ibid., italics added.) These factors might include “ ‘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.’ ” (Ibid., quoting Pugh, supra, 116 Cal.App.3d 311, 327.) Foley asserted that “the totality of the circumstances” must be examined to determine whether the parties’ conduct, considered in the context of surrounding circumstances, gave rise to an implied-in-fact contract limiting the employer’s termination rights. (Foley, supra, 47 Cal.3d 654, 681.)”)
    6. Same.
    7. Same.
    8. Halvorsen v. Aramark Uniform Services, Inc. (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. (Camp v. Jeffer, Mangels, Butler & Marmaro (1995) 35 Cal.App.4th 620, 630 [41 Cal.Rptr.2d 329] (hereafter referred to as Camp).) (4) “ ‘There cannot be a valid express contract and an implied contract, each embracing the same subject, but requiring different results.’ (Shapiro v. Wells Fargo Realty Advisors (1984) 152 Cal.App.3d 467, 482…, criticized on other grounds in Foley v. Interactive Data Corp., supra, 47 Cal.3d at p. 688.) The express term is controlling even if it is not contained in an integrated employment contract. (Gerdlund v. Electronic Dispensers International (1987) 190 Cal.App.3d 263, 272… [.)] Thus, [the employees’] express at-will agreement precluded the existence of an implied contract requiring good cause for termination.” (Camp, supra, at p. 630.)”)
    9. Same, at 1389. (““Unless the contract otherwise expressly provides, a contract in writing may be modified by an oral agreement supported by new consideration.” (Civ. Code, § 1698, subd. (c).) While the law may permit modification of a written contract by an oral agreement, the facts presented here do not rise to the level of an agreement to modify the contract.”)
    10. Civil Code 3300 CC — Measure [of implied employment contract damages]. (“For the breach of an obligation arising from contract, the measure of damages, except where otherwise expressly provided by this Code, is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom.”)
    11. Judicial Council of California Civil Jury Instructions (“CACI”) 2406 — Breach of Employment Contract —Unspecified Term—Damages. (“If you find that [name of defendant] [discharged/demoted] [name of plaintiff] in breach of an [implied] employment contract, then you must decide the amount of damages, if any, that [name of plaintiff] has proved [he/she] is entitled to recover. To make that decision, you must: 1. Decide the amount that [name of plaintiff] would have earned from [name of defendant] up to today, including any benefits and pay increases; [and] 2. Add the present cash value of any future wages and benefits that [he/she] would have earned after today for the length of time the employment with [name of defendant] was reasonably certain to continue; [and] 3. [Describe any other contract damages that were allegedly caused by defendant’s conduct.]”)
    12. CACI 2407 —  Affirmative Defense—Employee’s Duty to Mitigate Damages [in implied contract wrongful termination suit]. (“[Name of defendant] claims that if [name of plaintiff] is entitled to any damages, they should be reduced by the amount that [he/she] could have earned from other employment. To succeed, [name of defendant] must prove all of the following:1. That employment substantially similar to [name of plaintiff]’s former job was available to [him/her]; 2. That [name of plaintiff] failed to make reasonable efforts to seek [and retain] this employment; and 3. The amount that [name of plaintiff] could have earned from this employment.”)
    13. Same.
    14. See Hope v. California Youth Authority (2005) 134 Cal.App.4th 577, 595. (“This argument is based on a faulty legal premise, namely, that the employee has the burden of proving an inability to work. “The general rule is that the measure of recovery [in an implied contract wrongful termination case]… is the amount of salary … for the period of service, less the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment…. [T]he employer must show that the other employment was comparable, or substantially similar, to that of which the employee has been deprived; the employee’s rejection of or failure to seek other available employment of a different or inferior kind may not be resorted to in order to mitigate damages.””)
    15. Code of Civil Procedure 339 CCP — Two years; oral contract; certificate, abstract or guaranty of title; title insurance policy; sheriff; coroner; rescission of oral contract. (“Within two years: 1. An action upon a contract, obligation or liability not founded upon an instrument of writing [such as an implied oral contract under employment law], except as provided in Section 2725 of the Commercial Code or subdivision 2 of Section 337 of this code; . . . .”)

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