Asmus v. Pacific Bell, No. S074296.

• Court: United States State Supreme Court (California)
• Writing for the Court: CHIN, J.
• Citation: 23 Cal.4th 1,999 P.2d 71,96 Cal.Rptr.2d 179
• Parties: Craig ASMUS et al., Plaintiffs and Respondents, v. PACIFIC BELL et al., Defendants and Appellants.
• Docket Number: No. S074296.
• Decision Date: 01 June 2000

96 Cal.Rptr.2d 179
23 Cal.4th 1
999 P.2d 71

Craig ASMUS et al., Plaintiffs and Respondents,
v.
PACIFIC BELL et al., Defendants and Appellants

No. S074296.

Supreme Court of California.

June 1, 2000.

Rehearing Denied August 16, 2000.

96 Cal.Rptr.2d 180

Pacific Telesis Legal Group, Mary Lu Christie, Theresa C. O'Loughlin and Elena E. Matsis, San Francisco, for Defendants and Appellants

Paul, Hastings, Janofsky & Walker, Robert F. Walker, Nancy L. Abell and Linda M. Edwards, Los Angeles, for California Employment Law Council as Amicus Curiae on behalf of Defendants and Appellants.

Hoffman & Lazear, H. Tim Hoffman, Arthur Lazear, Oakland; Thierman Law Firm, Mark R. Thierman and Carrie L. Freestone, San Francisco, for Plaintiffs and Respondents.

CHIN, J.

We granted the request of the United States Court of Appeals for the Ninth Circuit for an answer to the following certified question of law under rule 29.5 of the

96 Cal.Rptr.2d 181

California Rules of Court:¹ "Once an employer's unilaterally adopted policy—which requires employees to be retained so along as a specified condition does not occur— has become a part of the employment contract, may the employer thereafter unilaterally [terminate][²] the policy, even though the specified condition has not occurred?" We conclude the answer to the certified question is yes. An employer may unilaterally terminate a policy that contains a specified condition, if the condition is one of indefinite duration, and the employer effects the change after a reasonable time, on reasonable notice, and without interfering with the employees' vested benefits

I. BACKGROUND

A. Certification

Rule 29.5(a) provides that we may answer questions of law certified to us by a federal court of appeal (or the court of last resort of any state), provided the certifying court requests the answer, the question may be determinative of a cause pending in the certifying court, and the decisions of the California Courts of Appeal or this court provide no controlling precedent concerning the certified question. Rule 29.5(b) sets forth the required contents of a certification request. Rule 29.5(c) requires the certifying court to furnish this court with relevant briefs and other materials.

Rule 29.5(f) states: "The California Supreme Court shall have discretion to accept or deny the request for an answer to the certified question of law. In exercising its discretion the court may consider: [¶] (1) factors that it ordinarily considers in deciding whether to grant review of a decision of a California Court of Appeal or to issue an alternative writ or other order in an original matter; [¶] (2) comity, and whether answering the question will facilitate the certifying court's functioning or help terminate existing litigation; [¶] (3) the extent to which an answer would turn on questions of fact; and [¶] (4) any other factors the court may deem appropriate."

The three factors set forth in rule 29.5(a) are met here. The Ninth Circuit has requested that we answer the question it posed; our answer to the question will determine the matter before that court. No California case has considered whether or how an employer can modify or cancel a unilaterally implemented employment policy.

The factors outlined in rule 29.5(f) also support our decision to accept the request for an answer to the certified question. The issue presented is important to California courts as well as to the Ninth Circuit, because it involves a significant question of employment contract law. We can expect the issue to arise in our courts, due in part to our opinion in Scott v. Pacific Gas & Electric. Co. (1995) 11 Cal.4th 454, 46 Cal.Rptr.2d 427, 904 P.2d 834 (Scott). Scott held that unilaterally created employment policies are enforceable, but also concluded that "employers have the capacity to alter their policies and practices so as not to create unwanted contractual obligations." (Id. at p. 472, 46 Cal.Rptr.2d 427, 904 P.2d 834.) Scott left open the question how employers can terminate or modify an existing policy, the focus of our

96 Cal.Rptr.2d 182

inquiry here. Thus, litigation over how employers can terminate or modify employment policies is likely to follow. (Rule 29.5(f)(2).)

