Foley v. Interactive Data Corp.

*701 BROUSSARD, J.

I concur in part I of the majority opinion, which holds that plaintiff has not stated a cause of action for discharge in violation of public policy. I join fully in part II of the majority opinion, which upholds plaintiff’s cause of action for breach of contract, but add a note exploring the question of the damages recoverable in such an action. I respectfully dissent to part III of the majority opinion. Although written in conservative tones of deference to legislative action, it is in fact a radical attempt to rewrite California law in a manner which, as the majority themselves acknowledge, will leave the wrongfully discharged worker without an adequate remedy. The majority opinion does not preserve the status quo, leaving it to the Legislature to adopt innovative solutions. It uproots the status quo, leaving it to the Legislature to remedy the problems the opinion creates.

I.

Under the majority opinion, employees will no longer have a tort cause of action for bad faith discharge, but, absent some violation of public policy, can sue only in contract. The majority acknowledge that traditional contract damages may provide inadequate compensation (see ante, pp. 699-700). They recognize that a considerable number of commentators have suggested that the remedy for widely perceived inequities in the contract-damages realm may lie in an expansion of the nature of damages that may properly be recovered within a breach of contract action. (See, e.g., Tray-nor, Bad Faith Breach of a Commercial Contract: A Comment on the Seaman’s Case (Cal. State Bar, Fall 1984) 8 Bus. L. News 1 (hereafter Tray nor); Putz & Klippen, Commercial Bad Faith: Attorney Fees—Not Tort Liability—Is the Remedy for “Stonewalling” (1987) 21 U.S.F. L.Rev. 419.) They conclude, however, that we should not resolve questions concerning the measure of contract damages in the present case. (Ante, p. 682, fn. 24.) I agree that we should not resolve the issue in the present case. But I think it appropriate in a concurring and dissenting opinion to suggest a line of reasoning which may prove fruitful.

As a general rule, damages recoverable in contract actions have been limited to those within the contemplation of the parties at the time of the contract. (See Hadley v. Baxendale (1854) 9 Ex. 341 [156 Eng.Rep. 145]; Hunt Bros. Co. v. San Lorenzo Water Co. (1906) 150 Cal. 51, 56 [ 87 P. 1093 ].) Since the ordinary commercial contract does not contemplate damages for mental or emotional distress, this rule has led to the maxim that damages for mental suffering are generally not recoverable in an action for breach of contract. (Westwater v. Grace Church (1903) 140 Cal. 339, 342 [ 73 P. 1055 ]; Allen v. Jones (1980) 104 Cal.App.3d 207, 211 [ 163 Cal.Rptr. 445 ] and cases there cited.) But it has always been clear that this maxim is *702 subject to the obvious exception: if the contracting parties did contemplate that breach of the contract would cause emotional distress, damages for that injury are recoverable.

In Allen v. Jones, supra, 104 Cal.App.3d 207 , for example, defendant funeral home breached a contract to transport the cremated remains of plaintiff’s brother. Because it was reasonably foreseeable that such breach would cause mental anguish to plaintiff, the court upheld a cause of action for mental distress. (Id. at pp. 214-215.) In Ross v. Forest Lawn Memorial Park (1984) 153 Cal.App.3d 988, 995 [ 203 Cal.Rptr. 468 , 42 A.L.R.4th 1049 ], the court upheld a claim for mental distress occasioned by breach of a contract to protect a grave from vandalism. In Wynn v. Monterey Club (1980) 111 Cal.App.3d 789, 799-800 [ 168 Cal.Rptr. 878 ], plaintiff claimed that defendants’ breach of a contract to bar plaintiff’s wife from their gaming tables led to the breakup of his marriage; the court found a triable issue of fact whether damages for mental suffering were reasonably foreseeable and within the contemplation of the contracting parties. Windeler v. Scheers Jewelers (1970) 8 Cal.App.3d 844 [ 88 Cal.Rptr. 39 ] upheld recovery for emotional distress when defendant, in breach of a contract of bailment, lost jewelry of great sentimental value.

These precedents have not yet been applied to wrongful discharge. But a review of the facts of the Court of Appeal cases overruled by the majority in part III of their opinion, and similar cases pending before this court, makes it clear that in many cases the employer is aware at the time of the contract that bad faith discharge will create great mental and emotional distress. In such cases, the application of existing precedent could serve to provide some redress for that injury. 1

II.

