Pugh v. See's Candies, Inc.

Citations: 116 Cal. App. 3d 311; 171 Cal. Rptr. 917; 115 L.R.R.M. (BNA) 4002; 1981 Cal. App. LEXIS 1450Docket: Civ. 45149

Court: California Court of Appeal; February 27, 1981; California; State Appellate Court

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Wayne K. Pugh, after 32 years at See's Candies, Inc., where he advanced from dishwasher to vice president and board member, was terminated. He filed a lawsuit for wrongful termination, claiming breach of contract and violation of public policy, and included a labor organization as a co-defendant for allegedly conspiring in the wrongful termination. Upon trial, the court granted nonsuit motions after the plaintiff's case-in-chief, which led to Pugh's appeal. The court clarified that a nonsuit is only appropriate when, considering all evidence favorably for the plaintiff, there is insufficient evidence to support a verdict for him. The appellate court found error in the trial court's decision to grant nonsuit, thereby reversing it. Pugh's employment history included significant responsibilities, such as overseeing production and contributing to plant design and construction, demonstrating his value to the company through continued professional development. The evidence presented indicated that See's Candies, Inc. operates multiple manufacturing plants and retail outlets, having undergone ownership changes since 1972.

In 1971, Pugh was promoted to vice president of production and appointed to the board of directors of See's northern California subsidiary. In 1972, he was recognized for 31 years of service with a gold watch. In May 1973, Pugh traveled to Europe with See's president, Charles Huggins, for business purposes, after which Pugh planned a family vacation. Upon returning on June 25, 1973, Pugh was summoned to Los Angeles where Huggins unexpectedly terminated his employment without providing a reason, despite Pugh's expectations of further promotion following strong sales performances. He was instructed to remove only personal items from his office and was not to contact production employees. The termination letter stated he would receive unpaid salary and profit sharing but no severance pay. Huggins suggested Pugh look within himself for the reason for his dismissal, referencing unspecified negative feedback from the trade. Pugh noted that throughout his employment, he received no formal criticism, complaints, or disciplinary warnings. He theorized that his termination may be related to a contract with the defendant union, which represented See's employees as part of a broader multiemployer bargaining unit prior to 1971.

A supplemental agreement between the union and See's existed prior to 1971, allowing See's to pay seasonal employees a lower rate, which was introduced in 1968. Pugh opposed this new classification, fearing it would hinder recruitment and create dissatisfaction among regular seasonal workers. Despite his objections, Huggins dismissed Pugh's concerns and later recommended his termination for 'lack of cooperation,' although this recommendation was ultimately not accepted. After the 1968 agreements expired in 1971, See's began negotiating separately with the union until the 1973 agreement expiration. In April 1973, when asked to join the negotiating team for a new contract, Pugh expressed concerns about the potential existence of a 'sweetheart contract' with the union, which he believed would be unethical and detrimental to employees, particularly women. Tensions escalated during a June 1973 negotiating meeting when Mr. Button remarked, "Now we've taken care of Mr. Pugh. What are you going to do for us?" 

The document then shifts to discuss the evolution of employment law, tracing its origins from the 18th-century master-servant relationship characterized by status rather than contract. Early employment relationships were defined by custom and public policy, with a presumption of annual employment. Over time, especially post-industrial revolution, the law transitioned to emphasize contractual freedom, allowing parties to define their own employment terms, thereby shifting focus from obligation to choice.

The employment contract evolved by the late nineteenth century to reflect the employer's unilateral power in setting rules and exercising discretion, leading to a shift from the traditional presumption of a year-long hiring to a presumption that indefinite employment is at-will. In California, this is codified in Labor Code section 2922, allowing either party to terminate at will. The imbalance of bargaining power prompted the rise of labor unions, which have negotiated terms that protect employees from dismissal except for 'just cause,' resolved through arbitration. However, collective bargaining agreements cover only a minority of workers, leaving many, including managerial employees, unprotected. Statutory limitations now prevent terminations based on union activities, discrimination, and other specified reasons, but there is a lack of broader protections against unjust dismissal, unlike those in many industrialized nations. Public employees may have job security through civil service rules, but these protections do not extend to private sector employees. Despite at-will employment, an employer's termination rights are not absolute; two key limitations exist: dismissals cannot violate public policy or the terms of the employment agreement. The appellant argues his termination was retaliatory and violated public policy in three ways: for refusing to engage in union negotiations that would breach trade restraint laws, for declining to participate in negotiations that would discriminate based on sex, and for actions that contravened the duty of inquiry expected of a company director.

The legal analysis references the Supreme Court case Tameny v. Atlantic Richfield Co., which established that employers cannot compel employees to commit illegal acts or retaliate against them for refusing such acts. The trial court granted a nonsuit, determining that the appellant did not provide evidence of refusing to negotiate a new agreement, nor did he demonstrate that the negotiation terms would present legal issues similar to those in a previous agreement. Although the appellant claimed that the prior agreement violated antitrust laws due to its secrecy, the court found insufficient factual basis for this claim, only noting that one non-member employer was unaware of the agreement. Additionally, the appellant's argument regarding discrimination against women under the Fair Employment Practices Act was also unsupported, as there was no evidence he communicated concerns about the contract's legality. Finally, the appellant’s third theory, involving corporate director obligations under the Corporations Code, lacked evidential support for his involvement in any inquiry process. Consequently, the court concluded that the appellant failed to establish a viable case for wrongful termination based on the public policy theories presented.

