Opinion
[CERTIFIED FOR PARTIAL PUBLICATION ]
Pursuant to California Rules of Court, rule 976.1, this opinion is certified for publication with the exception of Parts II, III and IV.
As Modified on Denial of Rehearing Oct. 27, 1992.
Review Granted Dec. 17, 1992.
Review Granted Previously published at: 20 Cal.App.4th 721, 15 Cal.App.4th 1018, 9 Cal.App.4th 1446
See 6 Cal.4th 1174 for Supreme Court opinion.
Baker, Manock & Jensen, Andrew R. Weiss, Catherine E. Basham, Fresno, and Wunsch & George, Armen L. George, San Francisco, for defendant and appellant.
Bennett & Sharpe, Inc. and Nicholas John Paul Wagner, Fresno, for plaintiff and respondent.
[12 Cal.Rptr.2d 194] OPINION
GEO. A. BROWN, Associate Justice Assigned.
Retired Presiding Justice of the Court of Appeal, Fifth Appellate District, sitting under assignment by the Chairperson of the Judicial Council.
Plaintiff Charles Hunter's complaint sought compensatory and punitive damages as a result of his alleged wrongful discharge by his employer, defendant Up-Right, Inc. Plaintiff alleged a number of theories. However, the case went to the jury on three separate theories of liability: (1) breach of the implied-in-fact covenant not to terminate employment without good cause; (2) breach of the implied-in-law covenant of good faith and fair dealing; and (3) fraud and deceit.
The jury returned a special verdict which awarded plaintiff contract damages in the total sum of $38,013 on the first two theories and the sum of $120,000 on the fraud and deceit cause of action. The jury awarded no punitive damages.
The parties agreed the $120,000 included the $38,013. Judgment in the total sum of $120,000 in favor of plaintiff and against defendant was entered.
Defendant filed a timely notice of appeal.
FACTS
Hunter was hired as a welder by Up-Right in January 1973 to work in its manufacturing plant in Selma, California. He was promoted to welding supervisor in 1980 and remained in that position until September 10, 1987. For the last nine months of his employment at Up-Right, Hunter's immediate supervisor was Pat Nelson, the plant manager.
Hunter testified he enjoyed his job at Up-Right. He found it challenging and even occasionally worked there on his own time on weekends. He got along well with his coworkers and enjoyed the camaraderie at Up-Right. Hunter's performance was reviewed on a yearly basis and his performance reviews were satisfactory to excellent.
Hunter testified that on September 10, 1987, as he was leaving his work place, he heard an announcement on the intercom for him to report to personnel. Ms. Catherine Olson, the personnel secretary, asked him to report to Pat Nelson's office. When he met with Nelson, he was told that due to a corporate reorganization, his position was being eliminated and Up-Right had no choice but to ask for his resignation. Nelson told him if he did not resign, he would be let go anyway. Hunter asked whether he could go back to being a welder at Up-Right, but Nelson told him that he would not be happy doing that and that such a move was not according to procedure. Nelson presented him with a written resignation form which Hunter signed.
At trial, Hunter acknowledged he had missed five to six days of work in the five months preceding the meeting of September 10, 1987, but they were excused absences. He also acknowledged he had been reprimanded once by Nelson over a friendly scuffle with another employee, his good friend Jennifer Lenty. After being told by Nelson that the behavior was unbecoming in the workplace, he told Nelson it would not happen again. Hunter testified this incident occurred in the summer of 1987.
In 1987, Hunter separated from his wife, to whom he had been married since 1965. He also was experiencing disciplinary problems with his children which required him to be away from work. The family home was sold in 1987, and he realized only $200 profit from the sale. Also, his mother was ill for the last six months he was employed at Up-Right.
Hunter acknowledged that he met with Pat Nelson in May 1987 to discuss his absenteeism. He also acknowledged that in a meeting in mid-summer 1987, he discussed his personal problems with Pat Nelson.