The majority’s discussion of the cause of action for wrongful discharge transposes the positions of plaintiffs and defendants, asserting, incorrectly, *703 that plaintiffs seek to change established law. For example, the majority introduce their analysis with the statement that “where an extension of tort remedies is sought for a duty whose breach previously has been compensible by contractual remedies, it is helpful to consider certain principles relevant to contract law.” {Ante, p. 683, italics added.) After considering these principles, the majority conclude that “focus on available contract remedies offers the most appropriate method of expanding available remedies for wrongful termination.” {Ante, p. 699, italics added.) But this case is not about extending or expanding remedies for wrongful discharge. All plaintiffs seek, and all the dissenters seek, is to retain existing remedies. It is the defendants, and the majority, who seek a radical contraction in existing remedies.

I maintain that we should retain the well-recognized tort cause of action for bad faith discharge. To demonstrate the point, I propose to show (1) that a tort cause of action for bad faith discharge is an established feature of California common law, (2) that the analogy between the insurance cases, in which a tort cause of action has long been recognized, justifies tort recovery for bad faith discharge; (3) that the existance of a cause of action in contract for discharge in breach of contract does not exclude a tort action for bad faith; and (4) that it is fundamentally illogical to abolish a tort cause of action on the ground that radical change in existing remedies should be left to legislative action.

1. A tort remedy for bad faith discharge is well established in California law.

Prior to Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167 [ 164 Cal.Rptr. 839 , 610 P.2d 1330 , 9 A.L.R.4th 314 ], California decisions had recognized a tort action for bad faith breach of insurance contracts. (See, e.g., Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658 [ 328 P.2d 198 , 68 A.L.R.2d 883 ]; Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 578 [ 108 Cal.Rptr. 480 , 510 P.2d 1032 ].) In upholding a tort cause of action for wrongful discharge in violation of public policy, Tameny noted an alternative theory—breach of the employer’s duty of good faith and fair dealing. “[P]ast California cases,” we said, citing the insurance cases, “have held that a breach of this implied-at-law covenant sounds in tort as well as in contract.” ( Tameny, supra, 27 Cal.3d 167, 179, fn. 12 .) In Tameny , however, we found it unnecessary to decide whether tort recovery would be available under that theory.

That issue was first decided in Cleary v. American Airlines (1980) 111 Cal.App.3d 443 [ 168 Cal.Rptr. 722 ]. Plaintiff in Cleary pled that the employer, despite a written policy to the contrary, arbitrarily discharged him *704 after 18 years of satisfactory service. The Court of Appeal unanimously ruled that “[s]hould plaintiff sustain his burden of proof, he will have established a cause of action for wrongful discharge that sounds in both contract and in tort.” (P. 456, italics added.)

The next case, Crosier v. United Parcel Service, Inc. (1983) 150 Cal.App.3d 1132 [ 198 Cal.Rptr. 361 ], endorsed Cleary, which it described as based on “present economic realities and the reasonable expectations of the parties” (p. 1137), but concluded that since the company was enforcing a general rule known to the employee, the discharge was not in bad faith. A subsequent case, Shapiro v. Wells Fargo Realty Advisors, (1984) 152 Cal.App.3d 467 [ 199 Cal.Rptr. 613 ], similarly applied the reasoning of Cleary, but found plaintiff’s allegations insufficient to show bad faith.

In Seaman’s Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752 [ 206 Cal.Rptr. 354 , 686 P.2d 1158 ], we concluded a tort action was available for breach of a commercial contract only when the breaching party denied in bad faith the existence of the contract. (P. 769.) We noted that tort remedies had a broader scope in insurance cases because of the special relationship between insurer and insured, and added that “no doubt there are other relationships with similar characteristics and deserving of similar legal treatment.” (P. 769.) The footnote to that sentence noted that in Tameny v. Atlantic Richfield Co., supra, 27 Cal.3d 167, 179 , footnote 12, “this court intimated that breach of the covenant of good faith and fair dealing in the employment relationship might give rise to tort remedies. That relationship has some of the same characteristics as the relationship between insurer and insured.” ( 36 Cal.3d at p. 769, fn. 6 .) Coming after published decisions in Cleary v. American Airlines, Inc., supra, 111 Cal.App.3d 443 , Shapiro v. Wells Fargo Realty Advisors, supra, 152 Cal.App.3d 467 , and Crosier v. United Parcel Service, supra, 150 Cal.App.3d 1132 , this language signaled the court’s approval of a tort remedy for bad faith discharge. 2

