Breach of Contract

This section deals exclusively with California Law.

Generally: "At-Will" Employment

Employees in California are generally "at-will." This means they can be hired or fired at any time, with or without good cause. This means an employer can fire someone just because he doesn't like him.

If someone is fired because of their race, gender, national origin, or may other reasons such as those, it is illegal discrimination. For discussions of illegal discrimination, see the corresponding sections listed at the homepage.

Creation of a Contract

There are three types of employment contracts:

  • Written
  • Implied
  • Oral

Written contracts will be discussed in this section. Please also see the related section: Oral & Implied Contracts.

Written Contracts

Written employment contracts are very rare. Usually, only sports starts, actors and highly-paid executives have them. It is important to note that many executive contracts are in writing. If the company breaks its contract with these employees, the employees may sue for "breach of contract." For a discussion of when these circumstances exist, see below, under Terms of the Written Contract.

Union Employees

There is another class of employee who always has a written contract. This is the union employee. Union employees have a union contract. If the employer breaches the contract, the union member may sue.

However, before the union member may sue, he must first pursue his "administrative remedies." This includes grievance procedures, arbitrations, and other processes that may be in the union contract.

Terms of the Written Contract

Written contract can have an unlimited numbers of "terms" or "conditions." For instance, one term might be that the employee will be employed for five years. This means he can't quit and can't be fired.

But there are always exceptions to a term regarding length of service. The most common is termination for "good cause."

Employee's Reason for Suing

An employee who is thinking of suing under a written contract probably has one of several problems

  1. the employer fired him, or
  2. the employer isn't paying him what he owes him
  3. the employer is failing to give promotions

Good Cause for Termination

Even an employee with a written contract, which states he will be employed for a certain length of time, can almost certainly be fired for "good cause."

To understand "good cause," the employee must consider what he's suing for. For instance, maybe the written contract stated that the employee would be there for five years, unless there was "good cause" to fire him. The employee doesn't think he's done anything wrong. He thinks there is no "good cause" to fire him.

This is the most common situation. The employer said there was good cause to terminated and the employee says there was no good cause.

Here, the employee's claim is that the written contract was "breached" (broken) for the following reason:

  1. The contract said no termination without good cause, for five years
  2. There was no good cause to fire the employee
  3. The employee was fired anyway

In this circumstance, the argument about whether or not there was good cause will probably come down to looking at the contract itself. A written contract that only allows for termination when there is good cause probably defines what "good cause" is.

For instance, the contract might say that taking company property is good cause for termination. The employee may think that taking an old and unused peace of property is not a big deal. If the employee takes the property, there is good cause. (The employer probably views this as stealing).

However, the employer can't just put unreasonable clauses in the contract. See subsection below, on "Bad Faith Breach of Contract".

Just like the "good cause" determination discussed above when there is a written contract, the employee must look at the contract itself to determine if the employer has breached it.

Bad Faith Breach of Contract

One thing to consider when trying to determine if an employer has breached a contract, whether written or implied, is whether or not the employer has been dealing in "bad faith."

For example, consider the term discussed above, that employees cannot take company property. Perhaps an employer wants to fire a particular employee. That employee takes home a memorandum from the company, which was sent to him at work. The company calls this taking company property and fires him.

The employer is not dealing in good faith. The memo was sent to the employee. It was sent for his use. He could have thrown it away. The employer is not dealing in good faith, because he is making a clearly unreasonable interpretation of the contact.

Therefore, even if an employee has violated a company policy in the strict sense, the employer may still have "breached" the contract.

In California, Damages for Breach of Contract

In California there are only certain things the employee can recover for when suing for breach of contract.

The employee can sue for his lost wages and benefits. He can sue for the wages he would get in the future, minus what he's earned at a new job, and minus the wages he should earn, assuming he gets a job in a reasonable time.

The employee cannot sue for emotional distress.

This means that the damages the employee can recover are limited to the compensation the employee would have received had he not been fired.

Further Information