Pat Nelson testified he was hired by Up-Right in January 1987 in the position of plant manager at the Up-Right facility in Selma. Part of his job duties was to implement a new manufacturing system at the Selma plant, the JIT (just in time) system of manufacturing used by the Japanese. Implementation of this new manufacturing [12 Cal.Rptr.2d 195] system required the reassignment of employees to various parts of the facility. This plan was being implemented when Hunter left Up-Right.
After being hired by Up-Right, Nelson had a chance to observe Hunter on a daily basis. Hunter did a good job at Up-Right until May 1987. Hunter started taking a lot of time off and Nelson initially talked to him about this problem in May. Hunter stated he was having problems at home, and in response Nelson gave Hunter excused time off to attend to his personal problems.
After the meeting in May 1987, Hunter's performance failed to improve. His absenteeism continued and Hunter began spending a lot of work time socializing with another Up-Right employee, Jennifer Lenty. This led to a second meeting between Hunter and Nelson in June 1987. The issue of Hunter's absenteeism was again discussed and Hunter was also advised that he was spending too much work time with Ms. Lenty. Hunter indicated he was having serious family difficulties with his son and needed time off to deal with his son's problems.
When Hunter's performance still failed to improve, a third meeting was held in mid-August 1987. Hunter told Nelson that he was in the process of getting a divorce and that he was seriously thinking of moving away from Fresno, possibly to Reno or Bakersfield.
Nelson testified that the horseplay incident between Hunter and Jennifer Lenty occurred on September 9, 1987. After the incident was reported to Nelson, he called Hunter in for a meeting. Hunter apologized and said it would not happen again. Hunter mentioned that he might resign and asked what kind of severance pay the company would be willing to give him. Nelson responded that he did not know what the company would be willing to offer Hunter, but that he would find out and let him know. Nelson urged Hunter to think about his decision that evening and come back to see him the next day.
Nelson attempted to reach two corporate officers to find out what kind of severance package Up-Right could offer. When he was unable to reach either corporate officer, Nelson took it upon himself to decide to offer Hunter eight weeks' pay.
The following day, September 10, 1987, Hunter returned to Nelson's office and told him that he had decided to resign and leave Up-Right. Nelson asked him to sign the written resignation and then asked Catherine Olson to process a check for Hunter.
Nelson denied he ever told Hunter that there was a corporate decision to eliminate his position. He denied telling Hunter he would be fired if he did not resign from Up-Right. Nelson later wrote a favorable letter of recommendation that Hunter used in his efforts to find new employment.
Dr. Gerald Martin, a professor of finance in the School of Business at Fresno State University, was retained by Hunter as an expert economic witness and opined that Hunter's past economic losses were $38,013. He estimated Hunter's future losses at their present value were $146,456.
Hunter was allowed by the trial court to present evidence regarding the termination of another Up-Right employee, Joe Gonzales. Gonzales was the machine shop and fabrication supervisor at Up-Right when he was terminated in March 1987. Gonzales had worked for Up-Right for approximately 14 years. Nelson testified that Gonzales was fired because of incompetence. He lacked the ability to properly supervise other employees, and he did not utilize the technology that was available to him in an effective way. Nelson testified that Gonzales was counseled on several occasions about his performance deficiencies.
John Maricich, who was plant superintendent for Up-Right for eight years until he resigned in January 1988, testified that he did not believe Gonzales should have been fired. There was personal animosity between Gonzales and Nelson. Maricich felt Hunter was an excellent employee and at one point told Hunter he would remain employed at Up-Right until the walls came tumbling down. Maricich testified Up- [12 Cal.Rptr.2d 196] Right had a policy only to terminate employees for good cause.
DISCUSSION
I. FRAUD AND DECEIT CAUSE OF ACTION.
Appellant argues the trial court erred in allowing a fraud cause of action to be submitted to the jury in this case. Appellant asserts that Hunter became aware of the limitations on his recovery of damages as a result of Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 254 Cal.Rptr. 211, 765 P.2d 373, and attempted to avoid its limitations by recasting his claim as one for fraud rather than one for wrongful termination. Appellant argues the facts of this case do not fit a fraud analysis and Hunter's attempt to circumvent Foley must fail. Appellant then goes on to argue there is insufficient evidence to uphold a verdict based on fraud and deceit. Hunter asserts there is absolutely no language in Foley that forbids a fraud and deceit cause of action in an employment case, and that the evidence here supports a finding of fraud.
