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Pugh v. See's Candies, Inc.
Citations: 203 Cal. App. 3d 743; 250 Cal. Rptr. 195; 3 I.E.R. Cas. (BNA) 945; 1988 Cal. App. LEXIS 738Docket: A021348
Court: California Court of Appeal; August 10, 1988; California; State Appellate Court
The case involves Wayne K. Pugh, who, after a retrial for wrongful discharge against See's Candies and the union, appeals a judgment favoring the defendants. Pugh, an at-will employee with 32 years of service, was terminated without notice, leading him to claim his dismissal breached an implied contract and violated public policy. In the initial trial, the court had granted a nonsuit in favor of the defendants, but this decision was reversed in Pugh I, where the court found sufficient evidence to establish a prima facie case for wrongful discharge based on an implied promise from the employer. The appellate court noted the erosion of the absolute right of employers to terminate employees, highlighting legal protections for certain employees against unjust dismissal, although such protections are not uniformly extended to at-will employees. The current appeal focuses on alleged prejudicial errors in evidentiary rulings and jury instructions, but the court ultimately affirms the judgment without finding reversible error. The Pugh I court examined public policy limitations on employee discharges as established in Tameny v. Atlantic Richfield Co., which allows for a tort action against an employer for wrongful termination tied to a violation of public policy or statute. The court found insufficient evidence to support the appellant's claim of retaliatory discharge for refusing to negotiate an illegal union contract, leading to a nonsuit that was deemed an adjudication on the merits. The court also explored contractual limitations on at-will employment, referencing Cleary v. American Airlines, which recognized an implied covenant of good faith and fair dealing. While Cleary allowed for tort or contract claims based on this breach, the Pugh I court did not negate the possibility of a tort theory for the appellant on remand. For retrial, Pugh I articulated a contract theory for breach of an implied-in-fact employment contract, asserting that the employer implicitly promised not to discharge the employee without good cause. The court acknowledged the common law rule of mutuality in at-will employment, codified in Labor Code section 2922, but held that this presumption could be rebutted by evidence of an agreement suggesting that employment would continue indefinitely unless specific conditions occurred. The court concluded that consideration could fulfill the requirement of mutuality of obligation in such agreements. An employer's promise for continued employment is generally terminable at will unless it is supported by independent consideration beyond the services provided. This requirement is primarily evidentiary, suggesting that a continuing relationship with limitations on discharge is more likely when the employee has given a benefit or suffered a detriment unrelated to their services. Employment contracts may only be terminable for good cause under two conditions: (1) when the contract has independent consideration, or (2) when there is an express or implied agreement that termination can occur only for good cause. Factors indicating an implied-in-fact contract for termination only for good cause include employer personnel policies, the employee's service duration, assurances from the employer, and industry practices. The terms of such implied agreements can evolve throughout the employment relationship. During litigation, once the employee establishes a prima facie case for breach of the implied contract, the employer must present evidence justifying the termination. The employee can challenge this justification as pretextual or insufficient. However, the employee bears the ultimate burden of proving wrongful termination. The definition of 'just cause' and 'good cause' is case-specific, implying a need for fairness and good faith while respecting managerial discretion, especially for employees in sensitive positions. The Pugh I court acknowledged Labor Code section 2922, which allows for at-will employment terminations by either party without cause but provided a nuanced interpretation enabling nonunion employees to seek remedies for unjust discharge. The appellant's case at the second trial in late 1982 revolved around breach of contract and tort theories to claim both contract and tort damages, including punitive damages, against See's. The trial court permitted the pursuit of tort damages based on the covenant of good faith and fair dealing, despite See's objections regarding the validity of this tort theory. The appellant alleged that the union conspired with See's to facilitate his bad faith discharge. Although See's did not dispute the tort theory on appeal, the appellant failed to specify evidence supporting either theory, leading to a collective consideration of evidentiary errors without distinguishing between the causes of action. The appellant contended that character-denigrating evidence was improperly admitted, as it was unknown to the decision-makers at the time of his discharge, and that evidence regarding the illegality of the union contract due to sex discrimination was wrongly excluded. The evidence presented at the second trial closely mirrored that of the first, as detailed in Pugh I, and the sufficiency of