Opinion
Plаintiff and respondent Mike Lenk (Lenk) filed suit against his former employer, defendant and appellant Total-Western, Inc. (TWI), for breach of contract and fraud. In a bifurcated trial, the jury found in favor of Lenk and awarded him $210,320 in compensatory damages, $50,000 in emotional distress damages and $1 million in punitive damages.
In the unpublished portion of this opinion, we reverse that part of the judgment awarding Lenk $210,320 in compensatory damages. We also reverse the punitive damages award, and remand the case for a new trial on those issues. In the published portion of this opinion, we determine the language in an employment agreement relating to a performance review after one year does not constitute a term of employment. We also find that emotional distress damages arising from a claim of fraud in inducing employment are not barred by the workers’ compensation exclusivity doctrine.
*963 I. Procedural and Factual Histories
A. Liability phase
In 1990, ARB Inc. (ARB), a general contractor with several divisions in the construction industry, hired Lenk as a purchasing agent in its Bakersfiеld, California office. In September 1995, ARB moved its headquarters from Bakersfield to Paramount, California, and promoted Lenk to corporate purchasing agent in the new office. Lenk was provided with a salary increase from $40,000 per year to $65,000 per year, approximately $10,000 of which represented compensation for the higher cost of living in the Los Angeles area. Following his promotion, Lenk continued to maintain his residence in Bakersfield. He utilized ARB corporate housing in La Palma for the first four months while looking for housing in the Los Angeles area, but was unable to find any appealing or affordable housing. Beginning in February 1996, Lenk commuted to work from Bakersfield or stayed in a motel in Los Angeles at his expense.
TWI, also headquartered in Paramount, was in the business of industrial contracting. During 1996, the company was actively searching for a purchasing agent. In May 1996, George Gray, a salesman for TWI and a former coworker of Lenk at ARB, saw Lenk at a social function. Lenk informed Gray of his new position at ARB. Hе did not tell Gray he was looking for a job. Gray expressed to Clarence Edens, Jr., the vice-president of TWI’s Bakersfield office, that he felt Lenk was frustrated with having to travel between Bakersfield and Paramount and he believed there was an opportunity to recruit Lenk for the purchasing agent position at TWI. Edens instructed Gray to have Lenk forward his resume. After two subsequent calls from Gray, Lenk eventually forwarded his resume to TWI.
In a June 4, 1996, memorandum to Donald Grimes, the president of TWI from 1995 through 1998, Edens advised: “When making my original budget projections for this year, I grossly under estimated the total effort that would be required to turn our financial position around. An existing extreme financial position, an extreme negative business and professional image and an almost non-existent sales effort was just the tip of the iceberg. Add to these no employee morale and an aging decrepit equipment fleet and you begin to get an idea of the hole that we were in. [H] . . . [f]
“We will continue to revamp our purchasing department and [its] procedures^,] this must become an automated computerized effort. Our ‘Inventory by Consignment’ effort for consumable and expendables is almost complete. Detailed invoice review continues to clean up the system and eliminate *964 costly errors. Timely and accurate job cost tracking and reporting continues to be a significant problem. Our tracking is accomplished off-line and is a duplicative effort that is very tedious and expensive. Our current corporate computer aсcounting system will not support us in this area and there should be a sense of urgency in correcting this problem.”
On June 9, 1996, Edens contacted Lenk and requested an interview with him. Lenk told Edens he was not looking for a job, but Edens replied, “It never hurts to talk.” Lenk agreed to meet with Edens the following day. According to Lenk, he explained to Edens he had a secure position at ARB and had recently been promoted to the corporate level. In response, Lenk testified Edens represented that TWI planned to move its corporate headquarters to Bakersfield and Lenk would be first in line for a corporate purchasing position with TWI. Edens provided Lenk with information concerning TWI’s benefits and told him to call if he was interested. The two men exchanged several more calls. On July 5, 1996, Lenk telephoned Edens after reading a newspaper article about TWI that indicated it was a $40 million company and a subsidiary of a $200 million, family-owned conglomerate, Bragg Investment Company. The article quoted Edens. Edens told Lenk he intеnded to formulate a written offer and deliver it to him the following Monday.
