Ruling Lets Employers Rescind Their Promises

Employees can force companies to abide by policies set down in employee handbooks, but employers are free to break promises to workers by changing the policies, the California Supreme Court decided Thursday.

The 4-3 ruling, in a case involving a rescinded job security promise, will affect most private employers in California and probably spur many to reexamine their employee handbooks.

“This decision tells employers they can look at all their policies, and if they have some they think are a little bit too generous, they can take away the rights they have previously granted to employees,” said William Quackenbush, an appellate employment lawyer.

At the same time, the decision reaffirms that employers can be held accountable for violating workplace policies that are in place.

“There is a message for employees,” Quackenbush said. “Take a look at those policies if you get terminated or something else happens. Those policies may provide valuable rights.”

The decision, Asmus v. Pacific Bell (S074296), stemmed from a lawsuit pending in the U.S. 9th Circuit Court of Appeals.

The suit was brought by Pacific Bell workers who had been promised job security in managerial positions under a policy established in 1986. Pacific Bell withdrew that policy in 1991.

Some managers were laid off, others took early retirement packages and others stayed on with the company but sued for alleged breach of contract, fraud and other violations.

Pacific Bell’s policy said that all managers who met business expectations would have job security, even if their present jobs were eliminated. In that case, managers were to be transferred to other managerial positions and retrained if necessary.

“This policy will be maintained so long as there is no change that will materially affect Pacific Bell’s business plan achievement,” the company had promised.

The 9th Circuit asked the California Supreme Court to determine whether, under California law, Pacific Bell could rescind its policy although there was no change that justified it.

Justice Ming W. Chin, writing for the court majority, said yes.

“An employer may unilaterally terminate a policy that contains a specified condition, if the condition is one of indefinite duration. . . . , “ Chin wrote. The employer can rescind the policy if it does so after a reasonable time--the policy should have been in place for a while--notifies the employee and does not interfere with the workers’ vested benefits, the court said.

Chief Justice Ronald M. George, leading the dissenters, complained that it was unfair and unlawful for employers to promise workers job security during good economic times and withdraw that promise during economic downturns.

George, joined by Justices Stanley Mosk and Joyce L. Kennard, said companies make such promises “to induce employees not to resign in good economic times, when there is a shortage of labor and a high demand for qualified employees.”

Withdrawing the policy when it becomes financially disadvantageous during economic slowdowns is unfair because those are the times “when the employee would most expect to be able to rely upon and benefit from the employer’s promise,” George wrote.

“Not only is the result entirely inconsistent with fundamental tenets of contract law,” he added, “but it also condones and encourages manipulative, oppressive and unfair treatment of employees.”

Employers’ lawyer Nancy Abell called the decision a “very significant victory for employers.”

“The court is recognizing the reality which businesses face,” said Abell, lawyer for the California Employment Law Council, which represents hundreds of employers. “Conditions change and employers have to have the right to change contractional provisions that they unilaterally have established.”

Pacific Bell, in a prepared statement, said the decision shows that the phone company acted appropriately.

Justice Kathryn Mickle Werdegar recused herself from the decision. Court of Appeal Justice Judith Lynette Haller, filling in for Werdegar, provided the fourth vote needed for a majority.

The Asmus case now returns to the 9th Circuit for further proceedings.