the evidence was not challenged. The appellant’s background included a long tenure at See's, starting as a pot and pan washer in 1941, eventually becoming vice president in charge of production by 1971, during which he received regular raises and commendations without notice of performance issues. His abrupt termination on June 25, 1973, was communicated without stated reasons, and See's acknowledged a policy of discharging employees only for unsatisfactory performance. The absence of evidence denying an implied contract requiring good cause for discharge was noted, with See's defense focusing on the justification of good faith in the termination process. In 1969, Huggins became the general manager and president of See's, following the retirement of Edward Peck, a long-serving executive. Huggins terminated the appellant due to longstanding dissatisfaction with his performance, which included insubordination, failure to train assistants, and resistance to directives, such as stopping employees from giving him gifts. Huggins had previously recommended the appellant's termination in 1953 and 1968, but those suggestions were ignored. The appellant had been given the title of vice president in an attempt to gain his cooperation, despite this change not affecting his responsibilities or compensation and being against Huggins's advice. After Charles See took control of the company in 1969, he began restructuring in response to competitive pressures, which led to numerous staffing changes. Huggins emphasized the need for cooperation during this transition and made it clear that unsatisfactory performance would lead to termination. In early 1973, Huggins confronted the appellant about his inadequate performance, which was acknowledged by other attendees at the meeting. Despite a trip to Europe intended to foster cooperation, the appellant displayed a negative attitude, reinforcing Huggins's decision to discharge him. Following discussions with other administrative staff about the discharge, Huggins reported to the new owners that the reasons included incompatibility and insubordination. Expert testimony indicated that as employees advance in management, human and conceptual skills become increasingly crucial, and these skills were lacking in the appellant. The CEO is responsible for evaluating top managers to ensure team effectiveness, highlighting the need for alignment between management styles. Testimony from See's employees and associates indicated that the appellant was disrespectful, disloyal, and uncooperative, causing conflicts during his tenure, which diminished in his absence. The appellant challenged the admission of evidence regarding these conflicts, arguing it was irrelevant since the decision-maker, Huggins, was unaware of them at discharge and that it unfairly damaged his character. However, the court found the issues raised were not cognizable on appeal due to the appellant's failure to object during the trial, effectively waiving the issue. The court noted that the appellant's character was pertinent to the case, particularly given his managerial role, and that specific misconduct was relevant in assessing his fitness for the job. Appellant's claims of being an exemplary employee were countered by See's evidence of his conflicts, which helped explain the negative perceptions of witnesses and their support for his termination. Furthermore, the appellant asserted that his discharge was pretextual and linked to his refusal to engage in negotiations for a union contract that he believed discriminated against women. During retrial, he abandoned claims regarding antitrust violations and sought to present evidence about the union contract negotiations, which the court allowed but restricted evidence regarding the contract's legality unless previously permitted. This ruling was based on the prior case's findings that the appellant failed to prove his objections were communicated to See's, thus undermining his retaliatory discharge claim. Nonetheless, the appellant argued that evidence of the contract's alleged illegality was relevant to his breach-of-contract and bad-faith-discharge claims to demonstrate a pretext for his termination. Exclusion of evidence showing appellant was fired for objecting to a union contract was deemed a prejudicial error. The evidence could demonstrate the employer's lack of good cause for the discharge, thus relevant to his tort and contract claims. While prior rulings indicated insufficient evidence for a prima facie case of retaliatory discharge, the law of the case doctrine permits the use of previously insufficient evidence if relevant to a different cause of action. However, the court determined the evidence was inadmissible without proof that appellant communicated his objection to See's, which he failed to establish despite being invited to do so. Consequently, his lack of a proper offer of proof waives any claims of error regarding these evidentiary issues. Appellant also criticized the court's jury instructions, arguing they were confusing and diluted, necessitating a reversal of the general defense verdict. He failed to distinguish between the instructions related to his contract theory and those related to his tort theory, and did not provide an adequate record for assessment. While he is deemed to have excepted to unrequested instructions, a presumption of invited error arises from his inadequate record. Appellant's claims of instructional error boil down to two main