Written by attorney Douglas M Larsen

California Businesses Cannot Be Sued For Refusing To Renew An Employment Contract

Last week the California Court of Appeal ruled on the lawsuit between Nicollette Sheridan (Edie) and Touchstone Television Productions, the company that produced the TV show, Desperate Housewives. Sheridan sought $20 million in compensatory damages as well as punitive damages. Hard to believe that life behind the scenes could be as dramatic as life on camera.

Sheridan sued alleging the company wrongfully terminated her employment. According to the written employment agreement, the company signed Sheridan to a one-year contract with options to renew services for six additional one-year seasons. Touchstone renewed the contract for five seasons, but chose not to renew for the sixth season.

Sheridan argued that Touchstone fired her because she complained that the show's creator, Mark Cherry, had battered her. The case went to trial and the jury deadlocked. Touchstone moved the court for a directed verdict on the grounds that it did not fire her but just did not renew her contract for a sixth year. The court refused and the company appealed.

The Court of Appeal concluded that an employee cannot sue its employer for refusing to renew a contract. Thus, whether or not the company's decision not to renew Sheridan for a sixth season was related to Sheridan's complaint against Cherry is not actionable as a tort.

This has been the established law in California for many years. I can't understand why the claim was not dismissed well before trial.

It is important for employers to understand this distinction between termination of employment and non-renewal of contract. When an employer exercises discretion and does not renew a contract, it is not breaching an agreement. Nor is it engaging in wrongful termination. Rather, the employment relationship ends as time expires. This is why we recommend that employment contracts not extend for lengthy periods of time. If an employer is dissatisfied with an employee's performance, or simply does not want to employ the worker any longer, the employer need only wait until the end of the employment period. Such a provision can eliminate a claim, such as wrongful termination in violation of public policy.

In this case, the Court of Appeal is allowing Sheridan to amend her complaint to articulate a claim based on section 6310 of the Labor Code. This code section allows a person to prosecute a claim that she was discriminated against or discharged because she complained about unsafe working conditions. However, this cause of action is limited. The complaint must actually address an unsafe condition in the workplace. It is questionable (in my opinion, unlikely) that Cherry's alleged action was an unsafe working condition. Moreover, damages are limited to lost wages and benefits. Section 6310 does not provide for attorneys' fees.

Touchstone is in a good position in this case. The primary claim has been eliminated. Now Sheridan must allege a viable 6310 claim in order to move forward.

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