Drzewiecki v. H & R BLOCK, INC.

Citations: 24 Cal. App. 3d 695; 101 Cal. Rptr. 169; 1972 Cal. App. LEXIS 1162Docket: Civ. 1302

Court: California Court of Appeal; March 31, 1972; California; State Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

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Raymond Drzewiecki (plaintiff) engaged H. R. Block, Inc. (defendant) for employment as a manager of a tax preparation office in Fresno, California, after completing a training program with the company in Kansas City. In March 1959, Richard Bloch of H. R. Block offered Drzewiecki the opportunity to manage a new office in any city with a population over 35,000. Following this, they executed the Fresno contract on April 21, 1959, which outlined Drzewiecki's role and the terms of his employment.

Key provisions of the Fresno contract included:

1. Drzewiecki would be employed as the manager of the Fresno office.
2. H. R. Block would assist in selecting a site and provide necessary capital for operations, with all expenditures over $100 made at the employer's discretion, ensuring no financial outlay from Drzewiecki.
3. Drzewiecki was required to commit full-time from January 1 to April 15 annually, directing efforts towards obtaining tax returns and bookkeeping accounts.
4. Compensation was structured as a monthly draw of $400 against the net profits of the Branch Office from January 1 to April 30. From May to December, if he devoted significant time to the office, he could draw the entire net profit plus normal expenses, with all draws considered advances against future profit shares, accumulating yearly.

Employee is entitled to 75% of the net profits determined annually on April 30, with availability for withdrawal in total or monthly amounts not exceeding the total share. For the duration of employment and five years post-termination, the Employee is prohibited from soliciting or servicing accounts of the First Party or engaging in competitive business within 25 miles of Fresno, California, without written consent. Violation of this provision results in forfeiture of any related proceeds and liquidated damages of $5,000. The contract clarifies that the Employee is not a partner or stockholder and cannot bind the First Party without written authority. The agreement is valid for two years, automatically renewing annually unless terminated with 90 days' notice; termination may occur only for improper conduct or if the business becomes illegal. All office equipment remains the property of the First Party. 

In April 1959, the Employee moved to Fresno, with a branch office opening scheduled for January 1960. After a denied request to delay the opening, the Employee proceeded as planned. By 1961, the Employee managed multiple branch offices, growing from one in Fresno to 23. In 1967, the First Party, now a large national enterprise, deemed existing compensation excessive and proposed a new contract that would reduce profit shares for future business growth, effective January 1968. The new contract did not retroactively affect existing profit shares. On May 7, 1968, the Employee was informed of the termination of a separate Stockton agreement due to refusal to sign the new contract, and restrictions were subsequently placed on the Fresno operation. In October 1968, the Employee filed a complaint in the Superior Court of Fresno County seeking various forms of relief.

On December 11, 1968, appellants notified respondent of the termination of the Fresno contract. The case was tried by Judge Donald R. Franson without a jury, who ruled that both the Stockton and Fresno contracts were employment agreements and did not establish a joint venture or grant respondent any proprietary interest in the employer's operations. The Stockton contract included a termination clause allowing either party to end the agreement upon notice, which was deemed valid for appellants’ termination. Conversely, the Fresno contract stipulated that respondent's employment was contingent upon properly conducting the employer's business, and could only be terminated for cause.

Judge Franson determined the agreement covered the City of Fresno and surrounding areas. He found appellants lacked cause for termination and assessed that had the employment continued for a reasonable duration of 10 years, respondent would have earned an annual salary of $60,000, but instead would likely earn only $10,000 annually. Consequently, he calculated damages from the wrongful termination to be $386,086.75, leading to a judgment in favor of respondent, which all parties subsequently appealed.

Appellants argued that the Fresno contract constituted permanent employment, thus terminable at will without consideration beyond the services rendered. They referenced Ruinello v. Murray, which suggests that contracts implying permanent employment are generally seen as indefinite and terminable at will unless supported by additional consideration. The trial judge rejected the idea that the Fresno contract was terminable only for cause, emphasizing that it was not designed for permanent employment but was contingent on respondent's proper performance. The ruling highlighted that while contracts suggesting permanent employment can be terminable at will, this does not inherently render them illegal; rather, they deviate from standard business practices. Some earlier cases have mistakenly interpreted such contracts as always terminable at will unless additional consideration is present, a misconception addressed in Littell v. Evening Star Newspaper Co.

To establish a contract of permanent employment, courts have traditionally required the demonstration of two considerations, beyond merely the services to be performed. This expectation arises from a misunderstanding of the nature of such contracts. If the parties intend to create a non-terminable employment agreement, they can do so explicitly, even if the only consideration involved is the employee’s services. In California, employment contracts that imply permanence without additional consideration are generally viewed as terminable at will by either party, unless there is clear intent to establish conditions that prevent termination except for cause. The California Supreme Court has suggested that, while typical contracts are interpreted as indefinite unless additional considerations are present, there is no definitive ruling that contracts with express terms limiting termination are terminable at will. Courts are encouraged to interpret employment contracts based on the intentions of the parties, the language used, and the context of the agreement rather than adhering to rigid tests. The prevailing legal perspective is that an employment contract labeled as permanent cannot be unilaterally terminated if it includes express or implied terms to the contrary. The case of Littell v. Evening Star Newspaper Co. is cited as a relevant example that aligns with this reasoning.

H. R. Block, Inc. intended for the respondent to manage its Fresno branch offices as long as he performed competently and profitably, with the contract limiting termination to instances of cause. The respondent was not paid a fixed salary but was to invest effort in a new market, receiving a significant share of profits once the business was profitable. The contract was characterized as a mutual undertaking rather than a conventional employment arrangement, implying a long-term partnership. Richard Bloch informed the respondent that the business would likely incur losses initially, with potential profits by the third year, emphasizing a partnership-like relationship where the respondent had autonomy over the business. The agreement automatically renewed annually unless terminated with 90 days' notice, and could only be terminated for improper conduct or if the business became illegal. The court upheld that the contract was designed for an extended duration, contingent on the respondent's competent management, and could not be terminated at will by the employer. Appellants' claim that the contract duration was reasonable because nearly 10 years had passed before termination was rejected; the court found the employment duration was tied to the respondent's performance rather than a fixed term.

The judge assessed various factors regarding the respondent, including his physical condition, age, work ethic, management expertise, historical profits, and the foreseeable demand for tax return services. As a result, the judge concluded it was reasonably certain that the respondent could have successfully managed for an additional 10 years following the wrongful termination of his contract. These findings were supported by substantial evidence, which the appellate court did not contest, as it does not weigh evidence or assess witness credibility. The appellants claimed they had cause to terminate the Fresno contract due to the respondent initiating legal action; however, they had previously asserted that they could terminate contracts at will and had significantly impaired the respondent's activities under the Fresno contract. The court noted that the contract implied more than an employment relationship, allowing the respondent to seek judicial protection of his interests. The respondent argued that the court failed to consider future business growth and net profits when assessing damages. Evidence indicated that such growth and profits would be affected by inflation, the appellants' pricing policy, and a predicted plateau in growth after ten years. The appellate court assumed the trial judge considered this evidence and found no error in the damage assessment. The judgment was affirmed, with concurrence from Stone, P.J. and Brown, J., and subsequent petitions for rehearing and Supreme Court review were denied. Key findings included that the employment contract was not permanent and could be terminated based on objective conditions rather than subjective determinations.