Available literature demonstrates that many employees and courts in the United States have attempted to use the implied contract doctrine to redress and deter unfair employee terminations from the workplace by imposing norms of fairness on employers (Fineman, 2008). This paper aims to illuminate the implied contract doctrine by identifying three criteria that relate to the doctrine and describing how the criteria apply to McLain versus Great American Insurance case, which was tried in California in the mid-1980s.
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Implied contracts are mutual obligations arising from relationships between parties (e.g., employer and employee), with available labor scholarship showing that these obligations are often triggered by a multiplicity of issues, including duration of a relationship and patterns of interaction over time (Carrigan, 2009). This paper uses three criteria of the implied contract doctrine, namely (1) making a specific promise to the employee, (2) the employer’s entire course of conduct, and (3) exhaustive listing of dischargeable offenses in a handbook (Walsh, 2013). The author further notes that an implied contract case may be valid if a specific promise was made to the employee, if the employer’s entire course of conduct (e.g., policies, practices, statements, industry practices, employment tenure) is consistent with the promise made to the employee, and if the offense for termination is not listed in a handbook containing comprehensive listing of dischargeable offenses. In justifying the selected criteria, it is evident that the issues listed above are often present when both the employer and employee engage in mutual obligations that give rise to unstated and highly subjective understandings between the parties (Carrigan, 2009).
In the McLain versus Great American Insurance case, comprehensively cited in Fineman (2008), Robert McLain sued his employer (Great American Insurance) “for wrongful termination in violation of an implied contract” (p. 346). The employee had been terminated from employment in 1985 due to distributing a confidential memo to colleagues in what the company labeled as insubordination. The employee went to court and accused the company of breaching an implied contract that he had previously signed with the company insinuating that he could only be terminated from service due to a just cause (Justia US Law, n.d.).
Using the three criteria mentioned above, it can be argued that the employment of McLain was contractually binding, and hence, the employee was not terminated due to a good cause. First, a promise had been made to the employee that he would transition from temporary basis to permanent employment upon completion of his initial probation period, not mentioning that the company had promised the employee long-term career advancement opportunities (Fineman, 2008). Second, the employer’s human resource practices and policies demonstrated that people were employed on permanent terms after completing their probation period and that the company provided room for long-term career advancement opportunities. Consequently, it can be argued that the course of conduct demonstrated by Great American Insurance Company was consistent with the promise made to McLain. Finally, the company’s “manual provided for progressive discipline before employees could be terminated for minor offenses, and specifically listed the more serious offenses for which termination was an appropriate initial response” (Fineman, 2008, p. 347). The offense for which the company decided to terminate the services of McLain was considered minor and was not listed in the company’s personnel manual.
Overall, based on the at-will rule, the discussed case could likely have been thrown out due to the rule’s presumption that “the employment relationship is at the independent will of both the employer and employee, and is therefore terminable by either at any time for any reason” (Fineman, 2008, pp. 346-347). However, although an employment application form presented in court by the company demonstrated the employee’s agreement that his employment and benefits could be terminated at any time for any reason or no reason at all, both the jury and Court of Appeal relied on the implied doctrine contract and the criteria discussed in this paper to rule (and affirm) that the employee was terminated without a just cause.
Carrigan, F. (2009). The implications of implied terms in law in the common law contract of employment. Oxford University Commonwealth Law Journal, 9(1), 73-100.
Fineman, J. (2008). The inevitable demise of the implied employment contract. Berkeley Journal of Employment & Labor Law, 29(2), 345-404.
Justia US Law. (n.d.). McLain v. Great American Ins. Companies (1989). 208 Cal. App. 3d 1476 [256 Cal. Rptr. 863]. Web.
Walsh, D.J. Employment law for human resource practice (4th ed.). Stamford, CT: Thomson Learning.