Tameny v. Atlantic Richfield Co.

Facts

Gordon Tameny was hired by Atlantic Richfield Company (Arco) as a relief clerk in 1960, earned “regular advancements, merit increases and commendatory evaluations,” and by 1966 was promoted to retail sales representative, managing relations with independent service-station franchisees in his Bakersfield territory. (27 Cal.3d at p. 170.) Beginning in the early 1970s, the complaint alleged, Arco and its managers engaged in a combination “for the purpose of reducing, controlling, stabilizing, fixing, and pegging the retail gasoline prices” of its franchisees — conduct said to violate the Sherman Antitrust Act, the Cartwright Act, and a federal consent decree. (Id. at pp. 170–171.) Arco pressured Tameny to “threaten [and] cajole” dealers into cutting prices to Arco’s specified levels. (Id. at p. 171.) When he “refused to yield to his employer’s pressure to engage in such tactics,” he was fired in 1975; although Arco’s records cited “incompetence” and “unsatisfactory performance,” the complaint alleged the “sole reason” for the discharge was his refusal to commit the illegal acts. (Ibid.)

Procedural history

Tameny pleaded tort theories (wrongful discharge, breach of the implied covenant, and interference with contract), a breach-of-contract claim, and a Cartwright Act treble-damages claim. (27 Cal.3d at p. 171.) The trial court sustained Arco’s demurrer to all counts except breach of contract; Tameny dismissed the contract count, and the court entered judgment for Arco. (Ibid.) The Court of Appeal affirmed, and the Supreme Court granted a hearing, reversing as to the tort cause of action for wrongful discharge. (Id. at pp. 171–172, 179.)

Issue

When an employer discharges an at-will employee for refusing to commit an illegal act, does the employee’s remedy sound only in contract, or may the employee maintain a tort action for wrongful discharge — with its broader compensatory and punitive remedies? (27 Cal.3d at pp. 169–170, 172.)

Holding

Reasoning

1. At-will is the rule, but not an absolute. The Court began with the baseline codified in Labor Code section 2922: “[a]n employment, having no specified term, may be terminated at the will of either party.” (27 Cal.3d at p. 172 & fn. 6.) But over recent decades, courts “in California and throughout the United States have established the rule that under both common law and the statute an employer does not enjoy an absolute or totally unfettered right to discharge even an at-will employee.” (Id. at p. 172.) Where “a discharge clearly violated an express statutory objective or undermined a firmly established principle of public policy,” the employer’s broad authority “may be limited by statute . . . or by considerations of public policy.” (Ibid., quoting Petermann v. International Brotherhood of Teamsters (1959) 174 Cal.App.2d 184, 188.)

2. Petermann and the public-policy limit. The Court grounded its rule in Petermann, which had barred the discharge of an employee for refusing to commit perjury before a legislative committee. (27 Cal.3d at pp. 172–174.) Quoting Petermann at length, the Court emphasized: “It would be obnoxious to the interests of the state and contrary to public policy and sound morality to allow an employer to discharge any employee . . . on the ground that the employee declined to commit perjury, an act specifically enjoined by statute. . . . To hold that one’s continued employment could be made contingent upon his commission of a felonious act at the instance of his employer would be to encourage criminal conduct upon the part of both the employee and employer and serve to contaminate the honest administration of public affairs.” (Id. at p. 173, quoting Petermann, 174 Cal.App.2d at pp. 188–189.) The present case “closely parallels Petermann”: the employer instructed the employee to commit a criminal offense, and he was fired for refusing. (Id. at p. 174.)

3. Tort or contract — the dispositive question. Arco conceded the discharge was unlawful but argued the remedy “sounds only in contract and not in tort.” (27 Cal.3d at p. 174.) The Court rejected the premise that a contractual relationship confines the injured party to contract remedies: “California decisions . . . have long recognized that a wrongful act committed in the course of a contractual relationship may afford both tort and contractual relief, and in such circumstances the existence of the contractual relationship will not bar the injured party from pursuing redress in tort.” (Id. at pp. 174–175.) Drawing on the venerable Sloane v. Southern Cal. Ry. Co. (1896) 111 Cal. 668 — the wrongfully ejected railroad passenger — the Court reaffirmed the line: “if the cause of action arises from a breach of a promise set forth in the contract, the action is ex contractu, but if it arises from a breach of duty growing out of the contract it is ex delicto.” (Id. at p. 175, quoting Eads v. Marks (1952) 39 Cal.2d 807, 811.)