In Foley v. Interactive Data Corp., supra, 47 Cal.3d 654, 254 Cal.Rptr. 211, 765 P.2d 373, the plaintiff sought tort damages for an alleged breach of the implied covenant of good faith and fair dealing. Several Court of Appeal cases had authorized tort remedies for such a breach in the context of an employment termination. The Supreme Court declined to allow tort damages, noting: " The distinction between tort and contract is well grounded in common law, and divergent objectives underlie the remedies created in the two areas. Whereas contract actions are created to enforce the intentions of the parties to the agreement, tort law is primarily designed to vindicate ‘ social policy.’ [Citation.] The covenant of good faith and fair dealing was developed in the contract arena and is aimed at making effective the agreement's promises." (Id. at p. 683, 254 Cal.Rptr. 211, 765 P.2d 373.)
The Supreme Court recognized that every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement. Because the covenant is a contract term, however, compensation for its breach has almost always been limited to contract rather than tort remedies. (Foley v. Interactive Data Corp., supra, 47 Cal.3d at pp. 683-684, 254 Cal.Rptr. 211, 765 P.2d 373.)
An exception to this general rule developed in the context of insurance contracts where, for a variety of policy reasons, courts held that breach of the implied covenant would provide the basis for an action in tort. (Foley v. Interactive Data Corp., supra, 47 Cal.3d at p. 684, 254 Cal.Rptr. 211, 765 P.2d 373.) The Supreme Court held that the appellate court cases relied on by the plaintiff were problematic in their uncritical incorporation of the insurance model into the employment context, without careful consideration of the fundamental policies underlying the development of tort and contract law in general or of significant differences between the insurer/insured and employer/employee relationships. (Id. at p. 689, 254 Cal.Rptr. 211, 765 P.2d 373.) The Supreme Court was not convinced that a " special relationship" analogous to that between insurer and insured should be deemed to exist in the usual employment relationship which would warrant recognition of the tort action for breach of the implied covenant. (Id. at p. 692, 254 Cal.Rptr. 211, 765 P.2d 373.) Fundamental differences exist between insurance and employment relationships. The court therefore concluded that " the employment relationship is not sufficiently similar to that of insurer and insured to warrant judicial extension of ... additional tort remedies in view of the countervailing concerns about economic policy and stability, the traditional separation of tort and contract law, and ... the numerous protections against improper terminations already afforded employees." (Id. at p. 693, 254 Cal.Rptr. 211, 765 P.2d 373.)
The employment relationship is fundamentally contractual, and several factors combined to persuade the court that in the absence of legislative direction to the contrary, contractual remedies should remain the sole available relief for breaches of the implied covenant of good faith and fair [12 Cal.Rptr.2d 197] dealing in the employment context. (Foley v. Interactive Data Corp., supra, 47 Cal.3d at p. 696, 254 Cal.Rptr. 211, 765 P.2d 373.) The court therefore concluded that tort remedies were not available for breach of the implied covenant in an employment contract to employees who allege that they were discharged in violation of that covenant. (Id. at p. 700, 254 Cal.Rptr. 211, 765 P.2d 373.)
The issue presented here is whether Foley should be broadly construed to bar fraud and deceit claims which arise solely from the employment relationship because the employment relationship is fundamentally contractual. We will hold that Foley does not bar the fraud and deceit cause of action in this case.
