Foley v. Interactive Data Corp.

• Decision Date: 29 December 1988
• Citation: 254 Cal.Rptr. 211,765 P.2d 373,47 Cal.3d 654
• Court: California Supreme Court
• Parties: , 765 P.2d 373, 57 USLW 2396, 110 Lab.Cas. P [PG55,978 3 IER Cases 1729 Daniel D. FOLEY, Plaintiff and Appellant, v. INTERACTIVE DATA CORPORATION, Defendant and Respondent. L.A. 32148.

Page 211

254 Cal.Rptr. 211

47 Cal.3d 654, 765 P.2d 373, 57 USLW 2396, 110 Lab.Cas. P [PG55,978

3 IER Cases 1729

Daniel D. FOLEY, Plaintiff and Appellant, v.INTERACTIVE DATA CORPORATION, Defendant and Respondent.

L.A. 32148.

Supreme Court of California In Bank.

Dec. 29, 1988.

Steven J. Kaplan, Robert W. Gilbert, Gilbert & Sackman, Los Angeles, for plaintiff and appellant.

Robert V. Kuenzel, Steven G. Drapkin, Jeffrey A. Berman, Proskauer, Rose, Goetz & Mendelsohn, Los Angeles, for defendant and respondent.

LUCAS, Chief Justice.

After Interactive Data Corporation(defendant) fired plaintiffDaniel D. Foley, an executive employee, he filed this action seeking compensatory and punitive damages for wrongful discharge.In his second amended complaint, plaintiff asserted three distinct theories: (1) a tort cause of action alleging a discharge in violation of public policy (Tameny v. Atlantic Richfield Co.(1980)27 Cal.3d 167, 164 Cal.Rptr. 839, 610 P.2d 1330), (2) a contract cause of action for breach of an implied-in-fact promise to discharge for good cause only (e.g., Pugh v. See's Candies, Inc.(1981)116 Cal.App.3d 311, 171 Cal.Rptr. 917[all references are to this case rather than the 1988 post-trial decision appearing at 203 Cal.App.3d 743, 250 Cal.Rptr. 195] ), and (3) a cause of action alleging a tortious breach of the implied covenant of good faith and fair dealing (e.g., Cleary v. American Airlines, Inc.(1980)111 Cal.App.3d 443, 168 Cal.Rptr. 722).The trial court sustained a demurrer without leave to amend, and entered judgment for defendant.

The Court of Appeal affirmed on the grounds (1)plaintiff alleged no statutorily based breach of public policy sufficient to state a cause of action pursuant to Tameny; (2)plaintiff's claim for breach of the covenant to discharge only for good cause was barred by the statute of frauds; and (3)plaintiff's cause of action based on breach of the covenant of good faith and fair dealing failed because it did not allege necessary longevity of employment or express formal procedures for termination of employees.We granted review to consider each of the Court of Appeal's conclusions.

We will hold that the Court of Appeal properly found that plaintiff's particular Tameny cause of action could not proceed; plaintiff failed to allege facts showing a violation of a fundamental public policy.We will also conclude, however, that plaintiff has sufficiently alleged a breach of an "oral" or "implied-in-fact" contract, and that the statute of frauds does not bar his claim so that he may pursue his action in this regard.Finally, we will hold that the covenant of good faith and fair dealing applies to employment contracts and that breach of the covenant may give rise to contract but not tort damages.

FACTS

Because this appeal arose from a judgment entered after the trial court sustained defendant's demurrer, "we must, under established principles, assume the truth of all properly pleaded material allegations of the complaint in evaluating the validity" of the decision below.(Tameny v. Atlantic Richfield Co., supra, 27 Cal.3d 167, 170, 164[765 P.2d 375] Cal.Rptr. 839, 610 P.2d 1330;Alcorn v. Anbro Engineering, Inc.(1970)2 Cal.3d 493, 496, 86 Cal.Rptr. 88, 468 P.2d 216.)

According to the complaint, plaintiff is a former employee of defendant, a wholly owned subsidiary of Chase Manhattan Bank that markets computer-based decision-support services.Defendant hired plaintiff in June 1976 as an assistant product manager at a starting salary of $18,500.As a condition of employment defendant required plaintiff to sign a "Confidential and Proprietary Information Agreement" whereby he promised not to engage in certain competition with defendant for one year after the termination of his employment for any reason.The agreement also contained a "Disclosure and Assignment of Information" provision that obliged plaintiff to disclose to defendant all computer-related information known to him, including any innovations, inventions or developments pertaining to the computer field for a period of one year following his termination.Finally, the agreement imposed on plaintiff a continuing obligation to assign to defendant all rights to his computer-related inventions or innovations for one year following termination.It did not state any limitation on the grounds for which plaintiff's employment could be terminated.