Shortly after Seaman’s was filed, the court in Rulon-Miller v. International Business Machines Corp. (1984) 162 Cal.App.3d 241 [ 208 Cal.Rptr. 524 ], considered whether defendant could fire an employee for “conflict of interest” because she was dating a fellow employee. The case was submitted to the jury under instructions based on Cleary v. American Airlines, Inc., *705 supra, 111 Cal.App.3d 443 . The jury awarded tort damages, finding the asserted conflict of interest a mere pretext and the discharge in bad faith. The Court of Appeal affirmed; we denied a hearing.

The next two cases, Wallis v. Superior Court (1984) 160 Cal.App.3d 1109 [ 207 Cal.Rptr. 123 ], and Wayte v. Rollins International, Inc. (1985) 169 Cal.App.3d 1 [ 215 Cal.Rptr. 59 ], did not involve discharge. (Wallis concerned bad faith refusal of an employer to pay retirement benefits; Wayte concerned bad faith refusal of an employer acting as an insurer to pay medical benefits.) Both cases, however, affirmed the analogy of the employment relationship to insurance. As stated in Wallis , “the characteristics of the insurance contract which give rise to an action sounding in tort are also present in most employer-employee relationships.” ( 160 Cal.App.3d 1109, 1116, fn. 2 .)

Khanna v. Microdata Crop. (1985) 170 Cal.App.3d 250 [ 215 Cal.Rptr. 860 ] is recognized by the majority as one of the two leading cases on bad faith discharge. In that case the employer refused to acknowledge a contract to pay plaintiff a commission, then fired the employee when he sued to enforce the contract. The opinion reviewed Cleary, supra, 111 Cal.App.3d 443 , and other California decisions and concluded that a tort cause of action is stated whenever the employer engages in “ ‘bad faith action extraneous to the contract, combined with the obligor’s intent to frustrate the [employee’s] enjoyment of contract rights.’ ” (Khanna, supra, at p. 262 , quoting Shapiro v. Wells Fargo Realty Advisors, supra, 152 Cal.App.3d at pp. 478-479.) Gray v. Superior Court (1986) 181 Cal.App.3d 813 [ 226 Cal.Rptr. 570 ], relied on Khanna to find that a worker fired on the basis of a false performance report could state a cause of action in tort.

The other leading case, Koehrer v. Superior Court (1986) 181 Cal.App.3d 1155 [ 226 Cal.Rptr. 820 ], was a decision by Justice Kaufman, now on this court. It is well summarized in his dissenting opinion here. As noted in Koehrer , a tort cause of action for bad faith discharge may arise if the employer asserts the existence of good cause for discharge without probable cause and in bad faith. (P. 1171.)

Finally, the Court of Appeal in the present case adopted the most limited view of that cause of action of any of the California decisions. It claimed that to state a tort cause of action, the plaintiff must allege facts comparable to those in Cleary—18 years longevity, and the employer’s violation of specific employment guidelines. But, for cases within those facts, the Court of Appeal would permit a tort action.

In sum, there are eight unanimous Court of Appeal decisions permitting a tort action for bad faith discharge, plus dictum approving such an action *706 in cases here and in the Court of Appeal. Thus it is not surprising that when the Ninth Circuit considered the matter in a case arising under California law, it had no doubt that such a cause of action existed. (See Huber v. Standard Ins. Co. (9th Cir. 1988) 841 F.2d 980 .) The only unsettled question, from the viewpoint of the federal judges, was whether the tort cause of action was limited to cases comparable to Cleary , as the Court of Appeal held in the present case. The Ninth Circuit correctly concluded that it was not so limited, citing Koehrer v. Superior Court, supra, 181 Cal.App.3d 1155 -1169 and Khanna v. Microdata Corp., supra, 170 Cal.App.3d 250 , 262 as declarative of California law.

Many commentators have written summaries or analyses of California law in this area. (See Cal. Wrongful Employment Termination Practice (Cont.Ed.Bar 1987) § 2.42; Kornblum et al., Cal.Practice Guide: Bad Faith (1986) § 12.13; McCarthy, Punitive Damages in Wrongful Discharge Cases (1985) § 2.2; Brandon, From Tameny to Foley. Time for Constitutional Limitations on California’s Employment at Will Doctrine (1988) 15 Hastings Const. L.Q. 359 , 371-372 (hereafter Brandon); Brody, Wrongful Termination as Labor Law (1988) 17 Sw. U.L. Rev. 434, 442.) All recent writings consider the existence of a tort cause of action for bad faith discharge an established part of the California common law.

