Understanding Breach of Employment Contract Claims in California: Actual and Constructive Discharge
Introduction
California law allows employees to claim breach of contract even if they did not have a written agreement for long-term employment. Courts look to all facts—policies, promises, conduct—to decide if an employer agreed to limit the right to terminate.
What Is an Employment Contract Without a Specified Term?
An employment relationship may be created by a written contract, an oral agreement, or by conduct (such as company handbooks or long-term practices). By default, these agreements are considered “at-will”—meaning either party can end employment at any time (Lab. Code § 2922).
How Can the At-Will Presumption Be Changed?
Employers sometimes make promises, in writing or through actions, that limit termination—such as agreeing only to fire “for good cause.” If such a promise is proven, employment is no longer considered “at-will” (Foley v. Interactive Data Corp., 47 Cal.3d 654, 680; Guz v. Bechtel Nat’l, Inc., 24 Cal.4th 317, 336–37).
What Must an Employee Prove to Succeed?
To win a breach of contract claim, the employee must show:
Employment relationship: There was a contract (written, oral, implied).
Limitation on discharge: The employer promised termination would occur only under certain conditions (such as for good cause).
Substantial performance: The employee did the job as agreed, or performance was excused.
Actual or constructive discharge: The employer fired the employee or forced a resignation by making work unbearable.
Harm: The employee experienced damages as a result.
Connection: The employer’s breach of contract was a substantial factor in causing the employee’s harm.
(Kane v. Sklar, 122 Cal.App.2d 480, 482.)
What Is Constructive Discharge?
Constructive discharge occurs when working conditions are so intolerable that a reasonable employee would feel forced to quit. The law treats this as if the employer directly fired the employee (Turner v. Anheuser-Busch, Inc., 7 Cal.4th 1238, 1244–45, 1251; Valdez v. City of Los Angeles, 231 Cal.App.3d 1043, 1056). Usually, this means a pattern of serious mistreatment, not minor or isolated incidents (Brome v. California Highway Patrol, 44 Cal.App.5th 786, 801–02).
What Counts as "Good Cause" for Termination?
If the contract says termination must be “for good cause,” this means a fair and honest reason. Arbitrary, trivial, or pretextual reasons do not qualify. Employers must balance business needs with fair treatment of employees (Walker v. Blue Cross of California, 4 Cal.App.4th 985, 994).
Can Demotions or Other Actions Count as Breach?
California law allows breach of contract claims for other adverse actions—like demotions or pay cuts—if they violate an express or implied contract (Scott v. Pac. Gas & Elec. Co., 11 Cal.4th 454, 473–74).
How Are Damages Calculated?
The employee may recover lost salary for the agreed service period, minus what they earned or could reasonably have earned elsewhere after termination (Parker v. Twentieth Century-Fox Film Corp., 3 Cal.3d 176, 181).
What Are the Practical Steps for Employers?
Clarify employment status and promises in writing and policies.
Avoid making assurances of job security unless truly intended.
Treat employees fairly and document the reasons for any termination or discipline.
Review company practices regularly and consult legal counsel (e.g. myself) for policy updates.
Citations
Lab. Code § 2922; Civ. Code § 1439; Guz v. Bechtel Nat’l, Inc., 24 Cal.4th 317 (2000); Pugh v. See’s Candies, Inc., 116 Cal.App.3d 311 (1981); Foley v. Interactive Data Corp., 47 Cal.3d 654 (1988); Turner v. Anheuser-Busch, Inc., 7 Cal.4th 1238 (1994); Scott v. Pac. Gas & Elec. Co., 11 Cal.4th 454 (1995); Walker v. Blue Cross of Cal., 4 Cal.App.4th 985 (1992); Valdez v. City of Los Angeles, 231 Cal.App.3d 1043 (1991); Brome v. California Highway Patrol, 44 Cal.App.5th 786 (2020); Kane v. Sklar, 122 Cal.App.2d 480 (1954); Parker v. Twentieth Century-Fox Film Corp., 3 Cal.3d 176 (1970); CACI No. 2401.
