Mullins v. Rockwell Internat. Corp.

Facts

Cornelius Mullins was employed by Rockwell International Corporation for 22 years in various managerial positions, receiving promotions, salary increases, bonuses, and awards throughout that tenure. (Mullins, supra, 15 Cal.4th at p. 734.) In 1983 he became factory manager of Rockwell’s Downey facility, and from 1983 to 1988 he received excellent performance reviews and, for most of that period, a salary rank of 18 — considered an executive level of pay at Rockwell. (Ibid.)

The change in leadership. In early January 1988, Sy Rubenstein became president of Rockwell’s space transportation division and asked his executives to submit personal goals. Mullins, then 56 and with 22 years of seniority, responded that he had accumulated 76 points toward his retirement goal of 85 and expected to work another four or five years as factory manager. (Mullins, supra, 15 Cal.4th at p. 734.) Shortly after, at one of Rubenstein’s first staff meetings as division president, Rubenstein remarked that you do not have to fire someone, but can “just give them a shit job they can’t do and don’t talk to them.” (Ibid.)

The demotion. On February 2, 1988, Rubenstein announced that he would combine management of the Downey and Palmdale facilities under a single director, and selected Mullins’s Palmdale counterpart, Dan Brown, for the post — while assuring Mullins he would not be hurt by the move. (Mullins, supra, 15 Cal.4th at p. 734.) Mullins was soon reassigned to a newly created position as project director of manufacturing and testing, which he viewed as a demotion because the role “was not executive level, had no job description, and did not provide for a secretary or staff.” (Ibid.)

The diminishment. Mullins alleged that for the remainder of his employment his responsibilities and working environment “continually diminished.” (Mullins, supra, 15 Cal.4th at p. 734.) His only significant assignment in 1988 — setting up a “cold plates” process — required less than one day per week of actual work, and he spent the rest of his time waiting for assignments that never materialized. (Id. at pp. 734–735.) He was excluded from executive staff meetings while two former subordinates were appointed to executive-level positions without his being asked to interview. (Id. at p. 735.) Brown did not review his performance for 1988 or 1989 despite company policy requiring it, Rubenstein refused merit increases in 1988 and cut his bonus by two-thirds, and for the first time in 21 years Mullins received no raise. (Ibid.) An internal letter dated June 27, 1988, stated that his position would be evaluated no later than February 1989 and assigned a new grade level reflecting his reduced responsibilities — leading Mullins to expect a nonexecutive pay level and a loss of current and future benefits, including his anticipated executive-level retirement. (Ibid.)

Leaves and resignation. Feeling stressed and humiliated, Mullins took a medical leave from March 18 to April 24, 1988, and again from January 7 to September 20, 1989; during medical leave, company policy prohibited reevaluation of job classification. (Mullins, supra, 15 Cal.4th at p. 735.) With his medical leave due to expire, Mullins submitted his resignation on September 20, 1989, and actually retired on an unspecified date in October 1989. (Ibid.)

Procedural history

On September 19, 1991, Mullins filed a complaint against Rockwell alleging (1) wrongful termination, (2) wrongful termination based on breach of the covenant of good faith and fair dealing, and (3) breach of an oral employment contract — averring that he was forced to resign because Rockwell was going to demote him and reduce his pay and benefits when he returned from sick leave, and that an oral contract arising from his long service, promotions, bonuses, and Rockwell’s practices impliedly barred termination except for good cause. (Mullins, supra, 15 Cal.4th at p. 735.)

Rockwell moved for summary judgment on the ground that all claims were time-barred. (Mullins, supra, 15 Cal.4th at pp. 735–736.) The applicability of the one-year period of Code of Civil Procedure section 340, subdivision (3) to the first cause of action and the two-year period of section 339 to the contract causes was not disputed; the contested question was when those periods began to run. (Id. at p. 736.) Rockwell argued they began on January 19, 1988, when Mullins received word of his demotion, or at the latest on March 18, 1988, when he took his first medical leave. (Ibid.) Mullins did not address the limitations argument directly, instead arguing the substantive merits of his claims. (Ibid.)