Such unanimous agreement among justices and commentators generates reliance. 3 Employers have revised personnel policies and purchased insurance policies. Insurers have calculated and collected premiums. Attorneys have been hired and trained, even entire law firms have been established. Litigants have filed suits, accepted settlement offers, rejected other offers, gone to trial, and appealed. Hundreds of cases are proceeding before the trial courts in which both parties have based their strategy on the assumption that a tort action exists. Many others pending in the Court of Appeal await our decision. There are 10 or so such cases pending before this court. 4

The majority do not deny the existence of prior precedent, or the consequent reliance thereon, but point out that there has been no decision by this court declaring a cause of action for bad faith discharge. They assert that “[i]f we were to follow the dissent’s urging that we should therefore leave this area of law untouched, we would be abdicating our role.” (Ante, p. 689, *707 fn. 28.) They mistake my purpose. I do not claim that this court should never repudiate prior precedent and revise California common law, but only that when it considers doing so it should recognize that the doctrine of stare decisis and judicial reluctance to penalize justified reliance on precedent weigh heavily against such a decision. The majority here in fact radically restructure California law by abolishing an established cause of action, yet they write as if theirs is nothing more than a conservative decision declining to extend remedies into uncharted realms. I cannot join them in this retrogressive decision.

2. Analogy to the cases upholding a tort cause of action for bad faith breach of a contract of insurance justifies a tort action for bad faith discharge of an employee.

The majority deride the prior cases for their uncritical incorporation of the insurance model into the employment context without considering the significant differences between the insurer-insured and employer-employee relationships. (Ante, p. 689.) But when we consider the differences noted by the majority, we find that they are not significant at all.

The majority find one fundamental difference between insurance and employment relationships: “[i]f an insurer pays a claim, it diminishes its fiscal resources . . . [while] as a general rule it is to the employer’s economic benefit to retain good employees.” (Ante, at p. 693.) But their comparison is not between insurers and employers, but between short-sighted insurers and far-sighted employers. In the short run, the insurer saves money by not paying claims, and the employer by not paying wages. (If the work cannot be deferred, he can hire less experienced but cheaper help.) In the long run, an insurer that never paid claims would be out of business, and an employer that always fired experienced help would not be much better off. Thus if we examine insurers and employers with the same lens, the difference the majority find fundamental simply disappears.

But the majority’s analysis leaves a lingering trace, for it betrays their misunderstanding of the problem. We need not be concerned about insurers that never pay claims or employers that fire all experienced help—the marketplace will take care of them. The concern is with the insurer or employer that acts arbitrarily some of the time—and can get away with it unless threatened with damages that, unlike traditional contract damages, exceed the short-term profit. 5

*708 The majority also point to some nonfundamental distinctions between the insurer-insured and the employer-employee relationships. They argue that the discharged employee may be able to mitigate damages while the insured generally cannot. But as we all know, in many cases the discharged worker cannot mitigate damages. As Justice Kaufman asks, “What market is there for the factory worker laid-oif after 25 years of labor in the same plant, or for the middle-aged executive fired after 25 years with the same firm?” (Con. and dis. opn., ante, at p. 718.) The ability of some persons to mitigate damages is no reason to deny a cause of action to those unable to mitigate them.

It is next suggested that the employer, unlike the insurer, is not performing a “public service.” I fail to understand the significance of the statement. Employment is even more important to the community than insurance; most people value their jobs more than their insurance policies. The public interest in deterring arbitrary breach of employment contracts is, I suggest, at least equal to that in deterring arbitrary breach of insurance contracts.

Finally, the majority reject the idea that an employee is like an insured because both contract for financial security. A business, they point out, may also seek financial security. They put the case of a business contracting to secure a reliable source of supply. But what emerges from the majority’s analysis is three propositions: a) that insureds generally buy insurance policies for financial security; (b) that employees generally seek financial security in their employment; (c) that businesses occasionally contract for financial security. These propositions should lead the majority to conclude that the employment contract is more analogous to an insurance contract than to a commercial contract.