B. Facts

In 1986, Pacific Bell issued the following "Management Employment Security Policy" (MESP): "It will be Pacific Bell's policy to offer all management employees who continue to meet our changing business expectations employment security through reassignment to and retraining for other management positions, even if their present jobs are eliminated. [1] This policy will be maintained so long as there is no change that will materially affect Pacific Bell's business plan achievement."

In January 1990, Pacific Bell notified its managers that industry conditions could force it to discontinue its MESP. In a letter to managers, the company's chief executive officer wrote: "[W]e intend to do everything possible to preserve our Management Employment Security policy. However, given the reality of the marketplace, changing demographics of the workforce and the continued need for cost reduction, the prospects for continuing this policy are diminishing—perhaps, even unlikely. We will monitor the situation continuously; if we determine that business conditions no longer allow us to keep this commitment, we will inform you immediately."

Nearly two years later, in October 1991, Pacific Bell announced it would terminate its MESP on April 1, 1992, so that it could achieve more flexibility in conducting its business and compete more successfully in the marketplace. That same day, Pacific Bell announced it was adopting a new lay off policy (the Management Force Adjustment Program) that replaced the MESP but provided a generous severance program designed to decrease management through job reassignments and voluntary and involuntary terminations. Employees who chose to continue working for Pacific Bell would receive enhanced pension benefits. Those employees who opted to retire in December 1991 would receive additional enhanced pension benefits, including increases in monthly pension and annuity options. Employees who chose to resign in November 1991 would receive these additional enhanced pension benefits as well as outplacement services, medical and life insurance for one year, and severance pay equaling the employee's salary and bonus multiplied by a percentage of the employee's years of service.

Plaintiffs are 60 former Pacific Bell management employees who were affected by the MESP cancellation. They chose to remain with the company for several years after the policy termination and received increased pension benefits for their continued employment while working under the new Management Force Adjustment Program. All but eight of them signed releases waiving their right to assert claims arising from their employment under the MESP or its termination.

Plaintiffs filed an action in federal district court against Pacific Bell and its parent company, Pacific Telesis Group,³ seeking declaratory and injunctive relief, as well as damages for breach of contract, breach of fiduciary duty, fraud, and violations of the Employee Retirement Income Security Act (ERISA) (29 U.S.C. § 1000 et seq.). The parties filed countermotions for partial summary judgment before conducting discovery. The district court granted summary judgment in Pacific Bell's favor against the 52 plaintiffs who signed releases. In an unpublished opinion, the Ninth Circuit affirmed the district court's judgment in this respect.

The district court granted summary judgment on the breach of contract claim

96 Cal.Rptr.2d 183

in favor of the eight plaintiffs who did not sign releases. It held that even if an employer had the right unilaterally to terminate a personnel policy creating a contractual obligation, that right would not apply in cases where the original employment policy incorporated a term for duration or conditions for rescission, absent stronger evidence of the employees' assent to the policy modification than their continued employment. The court concluded that Pacific Bell could not terminate its MESP unless it first demonstrated (paraphrasing the words of the MESP) "a change that will materially alter Pacific Bell's business plan achievement."

Thereafter, the parties entered into a stipulation providing in part that Pacific Bell "elected not to present any further evidence in this action with respect to the question of whether there has been `a change that will materially alter Pacific Bell's business plan achievement' ... and agreed that summary judgment may be entered in favor of the eight remaining Plaintiffs on the issue of liability for their claims of breach of contract by breach of the MES policy...." On May 5, 1997, the district court entered an order approving the stipulation and entered judgment in plaintiffs' favor on the issue.

Pursuant to the parties' agreement, the court certified for interlocutory appeal the issue whether Pacific Bell breached the MESP, and the Ninth Circuit accepted the interlocutory appeal. In a published opinion, the Ninth Circuit stated its certification request and noted that our answer to the certified question would determine the remaining portion of the case pending before it. (Asmus v. Pacific Bell (9th Cir. 1998) 159 F.3d 422, 423-125.) The court agreed to abide by our answer. (Id. at p. 425.)

II. Discussion

A. California Employment Law

We held in Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 254 Cal.Rptr. 211, 765 P.2d 373 (Foley), that an implied-in-fact contract term not to terminate an employee without good cause will rebut the statutory presumption of Labor Code section 2922 that employment for an indefinite period is terminable at will. (47 Cal.3d at p. 677, 254 Cal.Rptr. 211, 765 P.2d 373.) The Foley court observed that the trier of fact can infer an agreement to limit grounds for an employee's termination based on...