Rulon-Miller v. IBM Corp.
162 Cal. App. 3d 241, 208 Cal. Rptr. 524 (1984)
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Rule of Law:
An employer's termination of an employee may be found to be in bad faith and a breach of the implied covenant of good faith and fair dealing when the termination is based on a pretextual reason that contravenes the employer's own written policies protecting employee privacy.
Facts:
- Virginia Rulon-Miller began working for International Business Machines (IBM) in 1967 and, through consistent high performance, was promoted to marketing manager in 1978.
- In 1976, Rulon-Miller began a romantic relationship with Matt Blum, then also an IBM employee.
- In 1977, Blum left IBM to work for QYX, a competitor, and the relationship continued.
- Rulon-Miller's manager, Phillip Callahan, was aware of her relationship with Blum and assured her it was not a problem at the time of her promotion to manager.
- IBM had a long-standing written policy, known as the 'Watson Memo,' which stated the company would not interfere in employees' off-the-job conduct unless it negatively affected their job performance or the company's reputation.
- One week after Rulon-Miller received a $4,000 merit raise for good performance, Callahan confronted her, declared her relationship with Blum a 'conflict of interest,' and demanded she end the relationship or be removed from her management position.
- The following day, Callahan summoned Rulon-Miller, told her he had 'made up her mind for her,' and terminated her from her management role when she protested.
Procedural Posture:
- Virginia Rulon-Miller sued International Business Machines (IBM) and her supervisor, Phillip Callahan, in a California trial court for wrongful discharge and intentional infliction of emotional distress.
- The case was tried before a jury.
- The jury returned a verdict in favor of Rulon-Miller, awarding her $100,000 in compensatory damages and $200,000 in punitive damages.
- Judgment was entered against IBM, and IBM, as the appellant, appealed the judgment to the California Court of Appeal. Rulon-Miller is the respondent in the appeal.
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Issue:
Does an employer violate the implied covenant of good faith and fair dealing when it terminates a high-performing manager for an off-duty romantic relationship with an employee of a competitor, contrary to its own policies ensuring employee privacy and after management had previously approved of the relationship?
Opinions:
Majority - Rushing, J.
Yes. An employer violates the implied covenant of good faith and fair dealing when it terminates an employee based on a pretext that contradicts its own established policies. The court found substantial evidence that IBM's policies, particularly the Watson Memo, established a contractual right for employees to enjoy privacy in their personal lives, free from company interference so long as their work was not affected. Rulon-Miller's manager, Callahan, knew about her relationship with Blum long before the termination and had previously told her it was not an issue, indicating that the 'conflict of interest' justification was a pretext. Because there was no evidence that Rulon-Miller's relationship harmed IBM's business interests or that she had access to sensitive information, the firing was not based on probable cause and was therefore done in bad faith. The manner of the dismissal—deceiving her, giving a false ultimatum, and then unilaterally firing her—was also deemed extreme and outrageous conduct sufficient to support a claim for intentional infliction of emotional distress.
Analysis:
This case is a landmark decision in California employment law, reinforcing that the implied covenant of good faith and fair dealing limits an employer's ability to terminate at-will employees. It establishes that an employer's own policies and manuals can create enforceable contractual rights, effectively modifying the at-will relationship. The ruling demonstrates that courts will scrutinize the employer's stated reason for termination and may find a breach if the reason is pretextual and violates those implied promises. Furthermore, it affirms that egregious conduct during the termination process can give rise to tort liability, including punitive damages, in addition to contract damages for wrongful discharge.