The majority are focusing upon the exceptions, not upon the general rule. If we must argue analogies, the question is not whether the employment contract diifers from an insurance contract in one particular respect, or resembles a commercial contract in another. It is whether, as a whole, the *709 contract of employment more closely resembles an insurance contract or an ordinary commercial contract. The answer is clear. The principal reason we permit tort damages for breach of the covenant of good faith and fair dealing in an insurance contract is that persons do not generally purchase insurance to obtain a commercial advantage, but to secure the peace of mind and security it will provide in protecting against accidental loss. (See Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 434 [ 58 Cal.Rptr. 13 , 426 P.2d 173 ].) That reason applies equally to the employer-employee relationship. A man or a woman usually does not enter into employment solely for the money; a job is status, reputation, a way of defining one’s self-worth and worth in the community. It is also essential to financial security, offering assurance of future income needed to repay present debts and meet future obligations. Without a secure job a worker frequently cannot obtain a retirement pension, and often lacks access to affordable medical insurance. In short, “in a modern industrialized economy employment is central to one’s existence and dignity.” (Gould, The Idea of the Job as Property in Contemporary America: The Legal and Collective Bargaining Framework, 1986 B.Y.U. L. Rev. 885, 892.) 6

Because workers value their jobs as more than merely a source of money, contract damages, if limited to loss of income, are inadequate. (See K Mart Corp. v. Ponsock, supra, 732 P.2d 1364, 1371 ; Comment, Reconstructing Breach of the Implied Covenant of Good Faith and Fair Dealing as a Tort (1985) 73 Cal.L.Rev. 1291, 1330; cf. Traynor, op. cit. supra, 8 Bus. L. News 1, 13.) Again the analogy to the insurance cases is close. Explaining the basis for tort damages in insurance cases, Wallis v. Superior Court, supra, 160 Cal.App.3d 1109, 1118 , said that “[m]oney damages paid pursuant to a judgment years after ... do not remedy the harm suffered . . . , namely the immediate inability to support oneself and its attendant horrors”—language which applies equally to a suit for wrongful discharge. As summarized in Miller & Estes, Recent Judicial Limitations On the Right to Discharge: A California Trilogy (1982) 16 U.C. Davis L.Rev. 65, 90-91, insureds and employees both depend on the contracts “for their security, well-being, and peace of mind. If insurance companies or employers act in bad faith, the consequences can be very severe, indeed much greater than those that result from a breach of contract.”

In contrast, commercial contracts, generally speaking, are negotiated between parties of more nearly equal bargaining strength, and are entered *710 into for purpose of profit. Breach entails only lost profits, and often a market exists in which the damaged party can cover its loss. I conclude that past decisions were justified in analogizing the relationship between employer and employee to that between insurer and insured, and in distinguishing both from commercial contracts for the sale of goods and services.

3. The existence of a contract action for discharge in breach of contract does not exclude a tort action for bad faith.

The majority also assert that the prior cases have not carefully considered the fundamental policies underlying the development of tort and contract law. (Ante, at p. 689.) Their argument, in essence, is that the covenant of good faith and fair dealing is simply one provision in the contract. When the employer acts in “bad faith,” they argue, he breaches the contract, and the appropriate remedy is an action for damages recoverable for breach of contract.

There are several objections to this reasoning. First, as pointed out by Justice Kaufman, the covenant is a duty imposed by law, not one arising from the terms of the contract. (Cone. & dis. opn. of Kaufman, J., ante, at p. 716).) Second, the majority’s reasoning was previously advanced in opposition to tort recovery in the insurance cases, and has there been rejected by this court. Finally, the majority mistake the distinction between a contract action for wrongful discharge and a tort action for bad faith discharge.

A suit in contract for wrongful discharge is not based directly upon the covenant of good faith and fair dealing, but upon some other provision limiting the right of the employer to discharge at will. 7 A provision may prohibit discharge without “good cause,” in which the employer’s good faith may be relevant in deciding whether good cause exists. (Pugh v. See’s Candies, Inc. (1981) 116 Cal.App.3d 311, 330 [ 171 Cal.Rptr. 917 ].) The provision may, instead, establish some other limitation on the employer’s power to discharge the employee. It may, for example, prohibit the discharge of the worker before January 1, or so long as he produces 400 widgets per month, or without an opportunity for a grievance hearing—in which examples good faith would not be relevant. The point is that all such actions rest not on proof of the employer’s bad faith, but of his breach of some contractual provision apart from the covenant.