4. The duty is imposed by law, not bargained for. Applying that distinction, the Court held the wrongful-discharge duty arises by operation of law: the employer’s obligation “does not depend upon any express or implied ‘“[promises] set forth in the [employment] contract,”’ but rather reflects a duty imposed by law upon all employers in order to implement the fundamental public policies embodied in the state’s penal statutes.” (27 Cal.3d at p. 176.) Quoting Prosser, the Court explained that tort “‘actions are created to protect the interest in freedom from various kinds of harm[,] [t]he duties of conduct which give rise to them [being] imposed by law, and . . . based primarily upon social policy, and not necessarily upon the will or intention of the parties.’” (Ibid.) Thus “a wrongful discharge suit exhibits the classic elements of a tort cause of action.” (Ibid.)

5. A broad and growing common-law consensus. The Court marshaled California and out-of-state authority recognizing the tort — employees fired for serving as election officials (Kouff), for union activity (Glenn, Wetherton, Montalvo), for jury service (Nees v. Hocks), for filing workers’ compensation claims (Frampton), and for urging compliance with consumer-protection laws (Harless). (27 Cal.3d at pp. 176–178.) It quoted Glenn’s warning that statutory protections would be “a hollow protection indeed” if employers could discharge workers “for that very reason.” (Id. at p. 177.)

6. The employer is not “sovereign of the job.” The Court framed the holding in constitutional-of-the-workplace terms: recalling that “‘[the] days when a servant was practically the slave of his master have long since passed,’” it concluded that “the employer is not so absolute a sovereign of the job that there are not limits to his prerogative. One such limit at least is the present case. The employer cannot condition employment upon required participation in unlawful conduct by the employee.” (27 Cal.3d at pp. 177–178.)

7. The concurrence and the dissent. Justice Manuel concurred in the judgment but would have rested the cause of action on a “clear statutory source” — Labor Code section 2856 — rather than “search further for it among the vague and ill-defined dictates of ‘fundamental public policy.’” (27 Cal.3d at p. 179 (conc. opn. of Manuel, J.).) Justice Clark dissented, objecting that “[t]he role of this court does not include overseeing — then overruling — legislatively declared policy,” a separation-of-powers concern about judicial creation of the tort. (Id. at p. 179 et seq. (dis. opn. of Clark, J.).)

Significance

Tameny is the headwater of California wrongful-termination law — it created the public-policy tort and, with it, the availability of tort damages (including punitive damages) for retaliatory discharge. Its central tension, identified in Justice Manuel’s concurrence, drove the doctrine’s later development: how to anchor “fundamental public policy” in a determinate source. The Court answered in Gantt v. Sentry Insurance (1992) 1 Cal.4th 1083, requiring the policy to be “tethered” to a constitutional or statutory provision, and broadened the permissible sources to include regulations in Green v. Ralee Engineering Co. (1998) 19 Cal.4th 66. Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654 cabined the tort to policies that “inure[] to the benefit of the public” rather than private interests, and Stevenson v. Superior Court (1997) 16 Cal.4th 880 confirmed it reaches statutory antidiscrimination policy. Every California public-policy wrongful-discharge claim traces to Tameny. See the Review’s coverage of the wrongful-termination line.

Key quotes

“[A]n employer’s authority over its employee does not include the right to demand that the employee commit a criminal act to further its interests . . . . An employer engaging in such conduct violates a basic duty imposed by law upon all employers.” (Tameny, supra, 27 Cal.3d at p. 178.)

“[A]n employee’s action for wrongful discharge is ex delicto and subjects an employer to tort liability. . . . [The obligation] reflects a duty imposed by law upon all employers in order to implement the fundamental public policies embodied in the state’s penal statutes.” (Id. at p. 176.)

“[T]he employer is not so absolute a sovereign of the job that there are not limits to his prerogative.” (Id. at p. 178.)

Read the full opinion (California Supreme Court — full text) →

Practice pointer

Open questions

Tameny left the outer boundary of “fundamental public policy” undefined — the question its progeny (Gantt, Foley, Green v. Ralee, Stevenson) have continued to refine. How far the tort reaches beyond the core categories (e.g., to internal complaints, to policies expressed only in regulations, or to conduct touching only private interests), and how it interacts with comprehensive statutory schemes that supply their own remedies, remain recurring subjects of litigation.