Thelen Reid Brown Raysman & Steiner LLP

The California Supreme Court has clarified that an "at will" provision in an employment agreement is enforceable based on its plain meaning: The employment can be terminated at any time, with or without cause.


Facts

Arnold Worldwide, Inc., an advertising agency, recruited plaintiff Brook Dore for a management supervisor position. During the interview process, Dore claimed Arnold executives told him they needed someone to handle a new account on a "long-term" basis and that he would "play a critical role" in the agency if hired. Dore learned during the interviews that certain people at Arnold had been employed for long periods, and he was told the agency treated its employees "like family." Dore received a verbal offer for the position, which he accepted.

Arnold later sent Dore a letter confirming the terms of his employment. The letter stated, among other things, that Dore would have a "90 day assessment" at which time objectives would be set for evaluating his performance at an "annual review." He would then have the "opportunity to discuss consideration for being named an officer" of Arnold. In a separate paragraph, the letter stated, "Brook, please know that as with all of our company employees, your employment with [Arnold] is at will. This simply means that [Arnold] has the right to terminate your employment at any time...." The letter requested that Dore sign and return it to Arnold to signify his acceptance of the terms stated, which he did.

More than two years later, Arnold terminated Dore's employment. Dore sued Arnold, including for breach of contract and breach of the implied covenant of good faith and fair dealing. Dore alleged that Arnold's oral statements, conduct and documents established an implied-in-fact contract that prohibited Arnold from terminating his employment except for cause. The trial court granted summary judgment in Arnold's favor, ruling that Arnold's letter was enforceable as an express written contract of "at will" employment. Dore appealed, and the Court of Appeal reversed. Arnold then sought review by the California Supreme Court.


Supreme Court Decision

In a unanimous decision, the Supreme Court reversed the Court of Appeal and affirmed the dismissal of Dore's claims. Dore v. Arnold Worldwide, Inc., 39 Cal.4th 384, 46 Cal.Rptr.3d 668 (2006). The court confirmed the principle that a clear and unambiguous at will provision in a written employment contract, signed by the employee, cannot be overcome by evidence of a prior implied-in-fact contract requiring good cause for termination.

The court then addressed Dore's argument that Arnold's letter was ambiguous because the letter defined "at will" only by reference to when his employment could terminate ("at any time") and was silent on the issue of cause. On this point, California Courts of Appeal have handed down conflicting decisions over whether an employment contract providing for termination "at any time," without more, can be interpreted as allowing an implied agreement requiring cause for termination. The Supreme Court resolved this conflict, stating that the formulation "at any time" in a termination clause is not "per se ambiguous." Rather, "[a]s a matter of simple logic,... such a formulation ordinarily entails the notion of "with or without cause."

Turning to the facts of the case, the Supreme Court concluded that the language of Arnold's letter agreement with Dore was unambiguous. The court noted that Dore had read, signed and understood the terms in the letter, which plainly stated his employment was "at will." The court observed that the letter defined the term using language similar to California Labor Code §2922, which states an "employment, having no specified term, may be terminated at the will of either party on notice to the other." The court reasoned it would make no sense for the parties to emphasize Dore's employment was "at will" if their true meaning was to require cause for his termination. Finally, the court rejected Dore's argument that his evidence of Arnold's verbal statements and conduct rendered the letter ambiguous.


Impact for Employers

Dore offers employers several important lessons:

		Care should be taken to ensure that job applications, offer letters, personnel policies, employment contracts and related agreements with employees are drafted in a manner that preserves "at will" employment. Not only should these documents contain clear at will provisions, but other provisions that may expressly or impliedly negate at will employment should be avoided.
		Managers and human resources personnel should not make verbal statements to applicants and employees that could be interpreted as inconsistent with at will employment.
		At will provisions should be reviewed by legal counsel to ensure they are enforceable.

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For more information about the issues covered in this report, please contact Linda S. Husar in our Los Angeles office at 213-576-8017 or at lshusar@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.





©2006 Thelen Reid Brown Raysman & Steiner LLP