What Is an Implied Employment Contract in Wrongful Termination?

Use these links to jump to different sections:

• Do Employment Contracts Give Extra Job Security?
• What Is an Implied Contract of Employment?
• How Do You Determine if an Implied Employment Contract Exists?
• Are Implied Contract Claims Successful?
• Find an Experienced Employment Lawyer

In the United States, at-will employment is the norm for private-sector, non-union employees (with the notable exception of Montana state law). At-will employment means an employer can terminate your employment at any time, without notice, and for any reason that isn’t illegal under state or federal law.

There are several important exceptions to at-will employment. For example, an employer can’t fire you for the following reasons:

• Employment discrimination;
• Retaliation for whistleblowing on workplace safety violations, sexual harassment, or other illegal activity;
• Breaking an employment contract.

Do Employment Contracts Give Extra Job Security?

Employment contracts generally give employees an added layer of job security by saying that employers can’t terminate them unless:

1. The employer has good cause; and
2. The employer has taken certain steps before firing the employee.

For example, an employee’s poor performance is typically considered to be good cause for termination. However, a contract may require the employer to give performance evaluations, provide the employee with the opportunity to improve, and give advance notice before ending the employment relationship.

If an employee believes their employer terminated them without a legitimate reason, they may be able to bring a wrongful termination claim alleging breach of contract. However, it’s an important disclaimer that these types of employment contracts are quite rare.

What Is an Implied Contract of Employment?

When you think of an employment contract, you probably have in mind a written agreement signed by the employer and employee. Or maybe you think of a verbal agreement where the parties have a conversation and agree to certain terms. You’d be correct that these are the most common types of contracts. But an implied employment contract is one that hasn’t been written down or verbally agreed to. Instead, its existence is implied from the employer’s actions or statements.

“Historically, in California, courts said the presumption is employment at will, but you could look at the employer’s behavior to see if they created an implied covenant to not terminate without having just cause to do so. However, nowadays, California courts are very reluctant to find such an implied employment contract,” explains Sonya Smallets, an employment attorney at Minnis & Smallets in San Francisco, California.

In bringing [an implied employment contract] case like this, you’re trying to deviate from the basic statutory understanding of at-will employment, which is difficult to do successfully.

How Do You Determine if an Implied Employment Contract Exists?

Smallets says that California courts look at various factors to determine if an implied contract exists—for example:

• The absence of an explicit at-will term of employment;
• The length of the employment;
• How the employer treated other employees;
• Whether the employer retained employees long-term;
• Whether the employer had a practice of giving notice and an opportunity to improve.

“California courts would also look at statements the employer had made,” Smallets continues. “Things like, ‘We’re the kind of company that values loyalty and long-term employment.’ And sometimes, the employer’s statements would be even more explicit, such as ‘As long as you’re doing a good job, you’ll always have a home here.’ This type of language could be interpreted in different ways, and courts let employees argue on the basis of such information that their employment was not at will. However, none of these factors will turn an at-will employment relationship into one in which an employer has to have just cause for termination if the employee has agreed that their employment is at-will, such as by signing an offer letter, confidentiality agreement, or employee handbook that provides for at-will employment.”

Are Implied Contract Claims Successful?

“Many people call our law office and say, ‘I have an employee handbook that states I’m supposed to get notice and an opportunity to improve before termination. But I didn’t get that. So, can I sue for wrongful discharge since they violated the handbook?’ 98 percent of the time—probably more, in fact—the answer is going to be no,” says Smallets. “The vast majority of employee handbooks explicitly say something like, ‘This is not a contract,’ and the courts have generally said that employment handbooks  are not contracts.”

Smallets explains that “after California courts allowed employees to pursue claims for breach of an implied contract not to terminate without good cause, the vast majority of employees now work for an employer who has made sure to documents in writing that their employment is at will and that it can’t be changed except by a written agreement signed by specified high-level managers.”

“I think it’s been more than 15 years since I’ve personally seen a situation where I felt like we had the facts to make a claim for termination in violation of an implied covenant. The reality is that employers have become quite savvy in making sure to confirm and document that their workplace is one in which employment is at will, while California courts have reaffirmed the underlying statutory understanding is employment at will. So, there was an era when these claims were pretty common, but now California courts have really returned to the idea that employment is at-will. In bringing a case like this, you’re trying to deviate from the basic statutory understanding of at-will employment, which is difficult to do successfully.”

Find an Experienced Employment Lawyer

While rare and difficult, wrongful termination lawsuits based on violations of implied contracts aren’t impossible—and there are other more common reasons why your termination may have been inappropriate. If you feel that you were fired for an illegitimate reason or have questions or concerns, consider reaching out to an experienced employment law attorney for legal advice.

For additional information on this area of law, see our overviews of employment and labor law and wrongful termination.