Employment contracts are generally presumed to be terminable at will, but this presumption can be rebutted by evidence of an agreement indicating a fixed term or an indefinite duration contingent upon specific events, such as employer dissatisfaction. Contracts described as 'permanent' employment simply mean the employment continues indefinitely until terminated for a valid reason by either party. Such agreements are enforceable even when they restrict the employer's grounds for termination without placing equivalent restrictions on the employee's ability to resign. The requirement of consideration in these contracts does not necessitate an equal exchange of values or 'mutuality of obligation.' A single consideration can support multiple promises, meaning an employee's promise to provide services can back an employer's commitments to pay and refrain from arbitrary dismissal. The notion of requiring 'independent consideration'—additional benefits beyond usual services—serves mainly as evidentiary support for the intent of a continuous employment relationship with limitations on dismissal authority. Courts advocate for a flexible interpretation of employment contracts to reflect the parties' intentions, avoiding rigid tests that may obscure the agreement's purpose.

The general rule regarding the termination of employment contracts in California is that such contracts cannot be terminated at the employer's discretion if they contain an express or implied provision to the contrary. Employment contracts are deemed terminable only for good cause if one of two conditions is met: either the contract includes consideration independent of the employee's services or the parties have agreed that termination can only occur for good cause. Courts assess the existence of implied promises for continued employment by evaluating various factors, including employer policies, employee tenure, employer actions indicating job security, and industry norms. Additionally, the 'implied-in-law covenant of good faith and fair dealing' applies to employment relationships. A relevant case involved an employee with 18 years of satisfactory service, who claimed wrongful termination contrary to company policy. The court ruled that both the employee's long service and the employer's published policy regarding fair treatment constituted a form of estoppel, preventing termination without good cause.

Termination of employment without legal cause after a significant duration of service, such as 18 years, can violate the implied covenant of good faith and fair dealing inherent in employment contracts. This principle extends even more strongly to Pugh, who has served nearly twice that long and thus deserves protection against arbitrary termination. The court in Cleary acknowledged that an employer's adoption of specific grievance procedures reflects an obligation to avoid arbitrary conduct, forming an implied promise to employees. Evidence such as the duration of employment, commendations, lack of direct criticism, and assurances provided by the employer can support claims of such an implied promise.

The court ruled it was an error to grant motions for nonsuit against See's, allowing the case to proceed. The appellant has established a prima facie case for wrongful termination, shifting the burden to the employer to provide evidence for the termination's justification. The appellant can challenge the employer's reasoning as pretextual or insufficient. Ultimately, the responsibility lies with the appellant to prove wrongful termination, with the standard of proof influenced by the nature of the employment contract. Terms like "just cause" and "good cause" are context-dependent and suggest a need for fairness and honesty in managerial decisions, cautioning against infringing on legitimate managerial discretion.

Good cause in this context differs significantly from the standard for assessing the appropriateness of an employee's termination under a specified-term contract. In cases involving employees in sensitive managerial or confidential roles, employers are granted considerable latitude for subjective judgment. Testimony indicated that the successor to the appellant suggested that the union's pressure influenced the termination decision, implying that the union's actions might have led to a breach of contract. While unions can induce such breaches for legitimate labor objectives, attempts to terminate a supervisory employee due to union-related issues may also result in unfair labor practices, which fall under the National Labor Relations Board's jurisdiction. However, the current record does not provide sufficient evidence to apply either legal privilege or preemption definitively. Consequently, the judgment of nonsuit concerning the union is deemed erroneous and is reversed. Additional notes reference historical recommendations regarding the appellant's termination and discuss broader labor law context, including the prevalence of grievance procedures in collective bargaining agreements and the lack of general legal protection against unjust dismissals in the U.S. compared to other industrial nations.

Over 90% of federal civilian employees and over half of state and local government employees are protected by civil service laws against adverse actions by supervisors. When a public employee's liberty or property interests are at stake, minimal due process rights, including notice and a hearing, must be provided, as established in Perry v. Sindermann and Skelly v. State Personnel Bd. There is a discussion regarding whether equal protection or state action principles might extend similar protections to private sector employees. The Fair Employment and Housing Act prohibits employers from discharging or discriminating against employees who oppose unlawful practices, and it outlines a complaint procedure with potential remedies, such as reinstatement and back pay. The record indicates the appellant was a director of a subsidiary, not the parent company, and there may exist a public policy favoring employee protection against dismissal for raising legal or ethical concerns. However, the appellant did not raise this argument in court, and the case's resolution on other grounds makes it unnecessary to explore this potential limitation further. Various cited cases illustrate precedent related to employment rights and entitlements, suggesting that long-term service may support claims for job security.

Key cases illustrating employment relationships and actions include Greene v. Howard University, where an employee was deemed 'indispensable,' and Fulton v. Tennessee Walking Horse Breeders Association, which involved a resolution of congratulations. Zimmer v. Wells Management Corporation highlighted the granting of additional authority and promotional actions. The concept of 'good faith and fair dealing' in employment is further explored in literature, including Madison's discussion on the right to sue for unfair discharge and various legal treatises on contract law. The document does not address whether employers are required to provide procedural safeguards, such as warnings or opportunities for response prior to disciplinary actions. Additionally, labor arbitrators have developed extensive interpretations of terms like 'just cause,' which may aid in understanding employment disputes, though their selection is based on the parties' confidence in their expertise in labor relations, as noted in Steelworkers v. Warrior, Gulf Co.