A tort action for bad faith discharge also requires that the discharge be wrongful—that is, in breach of contract. But once that prerequisite is sa *711 tisfied, it focuses not upon the employee’s right to enforce a particular contractual provision, but upon society’s right to deter and demand redress for arbitrary or malicious conduct which inflicts harm upon one of its members. This is the proper and traditional function of tort law.

The majority attack a tort remedy because it is different than a contract remedy, as if tort law itself served no purpose. They argue, for example, that abolition of a tort remedy for bad faith discharge will enhance predictability of damages. 8 The unpredictability of damages in a tort action for bad faith discharge is the consequence of allowing recovery for emotional distress. Damages in other torts permitting recovery for emotional distress, such as negligence, products liability, malpractice, intentional infliction of emotional distress, etc., are equally unpredictable. I see no reason why predictability is more important to employers in connection with wrongful discharge actions than, for example, in actions for injuries caused by defective products. Of course, one can enhance predictability by denying recovery for injuries suffered, but this is not a trade-off courts have generally been willing to make. It is a decision which, by the majority’s own logic, is better left to the Legislature.

The majority then argue that it would be difficult if not impossible to formulate a rule to confine tort relief to “deserving” cases, apparently because the concept of “good faith” is subjective. 9 In fact, a suitable test is simple to describe: an employer acts in bad faith in discharging an employee if and only if he does not believe he has a legal right to discharge the employee. 10 The majority assert that under similar tests employed by the courts “an ordinary contract breach might give rise to a bad faith action” {ante, p. 698) and that a requirement of bad faith “do[es] nothing ... to differentiate between those cases properly and traditionally compensable by contract damages and those in which tort damages should flow” {ante, p. 699). But these assertions are obviously mistaken. A breach of contract does *712 not require bad faith. The distinction between contract and tort is between a discharge done in good faith, where the employer believes he has a legal right to discharge the worker, and deliberate, arbitrary violation of the employee’s rights. Indeed, the majority acknowledge in a footnote the effectiveness of a similar test in limiting tort recovery, and complain only that it does not “serve to limit initiation and prosecution of litigation based on almost any discharge.” (Ante, p. 697, fn. 35.) I see no reason why the defense remedies of demurrer and summary judgment will not prove as effective here as in any other tort action: presumably if plaintiff cannot prove bad faith he will not assert it in his complaint; if he does he will lose on summary judgment. 11

The majority particularly attack Koehrer v. Superior Court, supra, 181 Cal.App.3d 1155 , on the ground that “it failed, however, to recognize that in traditional contract law, the motive of the breaching party generally has no bearing on the scope of damages that the injured party may recover for breach of the implied covenant.” (Ante, p. 699, italics in original.) The argument seems misplaced in the majority opinion; it belongs in the dissent. The fact that traditional contract law draws no distinction between good faith and bad faith, between innocent breach and malicious breach, is a good reason for looking to tort law where such distinctions are recognized. Indeed, the majority argument on this point, and, one might say, on the entire issue of tort damages, makes no sense unless the majority believe that there should be no distinction between innocent and malicious breach—that the employer who maliciously and arbitrarily fires a worker knowing that he has no right to do so should pay no more in damages than the employer who believed in good faith that he had a right to fire the worker—and in particular that the bad faith employer should not pay for the suffering he knowingly and deliberately caused. That is not a belief which I share.

4. It is fundamentally illogical for the majority to abolish an established tort remedy for bad faith discharge and then to argue that radical change in existing remedies is best left to the Legislature.

The majority in their concluding words recognize the need to provide wrongfully discharged workers with an adequate remedy. They also observe that traditional contract remedies may be inadequate. They assert, however, *713 that an action in tort is not necessarily the answer. Commentators, they say, have pointed out that a tort remedy has social and economic implications which could be more easily studied and weighed by a legislature than by the courts. 12 Some have suggested alternative remedies, such as arbitration, which could be enacted by legislation but not by judicial decision. Thus, according to the majority, the choice between tort remedies and alternative remedies is one best made by the Legislature, not by the courts. 13 One reading this argument would expect that the majority opinion would be limited to clarifying existing law relating to the availability of a tort remedy and that any drastic change in existing law, such as the abolition of the tort remedy or its replacement by some other reipedy, would be left to the Legislature.

