Pugh v. See’s Candies, Inc.
An agreement to discharge only for good cause may be implied from the totality of the employment relationship — longevity, promotions, assurances, and the employer’s own practices — rebutting the at-will presumption and shifting to the employer the burden of explaining the termination.
Pugh v. See’s Candies, Inc. (1981) 116 Cal.App.3d 311
Wrongful Termination
Implied Contract
Good Cause
At-Will Employment
Reversed
In brief. The leading California decision recognizing that an implied-in-fact promise to terminate only for good cause can be inferred from the parties’ entire course of dealing. In assessing such a promise, “it is appropriate to consider the totality of the parties’ relationship[;] [a]greement may be ‘shown by the acts and conduct of the parties, interpreted in the light of the subject matter and of the surrounding circumstances.’” (Pugh v. See’s Candies, Inc. (1981) 116 Cal.App.3d 311, 329.) Relevant factors include “the personnel policies or practices of the employer, the employee’s longevity of service, actions or communications by the employer reflecting assurances of continued employment, and the practices of the industry.” (Id. at p. 327.)
Facts
Wayne Pugh began working at See’s Candies in January 1941, “washing pots and pans.” (116 Cal.App.3d at pp. 315, 317.) Over 32 years he rose “up the corporate ladder from dishwasher” to vice president in charge of production and a member of the board of directors. (Id. at p. 315.) He received steady promotions and commendations and was never directly criticized for his work; the company’s 1972 Christmas season “had been the most successful in See’s history,” the 1973 Valentine’s holiday “set a new sales record,” and the March 1973 newsletter “carried congratulations on the increased production” with two pictures of Pugh. (Id. at pp. 316–317.) When Pugh was first hired, then-president Ed Peck “frequently told him: ‘if you are loyal to [See’s] and do a good job, your future is secure,’” and the See family presidents “had a practice of not terminating administrative personnel except for good cause.” (Id. at p. 317.) Yet in 1973, after a trip with president Charles Huggins, Pugh was summoned to Huggins’s office and told, “‘I have decided your services are no longer required by See’s Candies. Read this and sign it.’” (Id. at p. 316.) The termination letter “contained no reason”; when Pugh asked why, he was told only to “‘look deep within [himself]’” and that “‘[t]hings were said by people in the trade that have come back to us.’” (Id. at pp. 316–317.) Pugh sued for wrongful discharge, alleging breach of an implied contract and termination for reasons offending public policy, and joined the candymakers’ union as a co-defendant for allegedly inducing his firing. (Id. at pp. 314–315.)
Procedural history
The case was tried to a jury, and at the close of Pugh’s case-in-chief the trial court granted the defendants’ motions for nonsuit. (116 Cal.App.3d at pp. 314–315.) The Court of Appeal reversed as to the breach-of-contract theory against the employer and as to the conspiracy theory against the union, while affirming the rejection of the public-policy theory. (Id. at pp. 315, 330.) Because the appeal arose from a nonsuit, the court took Pugh’s evidence as true and drew every legitimate inference in his favor. (Id. at pp. 329–330.)
Issue
May an employee rebut the at-will presumption and establish that the employer could terminate only for good cause by proving an implied-in-fact agreement inferred from the circumstances of the employment relationship — and, if so, who bears the burden of explaining the reason for the discharge? (116 Cal.App.3d at pp. 321–329.)
Holding
Yes. Employment contracts “are terminable only for good cause if either of two conditions exist[s]: the contract was supported by consideration independent of the services to be performed . . . or the parties agreed, expressly or impliedly, that the employee could be terminated only for good cause.” (116 Cal.App.3d at p. 326.) The existence of an implied good-cause promise is determined from “the totality of the parties’ relationship.” (Id. at p. 329.) Because Pugh’s evidence — “the duration of [his] employment, the commendations and promotions he received, the apparent lack of any direct criticism of his work, the assurances he was given . . . and the employer’s acknowledged policies” — could support a finding of such a promise, the nonsuit was error, and the burden then shifted to the employer to come forward with its reason. (Id. at pp. 327, 329–330.) Reversed. (Id. at p. 330.)
Reasoning
1. The at-will rule and its two limits. The court began with the statutory at-will default (Lab. Code, § 2922) but recognized “[t]wo relevant limiting principles” — one rooted in public policy, the other in contract. (116 Cal.App.3d at pp. 321–322.) The first “precludes dismissal ‘when an employer’s discharge of an employee violates fundamental principles of public policy’” (quoting Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 170); the second applies “when the discharge is contrary to the terms of the agreement, express or implied.” (Id. at p. 322.) Pugh invoked both. (Ibid.)
2. Two routes to good-cause protection. The court explained that a good-cause limitation may arise either from “independent consideration” — “consideration other than the services to be rendered” — or from an implied agreement. (116 Cal.App.3d at pp. 322–326.) Rejecting any rigid demand for independent consideration as “contrary to the general contract principle that courts should not inquire into the adequacy of consideration,” the court reasoned there is “no analytical reason why an employee’s promise to render services . . . cannot support [an employer’s] promise” of job security. (Id. at pp. 322–324.) The decisive path here was the implied agreement. (Id. at p. 326.)