First, there are significant differences between claims for breach of an implied covenant within the employment agreement and fraud and deceit, and different objectives underlie the remedies of each. When a court enforces an implied covenant, it is protecting the interest of having promises performed— the traditional realm of a contract action— rather than protecting some general duty to society placed on the employer without regard to the substance of its contractual obligations to its employees. (Foley v. Interactive Data Corp., supra, 47 Cal.3d at pp. 683, 689-690, 254 Cal.Rptr. 211, 765 P.2d 373.) Contract damages are therefore the proper remedy when the employer breaches the implied covenant of good faith and fair dealing in the employment context. However, fraud and deceit damages are aimed at remedying a different wrong. The usual employment contract breach does not entail fraud or deceit as defined in the statutes and case law. There is no reason to shield from liability the occasional employer who, in addition to breaching an employment contract, also engages in conduct outside the bounds of the contractual provisions. When an employer breaches an implied covenant or a term in the employment contract and also engages in behavior amounting to fraud and deceit, he or she perpetrates two separate wrongs and the employee suffers injury in addition to the normal distress of termination. Thus, contract damages alone are not normally adequate to remedy the damages flowing from fraud and deceit. Accordingly, the policies promoted by placing breach of implied covenant damages in the contract context do not mandate a similar limitation for fraud and deceit inducing the employee to resign.
Secondly, allowing claims for fraud and deceit would not unduly deprive employers of discretion to dismiss an employee. While every termination is necessarily painful for the terminated employee, every termination is not accompanied by fraud and deceit. The difficulty in establishing fraud tends to insure that only deserving cases will give rise to tort relief.
Finally, Foley approved tort damages for discharges in violation of public policy. (Foley v. Interactive Data Corp., supra, 47 Cal.3d at pp. 665-667, 254 Cal.Rptr. 211, 765 P.2d 373.) Accordingly, appellant's argument that all employment decisions, right or wrong, are matters of contract, must fail.
This conclusion is supported by the recent Ninth Circuit case of Miller v. Fairchild Industries, Inc. (9th Cir.1989) 885 F.2d 498. In Miller, the two plaintiffs filed discrimination charges with the Equal Employment Opportunity Commission (EEOC) and then entered into settlement agreements with the employer. In each case the plaintiff gave up her right to sue for discrimination under Title VII of the 1964 Civil Rights Act, and the employer made various promises in exchange, including the right to certain training opportunities. Less than two months after the settlement agreements were signed, the company laid off the plaintiffs, citing economic reasons. Both plaintiffs filed actions alleging they had been discharged in retaliation for filing the EEOC complaints. Both plaintiffs also alleged that the employer breached the EEOC settlement agreements and the implied covenant of good faith and fair dealing, committed fraud, and intentionally and negligently inflicted serious emotional distress. (Miller, supra, at p. 502.)
The trial court dismissed the Title VII claims. It also dismissed, or directed verdicts for the employer on, numerous other causes of action, including ones for tortious [12 Cal.Rptr.2d 198] breach of the implied covenant of good faith and fair dealing and fraud. (Miller v. Fairchild Industries, Inc., supra, 885 F.2d at p. 503.)
The Ninth Circuit Court of Appeals affirmed the district court's action as to the plaintiffs' claims for tortious breach of the implied covenant of good faith and fair dealing, recognizing that under Foley, tort remedies are not available for breach of the implied covenant of good faith and fair dealing in an employment contract. (Miller v. Fairchild Industries, Inc., supra, 885 F.2d at p. 509.) However, as to the fraud cause of action, the court noted that actual fraud is a question of fact involving determinations of intent and evaluations of credibility properly resolved by the jury. (Id. at p. 510.) In Miller, the plaintiffs presented evidence that when the parties negotiated the settlement agreements, the employer concealed the fact that the plaintiffs would likely be laid off in the near future. Based on the evidence presented by the plaintiffs, a jury could have reasonably inferred the managers knew or believed the two plaintiffs were likely layoff candidates, and intentionally concealed this information at the settlement conference. Additionally, the employer did not provide the plaintiffs with the promised training opportunities because it discharged them within two months after negotiating the agreements. This subsequent conduct, coupled with the other evidence presented by the plaintiffs, could support a finding that the employer did not intend to perform its promises when it signed the agreements. The jurors could have reasonably inferred the employer fraudulently induced the plaintiffs to enter into the settlement agreements, and the district court erred in directing the verdict on plaintiffs' fraud claim. (Id. at pp. 509-510.)