Grimes estimated that in June 1996, TWI’s annual revenues were approximately $30 million. Grimes questioned Edens about the July 1996 article, as he did not know the size of Bragg Investment Company and believed Edens would not have known the size either. Grimes never received a satisfactory answer as to where Edens obtained the revenue figures for TWI or Bragg Investment Company that were set forth in the article. Grimes never inquired whether Edens had communicated this information to any job applicants.
On July 8, 1996, Edens delivered TWI’s written employment offer to Lenk. The offer stated, in pertinent part:
“After meeting with and discussing the possibility of you becoming a part of the Bakersfield [TWI] Team, I am excited about what you can contribute to our effort and the opportunities we can offer you.
“As a key member of our staff you will have the opportunity to turn our purchasing activity into a[] well organized effort and implement some [ideas] that you have developed yet not had the opрortunities to see bear fruit and bring results. And while this is a staff position in the Bakersfield office I certainly think advancement to the corporate level is a distinct possibility. HQ . . . HQ
*965 “I would like to propose the following to you:
Purchasing Agent Position Title:
[TWI]/B akersfield, CA “Reporting Responsibilities:
Reports to . . . Edens - Vice President
$55,000.00 Annually “Salary:
To be completed after Twelve (12) month’s employment “Performance Review:
Vacation: Two (2) weeks after one (1) year, Three (3) weeks after Five (5) years Holidays: Nine (9) paid holidays per year” “Fringe Benefits:
On July 10, 1996, Lenk submitted a letter of resignation to ARB and accepted TWI’s offer of employment. Lenk testified that, in accepting the position with TWI, he relied on the representations made to him by Edens and the written employment offer. Lenk entered into a written employment agreement with TWI that provided, in relevant part:
“Salary: $55,000.00
“Performance Review: To be completed after twelve (12) months employment
“Fringe Benefits: Vacation: Two (2) weeks after one (1) year, three (3) weeks after five (5) years Holidays: Nine (9) paid holidays per year [M . . . [t]
“Position Title: Purchasing Agent
“Reporting Responsibility: [TWI]/Bakersfield, California Reports to [] Edens - Vice President
“Reporting Date: August 1, 1996
“I have read and аcknowledge agreement to these terms and conditions.”
The employment agreement, signed by Lenk and Edens, did not state that Lenk’s employment was for any specific term. Lenk testified that he understood the language regarding the performance review to give him a minimum one-year term of employment. He believed he was committing his services for a minimum of 12 months. However, he acknowledged that no one at TWI ever told him so. In addition, no one at TWI ever told Lenk he could not be terminated except for good cause. Lenk believed he could be terminated after one year.
*966 In July 1996, TWI’s Bakersfield office had a net loss of approximately $540,000. Grimes estimated that during the 1996-1997 fiscal year, that office suffered a net loss between $1 million and $1.5 million.
On August 1, 1996, Lenk commenced his employment with TWI. He signed an employment application that stated: “I agree that my employment may be terminated by [TWI] at any time without liability for any additional compensation, wages or salary except such as may have been earned at the date of such termination. ... I understand and agree if I am employed, such employment is for no defin[i]te period of time . . . .” Lenk was also provided with a copy of TWI’s personnel manual and acknowledged reading and signing it. That manual provided:
“Employment at Will
“Your continuous employment depends on many factors beyond our control. Because of this we are an ‘At Will Employer’. Carefully review the statement below. You will be asked to sign a copy of it at the back of this handbook. If you have any questions, contact the Director of Safety and Personnel before you accept employment.
“ I understand that nothing contained in the employment application or conveyed during any interview intended to create an employment contract between me and the Company. In addition, I understand and agree, my employment is for no definite or determinable period and may be terminated at any time, with or without prior notice, at the option of either myself or the Company, and that no promises or representations contrary to the foregoing are binding on the Company unless made in writing and signed by me and the Company’s designated representative.’ ”
Lenk did not object to signing either the employment application or acknowledgment of the personnel manual. Lenk testified that he knew he was an at-will employee, but he had an employment contract signed by him and a company representative.