points: the court's definition of 'bad faith' allegedly misled the jury and imposed an excessive burden of proof, and the refusal to give his proposed instruction No. 9, which stated that dissatisfaction alone does not equate to good cause for termination. He contends this limited the jury's ability to assess the legitimacy of See's decision. The court, however, outlined separate legal principles applicable to both the contract and tort actions during jury instructions. The court provided the jury with instructions regarding the appellant's claims for damages based on three legal theories. The first theory involves a breach of an implied employment contract allowing termination only for good cause. The appellant must prove: (1) the existence of such an implied contract, (2) a breach of that contract by See's, and (3) damages resulting from that breach. The second theory asserts that See's violated the covenant of good faith and fair dealing inherent in any employment contract. To establish this, the appellant must demonstrate: (1) the existence of an implied employment contract, (2) that See's acted in bad faith during the termination, and (3) damages caused by that bad faith. This theory also seeks punitive damages. The third theory claims that the Union conspired with See's to effectuate a bad faith termination. The court clarified that the appellant need not succeed on all theories, but must substantiate at least one by a preponderance of the evidence. The jury was instructed on this standard, emphasizing that all evidence should be considered, regardless of who presented it. The court also outlined how the appellant could challenge the reasons given by See's for termination, highlighting that he could argue the reasons were insufficient or a pretext for a prohibited motive. It was established that Charles Huggins, president of See's, acted as its agent. The court defined express and implied contracts, noting that employment is generally at-will unless an implied agreement specifies that termination is contingent upon certain conditions. Further instructions clarified that an employment contract may only be terminated for good cause if: (1) there is consideration beyond the services provided, or (2) there is an express or implied agreement to that effect. Factors from Pugh I were cited to help determine the existence of an implied contract. The court defined "good cause" and cautioned against infringing on the employer's managerial discretion, particularly for employees in sensitive positions. The instructions were followed by specific guidance on the bad faith discharge theory. An implied covenant of good faith and fair dealing exists in all contracts, including employment contracts, mandating that neither party undermines the other's ability to benefit from the agreement. The determination of good faith and fair dealing, as well as what constitutes good cause for termination, is left to the jury based on the evidence presented. The jury must evaluate the employer's reasons for the appellant's termination due to unsatisfactory performance without substituting their own opinion for that of management. Good faith is characterized by an honest purpose and compliance with obligations, while bad faith denotes a fraudulent intent or a failure to fulfill duties driven by sinister motives. The court provided separate instructions on contract and tort damages should the jury find that See's breached its implied contract or the covenant of good faith and fair dealing. The appellant argued that the definition of bad faith imposed an undue burden to prove See's fraudulent intent across both contract and tort claims. He was required to establish (1) an implied employment contract, (2) that the circumstances of his termination indicated bad faith, and (3) damages resulting from that termination, making the existence of bad faith a factual issue for the jury. The law regarding the definition of bad faith in employment contexts is not well established. The court's instructions provided a definition that included various aspects of bad faith, allowing the jury to consider factors beyond just a sinister motive. The jury was thus not limited to equating bad faith solely with evil intent. The court provided definitions of "good faith" and "bad faith" that aligned with commonly accepted meanings, offering the jury standards to evaluate the employer's intent. "Good faith" is characterized by honest belief and absence of malice or deceit, while "bad faith" involves fraud, deception, or a deliberate intention to harm, suggesting a more culpable state of mind. In the tort action, punitive damages could only be awarded if the jury found the employer acted in bad faith, requiring a demonstration of malice, fraud, or oppression. The jury received thorough instructions regarding these terms, ensuring they understood the higher culpability needed for punitive damages compared to bad faith. The court concluded that the instructions on bad faith were legally sound and that the jury was not likely misled about the burden of proof. Additionally, any disagreement from the appellant regarding the definition of bad faith required him to propose alternative jury instructions. Concerns raised about the jury misapplying these definitions in the contract action were dismissed, as the focus was on whether the employer had good cause for termination, which was correctly linked to good faith without further emphasis on bad faith. Overall, the court