## Facts

- In 1986, Pacific Bell issued a written Management Employment Security Policy (MESP) to management employees, promising employment security through reassignment and retraining if jobs were eliminated.
- The MESP stated it would be maintained “so long as there is no change that will materially affect Pacific Bell’s business plan achievement.”
- A contemporaneous Q&A memorandum described the reservation as tied to “major changes” and a “serious financial situation,” not an “easy out.”
- In January 1990, Pacific Bell warned management employees it might discontinue the MESP due to industry changes.
- In October 1991, Pacific Bell announced termination of the MESP effective April 1, 1992, and introduced a Management Force Adjustment Program offering severance and enhanced pension benefits connected to workforce reductions.
- About sixty former management employees claimed the MESP had become part of their employment contract and could not be terminated unless the specified “material change” condition occurred.
- In federal litigation, the district court treated the MESP as contractually enforceable and ruled for a subset of employees who had not signed releases, reasoning the MESP could not be terminated absent the stated condition.
- The Ninth Circuit certified to the California Supreme Court whether an employer may unilaterally terminate such a policy after it becomes part of the employment contract even if the specified condition has not occurred.

## Issues

1. Whether an employer may unilaterally terminate an employment-security policy that has become part of the employment contract when the policy states it will continue unless a specified condition occurs, but that condition has not occurred.

## Decision

- The California Supreme Court answered the certified question yes.
- The court held an employer may unilaterally terminate a policy containing a specified condition when the condition is of indefinite duration, the change occurs after a reasonable time, on reasonable notice, and without impairing vested benefits.
- Applying that rule, the court concluded Pacific Bell lawfully terminated the MESP.
- A dissent would have treated the specified condition as a stronger limit on Pacific Bell’s ability to terminate the MESP.

## Legal Principles

- Unilaterally issued employer policies can become enforceable terms of employment contracts under ordinary contract principles.
- Contractual obligations of indefinite duration are generally terminable or modifiable after a reasonable time, on reasonable notice, absent interference with vested rights.
- A policy’s “specified condition” does not necessarily make the policy irrevocable if the condition does not fix a definite duration and could persist indefinitely.
- Prospective termination or modification is permitted if it does not impair benefits that have already vested.

## Conclusion

California law permits an employer to prospectively terminate an indefinite-duration job-security policy that has become contractually binding, even if a stated business-contingency condition has not occurred, so long as termination follows a reasonable period, is preceded by reasonable notice, and does not impair vested employee benefits.


Asmus v. Pac. Bell, 23 Cal. 4th 1 (Cal. 2000)