In its closing brief, Up-Right cites Hine v. Dittrich (1991) 228 Cal.App.3d 59, 278 Cal.Rptr. 330 in support of its view that Foley precludes recovery in this case. In that case, Hine was fired for insubordination after refusing to attend a company meeting. Hine claimed that Dittrich, an employee who had been threatening him, would be present with a firearm. ( Id. at p. 61, 278 Cal.Rptr. 330.)
Hine pursued a cause of action against the employer for negligently supervising Dittrich. (Hine v. Dittrich, supra, 228 Cal.App.3d at p. 61, 278 Cal.Rptr. 330.) The relationship between Hine's firing and his negligent supervision claim against his employer caused the appellate court to question whether any part of the pleaded action survived Foley. The gist of Hine's claim was that the employer had a responsibility to provide for the welfare of its employees and the employer knew or should have known that Dittrich was harassing Hine as well as others. Hine alleged that the employer could have prevented the harassment but failed to do so. (Hine , supra , at p. 63, 278 Cal.Rptr. 330.)
The Court of Appeal noted that if that were the extent of Hine's allegations, the applicability and effect of Foley would not pose a major concern. The court stated, " Foley represents a judgment call that where an employee suffers damage as a result of discharge from employment, recovery should be limited. Clearly an employee who has never been discharged could, irrespective of Foley, claim damages from an employer whose negligent supervision of a fellow employee caused the first employee to be injured." (Hine v. Dittrich , supra , 228 Cal.App.3d at p. 63, 278 Cal.Rptr. 330, fn. omitted.) The court noted, however, that Hine specifically alleged he suffered no injury until he was discharged. Therefore, the employer's alleged negligence was only a contributing cause of its intentional decision to terminate him. The court concluded that Hine could " no more turn a contractual wrongful discharge action into a negligent supervision tort claim than could a terminated employee plead negligence simply because the employer negligently failed to follow prescribed procedures before the firing." ( Id . at p. 64, 278 Cal.Rptr. 330.) Since Hine suffered no injury independent of his termination, the court concluded that Foley precluded tort action. ( Ibid . )
The court in Hine noted that the circumstances leading up to a dismissal decision are rarely instantaneous. It can frequently be alleged that the employer acted unreasonably or should have done something different. Such allegations do not establish a tort of negligence independent of the [12 Cal.Rptr.2d 199] discharge itself. According to Hine , as long as the alleged injury would not have occurred but for the employment termination, Foley indicates the employee is generally limited to a contractual remedy. (Hine v. Dittrich , supra , 228 Cal.App.3d at pp. 64- 65, 278 Cal.Rptr. 330.)
It is true that in the instant case, Hunter does not claim, and the evidence does not show, any damage other than loss of present and future wages as a result of his termination. The language of Hine taken literally out of the context of that case and applied here could bar recovery. However, we disagree with Hine insofar as it can be read to make the applicability of Foley dependent exclusively on the nature of the damages sought in the particular case. Rather, the application of Foley should be dependent on whether the tort alleged is intrinsic to or extrinsic of the contract. In the case of fraud and deceit, not only is the tort extrinsic of the contract but plaintiff's damages, if properly placed in issue, would not be limited to loss of wages rising out of the employment termination but could include physical and emotional harm caused by the deceit. (Lacher v. Superior Court (1991) 230 Cal.App.3d 1038, 1049-1050, 281 Cal.Rptr. 640; see also Garcia v. Superior Court (1990) 50 Cal.3d 728, 732, 268 Cal.Rptr. 779, 789 P.2d 960; Work v. Campbell (1912) 164 Cal. 343, 128 P. 943). However, Hunter's future loss of wages is a proper element of damage as a result of the fraud and deceit. (See BAJI 12.57 given by the trial court.) The total damages awarded were $158,013. The fact plaintiff waived $38,013 of those damages is something of which defendant cannot complain.
Accordingly, we conclude that Foley does not preclude recovery in this case.
See footnote *, ante.
DISPOSITION
The judgment is affirmed. Costs to respondent.
BEST, P.J., and VARTABEDIAN, J., concur.