found no significant likelihood of confusion regarding the appellant's burden in either action. The jury was given two theories for recovery against See's and instructed that the appellant needed to demonstrate the elements of only one theory by a preponderance of the evidence. The jury was informed about what needed to be proven and the potential damages under each theory, allowing for the assumption that they understood and correctly applied these instructions. The appellant argued that the court erred by not providing instruction No. 9, which stated that See's good faith dissatisfaction with the appellant's performance alone did not constitute good cause for termination. The appellant contended that without this instruction, the employer could win by simply demonstrating dissatisfaction, thus reducing his contract to a 'satisfaction contract' rather than a 'cause contract' that requires good cause for termination. A 'satisfaction contract' allows the promisor to solely judge their satisfaction, meaning if they assert dissatisfaction in good faith, the reasons for that dissatisfaction cannot be questioned. The appellant claimed that if there was no bona fide dissatisfaction, he could recover from wrongful termination. See's acknowledged that the appellant had a 'cause contract' but argued that its dissatisfaction was valid grounds for termination. The appellant's cited cases, Rabago-Alvarez and Toussaint, were deemed misplaced; Rabago-Alvarez involved an express contract requiring good cause for termination, while Toussaint involved oral assurances of continued employment, neither of which directly supported the appellant's instruction No. 9. No tort action for breach of the covenant of good faith was alleged, leading the reviewing court to exclude that theory from consideration. The Michigan court upheld a judgment for contract damages, interpreting the employer's policy manual as an agreement to terminate employment solely for good cause, which could create enforceable rights for the employee. The jury's determination that a contract was formed was supported by sufficient evidence. The court emphasized that an employer claiming to discharge an employee for cause cannot solely judge their own dissatisfaction; such declarations are subject to judicial review. The jury must assess whether the discharge was truly for unsatisfactory work, distinguishing between contracts that allow for employer discretion and those that do not. In cases where the employer cites specific misconduct as grounds for discharge, the jury evaluates the sufficiency of those reasons under the employment contract. If the employee disputes the alleged misconduct, it becomes a factual issue for the jury to resolve. Moreover, if the employer cites one reason for discharge but the employee argues another motive, the jury again determines the true reason. The court warned that while jurors can decide if good cause exists, they must avoid substituting their judgment for the employer's decision-making authority. Ultimately, while the promise to terminate only for cause allows for some review of the employer's decision, it does not grant the employee a right to termination based solely on the jury's collective judgment. In Toussaint v. Blue Cross, the court determined that when an employer promises to discharge an employee only for good cause, it is the jury's responsibility to decide if the reasons for discharge meet that standard. The court emphasized that employers are allowed to establish their own job performance standards and can terminate employees for not meeting those standards, even if those standards are higher than what other employers or juries might consider reasonable. The court rejected an instruction that would allow juries to find no breach of contract based on a perceived reasonableness of the employer's decision, as this would equate to a "satisfaction contract." While the appellant argued that the jury should assess whether the employer's dissatisfaction constituted good cause and whether the termination was fair, the court found that this perspective did not align with the established legal reasoning. The court supported the jury instructions regarding the contract action, which defined "just cause" for termination as a fair and honest reason guided by the employer's good faith, while allowing for significant managerial discretion, especially given the sensitive nature of the appellant's position. This approach requires the jury to consider both the employer's business interests and the employee's right to employment, emphasizing the importance of managerial judgment in the termination decision. Employer dissatisfaction alone is insufficient to establish good cause for terminating an employee in breach of contract. Employers must exercise broad discretion in making good faith judgments about high-level employees without fear of jury interference. Evaluating such employees involves assessing intangible qualities like personality, initiative, and management effectiveness, making performance evaluations less objective than those for routine positions. While a jury may examine the legitimacy of a termination, they should not assume a managerial role. An employer cannot make arbitrary or unreasonable termination decisions when a contract stipulates good cause is required. The jury's role is to assess if the employer's reasons for discharge were fair, honest, and in good faith, scrutinizing for trivial, capricious, or pretextual