Lenk replaced Gerald Powell, because Powell had no cоmputer experience. Powell was transferred to TWI’s tool room, and TWI offered to pay Powell’s tuition for computer training classes. Powell enrolled in a 12-week computer course, twice a week after work. Lenk’s annual salary was double Powell’s salary. As a purchasing agent, Lenk made cost estimates, obtained material prices and purchased items needed in the company’s operations. During his employment, Lenk also implemented an existing computerized program аt TWI in the purchasing department of TWI’s Bakersfield office. *967 Prior to Lenk’s employment there was no computerization in that purchasing department.
On January 31, 1997, six months after he had started working for TWI, Lenk was terminated. Grimes advised Lenk he was being terminated for “economic reasons,” but gave no other explanation. Grimes testified that a number of employees were laid off based on a downturn in business conditions, including the loss of a large contract with Chevron. Grimes did not consult with Edens prior to terminating Lenk. Lenk was рrovided with two weeks of severance pay.
In March 1997, Lenk was hired by a friend’s company to make sales calls, and was paid on commission, earning approximately $2,300 per month. On May 1, 1997, Airpol Construction, Inc., hired Lenk as its purchasing agent, at an initial salary of $15.80 per hour. In September 1997, his pay was increased to $16.79 per hour. Lenk typically worked 10-hour days, longer working hours than he had at TWI, with fewer benefits. In 1998, Lenk’s annual salary was approximately $47,800.
Lenk testified that he relied upon the representatiоns made by Edens as to TWI’s financial condition and Lenk’s future with the company, and he would not have left his position at ARB had he known the truth. On July 14, 1997, Lenk filed suit against TWI alleging three causes of action; 1) fraud, 2) false representations to induce relocation in violation of Labor Code section 970, and 3) breach of contract.
In October 1997, Edens left TWI for a competing company. TWI accused Edens of improperly recruiting TWI employees for his new employer and making false statements to TWI’s customers. Powell was ultimately returned to his previous position of purchasing agent in TWI’s Bakersfield office.
A jury trial began on September 16, 1998. The jury found in favor of Lenk on his claims for “breach of contract, fraud—intentional misrepresentation, fraud—negligent misrepresentation, and fraud—concealment.” The jury rejected Lenk’s claim for fraud based on false promise. Lenk was awarded $210,320 in compensatory damages for lost past and/or future wages and benefits and $50,000 in emotional distress damages, for a total of $260,320. The jury аlso found Lenk proved, by clear and convincing evidence, that the conduct of TWI was fraudulent.
B. Punitive damage phase *
*968 II. Discussion
A. Sufficiency of the evidence
TWI contends there is insufficient evidence in the record to support 1) judgment on the fraud claim, 2) judgment on the breach of contract claim, and 3) the economic damages award. We find sufficient evidence to support judgment on the fraud claim. However, we agree with TWI’s latter two contentions.
1. Standard of review
A challenge in an appellate court to the sufficiency of the evidence is reviewed under the substantial evidence rule. (See
Winograd v. American Broadcasting Co.
(1998)
Moreover, we defer to the trier of fact on issues of credibility.
(Oldham v. Kizer
(1991)
2. Fraud claim *
*969 3. Breach of contract claim
Based on our finding of sufficient evidence to support the fraud claim, it would normally not be necessary to address whether there is insufficient evidence to support the breach of contract claim. (See
Watson v. Department of Rehabilitation
(1989)
In California, there is a presumption that employment is at will, absent an “express oral or written agreement specifying the length of employment or the grounds for termination.”
(Foley
v.
Interactive Data Corp.
(1988)
The record simply does not support Leak’s contention that he had either an express or implied contract for a minimum оne-year term of employment. Lenk’s employment agreement sets forth no term of employment. Lenk maintains the language in his written employment agreement relating to a performance review guaranteed him a minimum one-year term
*970
of employment. We do not interpret the statement that a performance review is “[t]o be completed after twelve (12) months of employment” to constitute a minimum one-year contract term. (See
Parsons v. Bristol Development Co.