The trial court granted summary judgment, holding the tort claim time-barred and that the contract claims under the two-year statute “began to run once plaintiff suffered appreciable harm” — which the court placed at January 19, 1988, when Mullins was notified of the change in his status. (Mullins, supra, 15 Cal.4th at p. 736.) The court also declared that “a demotion will not support a constructive discharge claim.” (Ibid.) The Court of Appeal affirmed, concluding that the limitations period for a wrongful-discharge claim “begins when the employee is given notice of termination or ‘the basis for constructive discharge,’ not when termination occurs,” and that under this theory Mullins’s contract claims accrued at the latest in January 1989, when he became aware of all the facts underlying Rockwell’s new attitude toward him. (Ibid.) The Supreme Court granted review.

Issue

In a breach-of-contract action based on an alleged constructive discharge, does the statute of limitations begin to run when the alleged intolerable working conditions occur (or become known to the employee), or instead when employment is actually terminated by the employee’s resignation? (Mullins, supra, 15 Cal.4th at p. 733.)

Holding

Reasoning

The court began with the substance of constructive discharge. Writing for a unanimous court, Chief Justice George anchored the analysis in Turner v. Anheuser-Busch, Inc. (1994) 7 Cal.4th 1238, explaining that “constructive discharge is a termination of employment that is caused by the employer and is against the employee’s will.” (Mullins, supra, 15 Cal.4th at p. 737.) Actual discharge carries significant legal consequences, so an employer seeking to avoid liability “may refrain from actually firing an employee, preferring instead to engage in conduct causing him or her to quit”; the doctrine addresses such “‘end runs’” around wrongful-discharge claims requiring employer-initiated terminations. (Ibid.) Constructive discharge “occurs only when the employer coerces the employee’s resignation, either by creating working conditions that are intolerable under an objective standard, or by failing to remedy objectively intolerable working conditions that actually are known to the employer.” (Ibid.) Such a discharge “is legally regarded as a firing rather than a resignation.” (Ibid.)

On the employer’s state of mind, the court reaffirmed the Turner standard. Proof of express intent to discharge is not required, “because the employer’s intent rarely will be revealed by direct evidence.” (Mullins, supra, 15 Cal.4th at pp. 737–738.) But the court had rejected a bare constructive-knowledge standard as insufficient to support workplace conciliation; the better practice is to require proof that “the employer either intentionally created or knowingly permitted working conditions that were so intolerable or aggravated at the time of the employee’s resignation that a reasonable employer would realize that a reasonable person in the employee’s position would be compelled to resign.” (Id. at p. 738.) That formulation ties the employer’s culpable knowledge or intent to conditions measured “at the time of the employee’s resignation” — a temporal anchor that proved decisive on the accrual question.

The accrual analysis followed directly from Romano. The court treated the case as governed by its recent decision in Romano v. Rockwell Internat., Inc. (1996) 14 Cal.4th 479, which held that the limitations period for breach of an implied contract not to terminate without good cause “begins to run at the time of actual termination of employment, even when the employer has issued an unequivocal notification of termination at an earlier date.” (Mullins, supra, 15 Cal.4th at p. 738.) Because in a contract action the limitations period “does not begin to run before the alleged breach occurs,” and the breach is the termination without good cause, the clock cannot start before the termination. (Ibid.) Even treating an early notice of termination as a breach, it would be an anticipatory breach giving the plaintiff an election: sue at once, or “continue to perform until the breach announced by the defendant came to pass.” (Ibid.) The Romano plaintiff elected to continue performing, so the period began only when the announced breach actually came to pass — at termination. (Ibid.)

The court extended that logic to constructive discharge. “Similar reasoning applies to a breach of contract action based upon an alleged constructive discharge.” (Mullins, supra, 15 Cal.4th at p. 738.) The breach alleged is the termination of employment without good cause; to the extent the employer’s creation or knowing exploitation of intolerable conditions “for the purpose of securing a resignation in the future” is itself a breach, “it is similar to an announcement that employment will be terminated in the future.” (Ibid.) Drawing on the contract that contemplates ongoing performance, the court quoted Romano: where contractual obligations are ongoing, “the plaintiff may elect to rely on the contract despite a breach, and the statute of limitations does not begin to run until the plaintiff has elected to treat the breach as terminating the contract.” (Id. at pp. 738–739.) In the context of successive breaches of a continuing obligation, the injured party “‘was not bound to treat the contract as abandoned on the first breach of it, or on any particular breach, but had his election to still rely on it, and the statute of limitations could not begin to run until it had made its election.’” (Id. at p. 739.)