Over the next six years and nine months, plaintiff received a steady series of salary increases, promotions, bonuses, awards and superior performance evaluations.In 1979defendant named him consultant manager of the year and in 1981 promoted him to branch manager of its Los Angeles office.His annual salary rose to $56,164 and he received an additional $6,762 merit bonus two days before his discharge in March 1983.He alleges defendant's officers made repeated oral assurances of job security so long as his performance remained adequate.

Plaintiff also alleged that during his employment, defendant maintained written "Termination Guidelines" that set forth express grounds for discharge and a mandatory seven-step pretermination procedure.Plaintiff understood that these guidelines applied not only to employees under plaintiff's supervision, but to him as well.On the basis of these representations, plaintiff alleged that he reasonably believed defendant would not discharge him except for good cause, and therefore he refrained from accepting or pursuing other job opportunities.

The event that led to plaintiff's discharge was a private conversation in January 1983 with his former supervisor, vice president Richard Earnest.During the previous year defendant had hired Robert Kuhne and subsequently named Kuhne to replace Earnest as plaintiff's immediate supervisor.Plaintiff learned that Kuhne was currently under investigation by the Federal Bureau of Investigation for embezzlement from his former employer, Bank of America.¹Plaintiff reported what he knew about Kuhne to Earnest, because he was "worried about working for Kuhne and having him in a supervisory position ..., in view of Kuhne's suspected criminal conduct."Plaintiff asserted he"made this disclosure in the interest and for the benefit of his employer," allegedly because he believed that because defendant and its parent do business with the financial community on a confidential basis, the company would have a legitimate interest in knowing about a high executive's alleged prior criminal conduct.

In response, Earnest allegedly told plaintiff not to discuss "rumors" and to "forget what he heard" about Kuhne's past.In early March, Kuhne informed plaintiff that defendant had decided to replace him for "performance reasons" and that he could transfer to a position in another division in Waltham, Massachusetts.Plaintiff was told that if he did not accept a transfer, he might be demoted but not fired.One week later, in Waltham, Earnest informed plaintiffhe was not doing a good job, and six days later, he notified plaintiffhe could continue as branch manager if he"agreed to go on a 'performance plan.'Plaintiff asserts he agreed to consider such an arrangement."The next day, when Kuhne met with plaintiff, purportedly to present him with a written "performance plan" proposal, Kuhne instead informed plaintiffhe had the choice of resigning or being fired.Kuhne offered neither a performance plan nor an option to transfer to another position.²

Defendant demurred to all three causes of action.After plaintiff filed two amended pleadings, the trial court sustained defendant's demurrer without leave to amend and dismissed all three causes of action.The Court of Appeal affirmed the dismissal as to all three counts.We will explore each claim in turn.

I. TORTIOUS DISCHARGE IN CONTRAVENTION OF PUBLIC POLICY

We turn first to plaintiff's cause of action alleging he was discharged in violation of public policy.Labor Code section 2922 provides in relevant part, "An employment, having no specified term, may be terminated at the will of either party on notice to the other...."This presumption may be superseded by a contract, express or implied, limiting the employer's right to discharge the employee.(Strauss v. A.L. Randall Co.(1983)144 Cal.App.3d 514, 517, 194 Cal.Rptr. 520;Drzewiecki v. H & R Block, Inc.(1972)24 Cal.App.3d 695, 703, 101 Cal.Rptr. 169; see also cases cited in part II(B) of this opinion, post, p. 225 of 254 Cal.Rptr., p. 387 of 765 P.2d.)Absent any contract, however, the employment is "at will," and the employee can be fired with or without good cause.³ But the employer's right to discharge an "at will" employee is still subject to limits imposed by public policy, since otherwise the threat of discharge could be used to coerce employees into committing crimes, concealing wrongdoing, or taking other action harmful to the public weal.⁴

Petermann v. International Brotherhood of Teamsters(1959)174 Cal.App.2d 184, 344 P.2d 25, first stated the foregoing principle.There, the plaintiff, a union business agent, alleged he was discharged when he refused to testify falsely to a state legislative committee.The trial court granted judgment on the pleadings to defendant.The Court of Appeal found the plaintiff was an employee-at-will (seeLab.Code, § 2922) but noted that "the right to discharge an employee under such a contract may be limited by statute[citations] or by considerations of public policy."(174 Cal.App.2d at p. 188, 344 P.2d 25.)Overruling the trial court, the Court of Appeal declared: "It would be obnoxious to the interests of the state and contrary to public policy and sound morality to allow an employer to discharge any employee, whether the employment be for a designated or unspecified duration, on the ground that the employee declined to commit perjury, an act specifically enjoined by statute."(Id., at pp. 188-189, 344 P.2d 25.)⁵

Similarly, Tameny v. Atlantic...