reasons. The jury must balance competing interests, and in tort actions, the plaintiff must demonstrate: the existence of an implied employment contract, evidence of bad faith in termination, and resulting damages. The burden of proving bad faith rests with the employee, focusing solely on the employer's motive, while issues regarding business judgment or employee performance satisfaction are not for jury determination. Good cause for discharge serves as evidence of the employer's justification and good faith. Lack of good cause for an employee's discharge may indicate the employer acted in bad faith, suggesting a wrongful motive in denying the employee the benefits of their contract. An honest but mistaken belief by the employer that good cause existed can negate claims of bad faith. The jury's role in assessing bad faith discharge aligns with established case law indicating that if an employer asserts good cause without a genuine belief in its existence, it constitutes a tortious attempt to deprive the employee of contractual benefits. The court correctly refused appellant's misleading instruction, which did not comprehensively address the issues in either the contract or tort actions. The evidence presented regarding the union's alleged conspiracy with See's to orchestrate the appellant's bad faith discharge was similar to prior evidence. A key witness's testimony was disputed, and the jury determined that the appellant did not meet the burden of proof, resulting in a general defense verdict. The judgment was affirmed, with the appellant's subsequent petition for Supreme Court review denied. Notably, See's South San Francisco plant operates under See's Candies, Inc., a subsidiary unrelated to the retrial defendant, See's Candy Shops, Inc. An employee with 18 years of service, Cleary, sued American Airlines for wrongful discharge and breach of the implied covenant of good faith, claiming his termination for theft, unauthorized leave, and threats was a pretext for retaliation due to his union activities. The court recognized this as a tort action for retaliatory discharge under Tameny but ruled that even without proving that claim, Cleary could pursue a breach of the good faith covenant. The court analyzed the situation through a contractual lens, referencing related breach of contract cases, and determined that Cleary had a valid action in both tort and contract. Justice Kaufman, in Koehrer v. Superior Court, highlighted the ambiguity in the legal theories concerning wrongful discharge, proposing terminology to differentiate between true breach of contract (Pugh I), public policy violations (Tameny), and bad faith discharges (Cleary). The advantage of pursuing a tort claim for bad faith discharge includes broader damages beyond those typically associated with contract breaches, allowing recovery for mental distress and potential punitive damages. During the proceedings, Cleary's counsel objected to questioning about an incident involving a rifle, which the opposing counsel argued was relevant to demonstrate intimidation among employees. The court overruled the objection, indicating the evidence was admissible to show the workplace environment under Cleary's supervision. Evidence Code section 787 prohibits the use of specific instances of conduct solely to establish a witness's character trait. The appellant did not object to the evidence's admission at trial, leading to a court ruling based on the law of the case rather than the failure to exhaust administrative remedies. Appellant misinterprets the testimony of See's counsel, who clarified that while certain wage structures are legal, that does not imply legality for contracts discriminating against women. The BAJI Committee's instructions for wrongful termination actions are noted. The appellant's motion for a new trial cited misconduct by See's counsel and errors in evidence admission and jury instructions, but he did not contest the refusal of specific instructions on appeal. Typically, a plaintiff cannot recover damages under both contract and tort theories from the same facts, although the court did not specify this limitation. It instructed that punitive damages could only be awarded if the tort claim was proven. The court's instructions directed the jury to determine damages if the appellant proved a breach of implied employment contract. For breach of contract, damages are assessed based on the reasonable compensation for all economic losses caused by the breach. The appellant can recover lost wages and benefits from the employment contract, minus any income earned from other employment through reasonable efforts. If the appellant proves entitlement to recovery due to See's breach of good faith and fair dealing, damages should cover all losses suffered as a result of See's actions, including compensation for pain, emotional distress, and future suffering. Punitive damages may be awarded against See's for malicious conduct, but the appellant's argument distinguishing types of bad faith—affirmative bad faith versus negligence—is unsupported by legal authority and is rejected. Most appellate cases have focused on pleading stages rather than jury instructions, with limited discussion on the employer's mental state in bad faith breaches. The appellant also raised a conspiracy theory against See's involving a union, and while he claimed that a specific jury instruction pertained only to his contract action, this limitation was not reflected in his briefs.