Applied to Mullins, the rule produced reversal. Mullins alleged that the termination of his employment was the breach; any possible earlier breach through the alleged creation of intolerable conditions “did not rescind the contract, for Mullins continued to perform (or, for certain periods, to take temporary leave authorized by the employer while hoping for an amelioration of his employment situation) until he resigned.” (Mullins, supra, 15 Cal.4th at p. 739.) “Under these circumstances, he had an election of remedies, and the statute of limitations did not begin to run until he made that election by resigning.” (Ibid.)

The court answered Rockwell’s “employee control” objection. Rockwell warned that running the period from resignation lets the employee control the limitations clock, leaving employers ignorant of impending suits until memories fade. (Mullins, supra, 15 Cal.4th at p. 739.) The court rejected the concern as “misplaced.” (Id. at p. 740.) The essence of constructive discharge “is that it is a termination of employment secured by the employer through indirect means,” so the employer “remains in control in that he or she coerces the employee’s resignation”; an employer who creates or knows of intolerable conditions “is in the same position to be prepared for a possible lawsuit” as one who gives advance notice of termination. (Ibid.) Moreover, the intolerable condition “normally continues up until the time of resignation,” so the litigation concerns recent circumstances rather than a long-ago event. (Ibid.) Nor could employees delay indefinitely: the longer an employee delays resignation, the harder it becomes to prove the conditions were objectively intolerable or that they caused the resignation. (Ibid.) And an employer “who has created or permitted the persistence of known intolerable conditions, should not be able to complain of delay when the employee retains employment in the hope that conditions will improve or that informal conciliation may succeed.” (Ibid.) On this point the court disapproved Regents of University of California v. Superior Court, supra, 33 Cal.App.4th 1710, to the extent inconsistent. (Ibid.)

The court rejected the “appreciable harm” theory. Rockwell argued the period should run from the date the employee is subjected to intolerable conditions, because appreciable harm is suffered then — placing accrual, at the latest, on Mullins’s last day before his second medical leave. (Mullins, supra, 15 Cal.4th at p. 740.) But “[t]he statute of limitations in a contract action … does not run before the breach of contract in question has occurred,” and the breach alleged is the termination. (Id. at pp. 740–741.) Were the creation of intolerable conditions itself a breach, the employee would still have an election — the contract being ongoing — to ignore it and continue performing in the hope of cure; Mullins indeed alleged he hoped his situation would be ameliorated during his medical leaves. (Id. at p. 741.) The court declined to “establish a statute of limitations rule that forces employees to resort to litigation at the earliest moment,” reasoning that compelling suit “as soon as intolerable conditions begin would interfere with informal conciliation in the workplace” and would prompt premature resignations. (Ibid.) A termination-date rule also “has the virtue of certainty,” whereas Rockwell’s proposal would make it “difficult to establish with certainty the event or events that set the statute of limitations running.” (Ibid.)

The court declined to follow the federal authority. Rockwell relied on Davidson v. Indiana-American Water Works (7th Cir. 1992) 953 F.2d 1058 and Lempres v. CBS Inc. (D.D.C. 1996) 916 F.Supp. 15, which measured limitations from the adverse personnel action rather than actual termination, drawing on Delaware State College v. Ricks (1980) 449 U.S. 250. (Mullins, supra, 15 Cal.4th at pp. 741–742.) As in Romano, the court declined to import the Ricks rule, observing that Davidson and Lempres turned on statutory schemes “defining the act of discrimination as a wrong” and specifying that act as the date from which the period runs. (Id. at pp. 742–743.) The court saw “no reason to conclude the federal rule applicable to federal statutory claims should be adopted with respect to a state common law contract action based upon a termination of employment,” particularly because that rule “appears inconsistent with settled law regarding the statute of limitations applicable to contract actions.” (Id. at p. 743.)

