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An Expensive Reminder of the Value of Employee Handbooks

“An employment, having no specified term, may be terminated at the will of either party on notice to the other.”  (Labor Code sec. 2922.)  This statute establishes that California is an “at-will” state, meaning that “employment may be ended by either party at any time without cause, for any [legal reason] or no reason, and subject to no procedure except the statutory requirement of notice,” as said by our state Supreme Court in Guz v. Bechtel National, Inc. in 2000.

Labor Code section 2924 operates as the flip-side to the at-will presumption.  It says an employment “for a specified term” may be terminated only for cause, i.e., “any willful breach of duty by the employee in the course of his employment, or in case of his habitual neglect of his duty or continued incapacity to perform it.”

These two antithetical statues took center stage in Zhou v. Ruess, which was decided in September 2016 by the Third District Court of Appeal.  Dr. Zhou executed a letter of intent (“Letter”) to work for Redding Pathologists (“RP”).  Unfortunately for RP, the Letter was silent as to the “at-will” status of Dr. Zhou’s employment.  Therefore, when RP terminated Dr. Zhou in June 2009, expensive litigation ensued with Zhou arguing that she was employed for a specified term and her employment could only be terminated for good cause, which she contended was lacking.

Saving the day for RP was its employee handbook / personnel manual (“Handbook”).  Dr. Zhou signed an acknowledgment of receipt of the Handbook, and the Handbook expressly stated that employment with RP was at-will.  In assessing Dr. Zhou’s employment status, the court of appeal determined that the Letter did not contain all the terms of the parties’ agreement; mainly, her employment status.  Therefore, it allowed evidence of the Handbook and conversations between RP and Dr. Zhou about her at-will status.  Based on this evidence, the court eventually upheld the trial court’s finding that Dr. Zhou was an at-will employee.

RP won this battle, but it no doubt paid an attorney a LOT of money to go through a trial and an appeal to secure victory.  So, here’s the lesson to employers: be careful with do-it-yourself employment offers and contracts to applicants, and make sure you have an appropriate agreement that addresses the material terms, including the employment status of the prospective employee (at-will or for a specified term).  And, if your employees are employed at-will, reiterate that status in your employee handbook or in an at-will employment agreement.

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By: Stephen L. Ramazzini