Asmus v. Pacific Bell
96 Cal. Rptr. 2d 179, 23 Cal. 4th 1, 999 P.2d 71 (2000)
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Rule of Law:
An employer may unilaterally terminate a written employment policy that has become an implied-in-fact contract, provided the policy is of indefinite duration, the employer gives reasonable notice of the termination, it occurs after a reasonable period, and it does not interfere with employees' vested benefits.
Facts:
- In 1986, Pacific Bell issued a 'Management Employment Security Policy' (MESP) to its management employees.
- The MESP stated it was Pacific Bell's policy to offer employment security through reassignment and retraining, even if an employee's current job was eliminated.
- The policy included a clause stating it would be maintained 'so long as there is no change that will materially affect Pacific Bell’s business plan achievement.'
- In January 1990, Pacific Bell's chief executive officer informed managers that changing market conditions made the prospects for continuing the policy 'diminishing—perhaps, even unlikely.'
- In October 1991, Pacific Bell announced it would terminate the MESP effective April 1, 1992, citing the need for more business flexibility.
- At the same time, Pacific Bell adopted a new 'Management Force Adjustment Program' that replaced the MESP and included a generous severance and benefits program.
- The plaintiffs were management employees who continued working for Pacific Bell for several years after the MESP was terminated and worked under the new program.
Procedural Posture:
- Sixty former management employees sued Pacific Bell in U.S. District Court, alleging breach of contract and other claims.
- The parties filed cross-motions for partial summary judgment.
- The district court granted summary judgment in favor of Pacific Bell against 52 plaintiffs who had signed releases waiving their claims.
- The district court granted summary judgment in favor of the remaining eight plaintiffs on the breach of contract claim, holding that Pacific Bell could not terminate the MESP unless the specified condition occurred.
- Pacific Bell stipulated that it would not present evidence that the condition had occurred and agreed that summary judgment on liability could be entered against it to facilitate an appeal.
- The district court certified the issue for an interlocutory appeal to the U.S. Court of Appeals for the Ninth Circuit.
- The Ninth Circuit accepted the appeal and certified the question of law to the Supreme Court of California for resolution.
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Issue:
May an employer unilaterally terminate a written employment security policy that has become part of the employment contract, if the policy contains a condition of indefinite duration and the employer provides reasonable notice, allows a reasonable time to pass, and does not interfere with vested benefits?
Opinions:
Majority - Chin, J.
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. In the context of a unilateral employment contract, no new consideration is required for modification other than the employee's continued employment, which constitutes acceptance of the new terms. The policy here was not for a definite duration because the condition for its termination—a change that 'materially affects Pacific Bell’s business plan achievement'—is not an ascertainable event. Pacific Bell maintained the policy for a reasonable time (six years), gave reasonable notice of its termination (nearly two years of warnings followed by a formal six-month notice), and did not interfere with vested benefits; therefore, its termination of the policy was lawful.
Dissenting - George, C. J.
No. When an employment policy specifies a condition for its termination, the employer may not unilaterally terminate the policy unless that condition has occurred. The majority incorrectly characterizes the condition—a 'change that will materially alter Pacific Bell’s business plan achievement'—as unascertainable and thus of indefinite duration. This condition is an ascertainable event that creates a contract for a definite duration, and Pacific Bell conceded in the lower court that the condition had not occurred. Established contract law does not permit one party to unilaterally terminate a contract with a definite duration before its term ends. Furthermore, even if the policy were of indefinite duration, its modification would require new consideration and the employees' assent; merely continuing to work does not constitute assent to the forfeiture of a valuable, pre-existing contractual right.
Analysis:
This decision aligns California with the majority of U.S. jurisdictions, granting employers significant flexibility to modify or terminate unilaterally created employment policies that are not for a specified duration. It clarifies that employers can adapt to changing economic conditions without being permanently locked into past promises, so long as they act fairly by providing reasonable notice and not divesting employees of vested rights. The ruling diminishes the contractual security of such policies for employees, making them contingent on the employer's ongoing business judgment. Future legal disputes will likely focus on what constitutes a 'reasonable' time and notice, and whether a policy's conditions create a definite or indefinite duration.
