An Ambiguous Employment Promise Can Still Support a Lawsuit

California’s Sixth Appellate District recently examined the question of just how vague an employment promise can be to be enforceable as a contract and to serve as the basis for a claim of misrepresentation/concealment.  In Moncada v. West Coast Quartz (Cal.App.6th Dist., Nov. 2013), plaintiffs worked for West Coast Quartz Corporation (West Coast).  Defendants were the owners and sole shareholders of West Coast.  Defendants were preparing to sell West Coast, and wanted plaintiffs to continue to work for the company until the sale was complete.  To accomplish that end, defendants repeatedly promised plaintiffs that if they continued to work for West Coast until the sale, they would be paid a bonus from the sale proceeds that would be sufficient for them to retire.  Plaintiffs remained at West Coast for five years following defendants’ initial promise of the retirement bonus, rejecting job offers from other companies, and opportunities to move out of the area.  However, when defendants sold West Coast in 2009 for approximately $30 million, they did not pay plaintiffs the promised bonus.

Plaintiffs sued, alleging that they had been the victims of promissory fraud (a promise made without the intention to perform), breach of contract, promissory estoppel, intentional infliction of emotional distress, and negligent misrepresentation, among other claims.  Defendants demurred to the complaint, arguing that even if the factual allegations are considered true they did not assert valid legal claims.

The case highlights two areas important to defendants at the demurrer stage of litigation: whether fraud allegations are pleaded with sufficient specificity, and whether, in a breach of contract action, the terms of the contract as stated in the complaint provide a basis for determining the existence of a breach and for giving an appropriate remedy.

Regarding the fraud cause of action, the court held to existing standards that every element of a fraud cause of action must be specifically pleaded, and that the policy of liberal construction of pleadings will not be invoked to sustain a defective complaint.  But then relying on the relatively broad standards for the actual elements of a claim for fraud (for example, “the defendant must have concealed or suppressed a material fact;” and “as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage”) the court found that plaintiff’s general allegations were sufficient. Notably, the court did not require plaintiff to state the amount of the damage allegedly sustained, which was the key ambiguity in the case.

Regarding the breach of contract cause of action, the court distinguished the seminal case Ladas v. California State Automobile Assn. (1993) 19 Cal.App.4th 761, 770 (Ladas), which involved “an amorphous promise to ‘consider’ what employees at other companies [were] earning.”  Thus, in Moncada, plaintiffs had alleged a promise to pay them “an amount that would be sufficient to retire,” and that “the actual bonus amount would be determined using information about the plaintiffs’ debts and obligations, their lifestyles at that time and actuarial information sufficient to allow financial planners to set a specific amount for each of them.”  As stated by the court, Such retirement amounts were not “vague or indefinite; rather they are readily determined using standard formulae and actuarial tables.”

The court then also upheld the allegations for promissory estoppel (a promise on which a plaintiff relies to his or her detriment and is damaged) on grounds similar to that of the promissory fraud claim, and rejected the causes of action for intentional infliction of emotional distress, negligent misrepresentation and estoppel in pais (or equitable estoppel).

This case demonstrates the hazards of oral employment promises.  Thus, employers seeking to provide incentives to employees to ensure continuity should make their promises clear through a written agreement (and be prepared to stand by them).  Otherwise, an employer may be defending a lawsuit that seeks not just an employee’s unpaid compensation, but also damages for fraud which can exceed amount ever imagined by the parties when the agreement was made.