The court synthesized its conclusion in a three-part rationale. Because (1) constructive discharge is an employer-directed termination of employment, (2) termination normally is the breach alleged, and (3) the employee may elect to overlook earlier adverse actions of the employer in the hope of conciliation, the court concluded that “the statute of limitations does not begin to run until actual termination,” and that an employee “is not barred from bringing his or her claim on the basis of the statute of limitations as long as the claim is brought in a timely manner after the actual termination of employment.” (Mullins, supra, 15 Cal.4th at p. 743.) The judgment of the Court of Appeal was reversed to the extent it barred plaintiff’s contract causes of action on statute of limitations grounds. (Ibid.)

Significance

Decided May 29, 1997, Mullins is the Supreme Court’s authoritative statement on when a constructive-discharge cause of action accrues in a contract action: the limitations clock starts at actual termination — the employee’s resignation — not at the onset of, or the employee’s knowledge of, the intolerable conditions. By treating the accrual question as a straightforward application of contract-limitations principles drawn from Romano, the court rejected the notice-based and “appreciable harm” theories that the trial court and Court of Appeal had embraced, and disapproved Regents to the extent it ran the period from the date of the adverse employment decision. (Mullins, supra, 15 Cal.4th at pp. 736, 740.)

The decision’s reach extends beyond the contract setting. The court framed its rule broadly — “the statute of limitations runs from the date of actual termination of employment in any contract action for wrongful termination, whether or not constructive discharge is alleged” — and harmonized it with Romano‘s parallel holding that, under FEHA, the limitations period for a discharge does not begin “prior to discharge.” (Mullins, supra, 15 Cal.4th at pp. 733, 742.) For practitioners litigating constructive-discharge claims, whether sounding in contract or under FEHA, Mullins supplies both the substantive constructive-discharge standard inherited from Turner and the accrual rule that governs timeliness. The court’s emphasis on protecting “informal conciliation in the workplace” also reframes the limitations defense as one that cannot be used to punish an employee for staying on in hope of improvement. (Id. at p. 741.)

Key quotes

“[T]he statute of limitations runs from the date of actual termination of employment in any contract action for wrongful termination, whether or not constructive discharge is alleged.” (Mullins, supra, 15 Cal.4th at p. 733.)

“Constructive discharge occurs only when the employer coerces the employee’s resignation, either by creating working conditions that are intolerable under an objective standard, or by failing to remedy objectively intolerable working conditions that actually are known to the employer.” (Id. at p. 737.)

“Any possible earlier breach of contract committed through the alleged creation of intolerable working conditions did not rescind the contract, for Mullins continued to perform … until he resigned. Under these circumstances, he had an election of remedies, and the statute of limitations did not begin to run until he made that election by resigning.” (Id. at p. 739.)

“[T]he employer, who has created or permitted the persistence of known intolerable conditions, should not be able to complain of delay when the employee retains employment in the hope that conditions will improve or that informal conciliation may succeed.” (Id. at p. 740.)

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Practice pointer

Open questions

The court was careful to decide only the timeliness question. “Like the Court of Appeal, we need not and do not decide whether the facts upon which Mullins’s claim is based are sufficient to support a contract action premised upon a claim of constructive discharge.” (Mullins, supra, 15 Cal.4th at p. 737.) The trial court had separately declared that “a demotion will not support a constructive discharge claim” (id. at p. 736), but the Supreme Court did not reach that proposition. Whether a demotion accompanied by stripped responsibilities, exclusion from meetings, and a looming pay reduction can meet the severe, objectively intolerable threshold of Turner therefore remained open after Mullins, to be resolved on remand or in later cases.

A second reserved question concerns the limits of the election-of-remedies rationale. The court grounded deferral of accrual on the employee’s continued performance — or authorized leave — “while hoping for an amelioration of his employment situation.” (Mullins, supra, 15 Cal.4th at p. 739.) The opinion did not address how the rule applies where an employee neither continues to perform nor formally resigns for an extended period, or where the employer contends the employment relationship effectively ended at some intermediate point. The court answered the indefinite-delay concern by noting the practical evidentiary burdens that grow with delay (id. at p. 740), but it announced no outer temporal limit, leaving the boundaries of permissible delay between intolerable conditions and resignation for development in future litigation.