(1965)
In addition, there is no evidence that the parties otherwise agreed Lenk would have a minimum one-year term of employment or would be terminated only for cause. To the contrary, Lenk signed an employment appliсation confirming he was an at-will employee and acknowledged receipt of a personnel manual with an explicit at-will provision. Moreover, Lenk admitted that no one at TWI told him he had a one-year employment contract or that he could be terminated only for cause. His contention now that “Edens told [him] ... he would have his job at TWI for at least a year[]” has absolutely no support in the record. Lenk’s “understanding” of the meaning of the performance review provision in the contract is not competent extrinsic evidence. (See
Winet v. Price
(1992)
Thus, we find the evidence insufficient to support judgment on the breach of contract claim.
4. Economic damages award *
B. Emotional distress damages
TWI contends that Lenk’s emotional distress damages are barred by the workers’ compensation exclusive remedy rule. We disagree.
Labor Code section 3602 3 provides that the “sole and exclusive remedy” of an injured employee (or the employee’s dependents) against an employer is the right to recover workers’ compensation benefits, 1) if “the conditions of compensation set forth in [s]ection 3600 concur,” and 2) unless an exception specified in section 3602, 3706 or 4558 applies.
*971 Section 3600 lists a number of conditions that must exist in order for the injured employee to recover workers’ compensation benefits from his or her employer. Section 3600 states, in pertinent part:
“(a) Liability for the compensation provided by this division . . . shall, without regard to negligence, exist against an employer for any injury sustained by his or her employees arising out of and in the course of the employment ... in those cases where the following conditions of compensation concur:
“(1) Where, at the time of the injury, both the employer and the employee are subject to the compensation provisions of this division.
“(2) Where, at the time of the injury, the employee is performing service growing out of and incidental to his or her employment and is acting within the сourse of his or her employment.
“(3) Where the injury is proximately caused by the employment, either with or without negligence.”
If any of these conditions does not exist, the employee may bring a civil action against the employer. (§ 3602, subd. (c); see also
Seymour
v.
Setzer Forest Products, Inc.
(1954)
“[W]hen the misconduct attributed to the employer is actions which are a normal part of the employment relationship, such as demotions, promotions, criticism of work practices, and frictions in negotiations as to grievances, an employee suffering emotional distress causing disability may not avoid the exclusive remedy provisions of the Labor Code . . . .”
(Cole
v.
Fair Oaks Fire Protection Dist.
(1987)
In addition, an employer’s false statements made to induce a person to become an employee may be the basis for a civil lawsuit against the employer. (See
Lazar v. Superior Court
(1996)
Here, we find TWI’s conduct, in the form of misrepresentations made to induce Lenk to become an employee, was not a normal part of the employment relationship or a risk reasоnably encompassed within the compensation bargain.
(Shoemaker
v.
Myers, supra,
TWI relies heavily on
Spratley
v.
Winchell Donut House, Inc.
(1987)
In contrast, Lenk’s fraud claim does not involve a claim of misrepresentation concerning employee safety. Workplace safety is clearly an issue contemplated by the workers’ compensation statutory scheme. It is a normal part of the employment relatiоnship and a risk reasonably encompassed within the compensation bargain. On the other hand, misrepresentations related to the financial stability of a company, the company’s future plans to relocate its operations, and the job applicant’s promotion in the corporate ranks, all designed to induce employment, are not (we hope) a normal part of the employment relationship.
Thus, we find the workers’ compensation exclusive remedy rule does nоt bar Lenk’s emotional distress damages.
C. Punitive damages *
Disposition
The jury’s findings on the fraud claim are affirmed, and with respect to the contract cause of action, its findings are vacated. The economic and punitive damages award is reversed. The case is remanded solely to determine the amount, if any, of economic and punitive damages on the remaining fraud claim. Costs are awarded to TWI.
Harris, Acting P. J., and Levy, L, concurred.
Appellant’s petition for review by the Supreme Court was denied August 22, 2001.