3. The totality-of-the-circumstances test. Turning to the implied contract, the court held the promise need not be express: an implied agreement “may be shown by the acts and conduct of the parties, interpreted in the light of the subject matter and of the surrounding circumstances.” (116 Cal.App.3d at pp. 324, 329.) Courts must “consider the totality of the parties’ relationship,” and the relevant evidence includes “the personnel policies or practices of the employer, the employee’s longevity of service, actions or communications by the employer reflecting assurances of continued employment, and the practices of the industry.” (Id. at pp. 327, 329.)
4. Pugh’s evidence sufficed to reach a jury. Measured against that standard, Pugh’s 32 years of service, his rise from dishwasher to vice president and director, the steady promotions and commendations, the absence of criticism, the explicit assurances that loyalty would make his “future . . . secure,” and the company’s practice of not terminating administrative personnel except for good cause together permitted “the jury [to] determine the existence of . . . an implied promise.” (116 Cal.App.3d at pp. 327, 329–330.) Granting nonsuit therefore took a triable question from the jury. (Ibid.)
5. A burden-shifting mechanism. The court articulated a procedural rule that would influence wrongful-termination practice for decades: once “the plaintiff demonstrates a prima facie case of wrongful termination in violation of his contract . . . [t]he burden of coming forward with evidence as to the reason for [the] termination now shifts to the employer.” (116 Cal.App.3d at p. 329.) The employee “may [then] attack the employer’s offered explanation, either on the ground that it is pretextual (and that the real reason is one prohibited by contract or public policy)[] or on the ground that it is insufficient” to constitute good cause. (Id. at pp. 329–330.) Because Pugh had shown long, commended service and an unexplained discharge, See’s was obliged to come forward with its reason. (Ibid.)
6. The public-policy theory rejected. The court affirmed the nonsuit on Pugh’s three Tameny public-policy contentions — that he was fired for refusing to negotiate a union agreement that would violate antitrust law, for refusing to negotiate one that violated the policy against sex discrimination, and for honoring a director’s duty of inquiry. (116 Cal.App.3d at pp. 322–324.) Although Tameny would bar a discharge for refusing to participate in an antitrust violation, Pugh’s evidence did not establish that he in fact refused to negotiate, that the contemplated terms were unlawful, or that the earlier agreement was illegal; the factual predicate was “missing.” (Ibid.) The contract theory, not the public-policy theory, was the viable path. (Ibid.)
7. The union’s conspiracy liability. The court also reversed the nonsuit as to the union. (116 Cal.App.3d at pp. 330–331.) “A union is privileged to induce a breach of contract between employer and employee in pursuit of a legitimate labor objective,” but Pugh’s evidence permitted “an inference that he was terminated in response to the union’s insistence” for reasons outside any privileged labor purpose — a question for the jury, not for nonsuit. (Ibid.)
Significance
Pugh is the cornerstone of California’s implied-contract exception to at-will employment. Its “totality of the circumstances” test for inferring an implied good-cause promise framed a generation of wrongful-termination litigation and was both embraced and disciplined by the Supreme Court. Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654 endorsed the implied-contract theory while confining tort recovery to contract, and Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317 reaffirmed it but cautioned that longevity and good performance alone do not create a good-cause contract and that an express at-will agreement generally controls. Cotran v. Rollins Hudig Hall International, Inc. (1998) 17 Cal.4th 93 later supplied the content of “good cause” once an implied contract is found, and Pugh’s burden-shift presaged the structure courts now use to test the employer’s stated reason. On remand and retrial, the case returned as Pugh II (1988) 203 Cal.App.3d 743, frequently cited alongside Pugh I. Pugh remains the starting point whenever an employee argues that the employer’s conduct and assurances displaced the at-will default. See the Review’s coverage of the wrongful-termination line.
Key quotes
“[I]t is appropriate to consider the totality of the parties’ relationship: Agreement may be ‘shown by the acts and conduct of the parties, interpreted in the light of the subject matter and of the surrounding circumstances.’” (Pugh, supra, 116 Cal.App.3d at p. 329.)
Relevant factors include “the personnel policies or practices of the employer, the employee’s longevity of service, actions or communications by the employer reflecting assurances of continued employment, and the practices of the industry in which the employee is engaged.” (Id. at p. 327.)
Once a prima facie case is shown, “[t]he burden of coming forward with evidence as to the reason for [the] termination now shifts to the employer.” (Id. at p. 329.)
Read the full opinion (California Court of Appeal — full text) →
Practice pointer
Marshal the whole relationship. To rebut at-will status under Pugh, build the totality: years of service, promotions and raises, positive reviews, oral or written assurances of job security, and the employer’s actual practice of terminating only for cause. Use the burden-shift — an unexplained discharge after long, commended service forces the employer to come forward with its reason, which the plaintiff can then attack as pretextual or insufficient. But heed Guz: longevity and good performance alone are not enough, and a signed, unambiguous at-will agreement or disclaimer will usually defeat the implied-contract theory — so attack or distinguish any such writing. Once an implied good-cause contract is established, Cotran governs what “good cause” requires (a fair investigation and a reasonable, honest belief). Plead the public-policy tort separately where a Tameny theory is supported, since (as in Pugh itself) the contract claim and the public-policy claim can diverge.
Open questions
How much weight longevity and assurances carry against an express at-will disclaimer — the tension Guz later sharpened — remains the central battleground in implied-contract cases. Courts continue to litigate which employer “policies and practices” suffice, how oral assurances are proven, and how the Pugh burden-shift interacts with the at-will presumption codified in Labor Code section 2922 and with summary-judgment practice.