Breach of contract

When does an employee enjoy the benefits of an implied contract?


In general, if an employee is without a signed contract, or the contract is silent as to what may give rise for termination, the employee will be treated as “at-will” under the law. In other words, the employee may be terminated at any time for any reason, other than an unlawful one.

However, under certain circumstances, an employee may overcome the presumption that his/her employment is “at-will” by demonstrating that animplied contract not to terminate without good cause exists.

In Pugh v. See’s Candies, Inc., the California Court of Appeal held that an implied contract not to terminate without good cause could be shown by the acts and conduct of the parties interpreted in light of the circumstances.

In Pugh, the terminated employee pointed to factors such as the length of employment (32 years), commendations and promotions, lack of criticism of work, oral assurances that if he was loyal and performed well his job was secure, and the company’s general practice of not terminating without good cause. Id.

Since the Pugh decision, numerous employees have successfully challenged their termination by proving the existence of an implied contract not to terminate without cause.

In a recent case handled by The Rubin Law Corporation, an executive-level employee was hired to create and implement a business plan to promote growth of a small family-owned company. Through the executive’s guidance, the company took an entirely new direction.

Operations improved, sales improved and revenue more than doubled during his employment. The business became so successful that a sister company was opened, contributing additional revenue. The employer repeatedly assured the executive that he was “part of the family” and would be rewarded generously for his hard work.

He received several raises and was granted additional commission on the ever-increasing sales. He received praise and commendation for his contributions and was led to believe that his job was secure. After four years, the control of the company was passed to the owner’s children. The executive was shortly thereafter terminated without cause.

Our firm argued that the employer’s actions over the executive’s four years of employment had created an implied contract not to terminate without cause. The executive’s termination breached the implied contract, making the employer liable for damages.

Negotiations resulted in a pre-litigation settlement and the executive was fairly compensated for his damages without filing a complaint in court.

Breach of contract | The Cotran Case

How can an employer establish “good cause” to fire an employee with whom it maintains a written or implied-in-fact contract not to terminate unless for cause? Cotran v. Rollins Hudig Hall Int’l Inc. is the leading employment case dealing with precisely that question. In simple terms, Cotran looks at three factors to make this determination. The employer must:

  1. Act in good faith
  2. Conduct an appropriate investigation
  3. Have reasonable grounds for believing that the employee engaged in misconduct

We recently dealt with a case involving Cotran.

Our client was a long-term employee of a company who was fired because certain colleagues accused him of being divisive and creating a hostile work environment. Prior to his termination, the company hired an outside investigator, initiated two separate investigations, conducted 30+ interviews, and obtained over 10 declarations against our client. Each of these materials was used by the company to justify a “good cause” termination.

Case closed in favor of the company? Not exactly.

Applying Cotran, we obtained substantial evidence in discovery demonstrating that the company’s investigations were not in good faith and tainted with bias. We were able to show that:

  • Interview questions were specifically designed to elicit negative responses concerning our client
  • The investigator basically bullied and intimidated his interviewees
  • Our client was not presented with the evidence acquired against him and afforded an adequate opportunity to present his side of the story

Each of these facts, among others, weighed heavily against the neutrality of the company’s investigations.

Prior to initiating a lawsuit, the company flat-out refused to engage in any settlement discussions. Ultimately, however, the company was compelled to settle the case just short of trial. Our client recovered a significant settlement in several multiples of his annual salary.