But the majority do not clarify existing law. They repudiate it. They reject the guidance of the only cases by this court to discuss tort actions for wrongful discharge. They reverse the Court of Appeal decision in this case. They overrule seven other unanimous Court of Appeal decisions—every Court of Appeal decision to decide that issue. 14 They will cause reversals in *714 approximately 10 other cases in which review has been granted and held for this decision, since every one of those cases recognized a tort cause of action. Having thus swept the table clean of California precedent, 15 they adopt a rule limiting workers discharged in bad faith to contract damages— a rule rejected by most of the commentators on whom the majority rely, and recognized as inadequate by the majority themselves.

Only after completely rewriting California law on the subject do the majority leave the matter to the Legislature. But two things have changed. First, the Legislature will face a problem—the inadequacy of damages in actions for bad faith discharge—which did not exist before. Second, the burden of seeking legislative change, which was previously on employers and insurers, two well-organized and financed groups, is now on the unorganized worker.

In fact, the Legislature has already considered this matter. In the 1985-1986 legislative session Senator Greene and Assemblyman McAllister both introduced bills which would have abolished a tort remedy for bad faith discharge, and provided for arbitration of contract claims. (See Sen. Bill No. 1348 and Assem. Bill No. 2800, summarized in Brandon, op. cit. supra, 15 Hastings Const. L.Q. 359 , 373-374.) Neither bill was enacted. One cannot infer too much from the Legislature’s failure to enact a bill, but it seems safe to say that the Legislature was not contemplating abolishing a tort remedy without a suitable replacement.

*715 5. Conclusion.

The majority’s action in abolishing the tort remedy for bad faith discharge comes soon after its decision in Moradi-Shalal v. Fireman’s Fund Ins. Companies, supra, 46 Cal.3d 287 , which abolished the tort cause of action for bad faith settlement practices by insurers. In both cases the court has reached out to overturn precedent and to abolish a cause of action recognized by California law. The decisions abolish protections previously accorded consumers and workers; they extend protection to insurers and employers, giving them tort immunity not for innocent error but for bad faith breach of duty. In both cases, moreover, the California Legislature has considered abolishing the cause of action in question but refrained from so doing; 16 the decisions of this court grant immunities which the Legislature has declined to give, and shift to the unorganized consumer and worker the burden of seeking legislative change. It is the function of the common law “to protect the weak from the insults of the stronger.” (3 Blackstone, Commentaries 3.) The majority’s decision subverts that function.

I have considerable respect for the doctrine of judicial restraint, but that doctrine must run both ways. Judicial restraint should not only restrain the court from creating new remedies, it should also restrain the court from dismantling existing ones.

Application of these precedents will not solve all the problems the majority create. There will be cases in which the probability of emotional distress is not present at the time of contracting, but becomes apparent only later, after the employee has put in years on the job and come to rely on it for his economic security. Most of the cases cited seem to limit recovery to damages foreseeable at the time of the contract. (But see Civ. Code, § 3300 [the measure of damages for breach of contract “is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom”]; Overstreet v. Merritt (1921) 186 Cal. 494, 505 [ 200 P. 11 ] [“[o]ne who in bad faith violates his contract is liable for all damages traceable to the breach, including even those which could not be foreseen at the time of making the contract”].) Secondly, these precedents provide no basis for punitive damages, no matter how outrageous the employer’s conduct, or how essential such damages may be to deter future wrongful conduct.

Chief Justice Bird, in her concurring and dissenting opinion, wrote that tort remedies should have a broader scope in insurance and employment cases. She observed that “breach of an employment contract by the employer can, in some situations, cause severe harm to an employee’s reputation and ability to find new employment. The harm caused cannot be undone by an award of backpay. Thus, employees may be entitled to expect that their contracts will not be breached for frivolous or improper reasons.” (Seaman's, supra, 36 Cal.3d at p. 780 .)

The majority do not decide whether their decision abolishing the tort cause of action for bad faith discharge is retroactive. A pattern of reliance similar to that present here led this court to make its decision in Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287, 305 [ 250 Cal.Rptr. 116 , 758 P.2d 58 ], prospective.

This court has granted review in 14 cases pending the decision of the present case. Most of those cases involve, among other issues, the question of a tort remedy for bad faith discharge, and in all such cases the Court of Appeal unanimously upheld the existence of a tort remedy.

Consider, for example, the case of K Mart Corp. v. Ponsock (1987) 103 Nev. 39 [ 732 P.2d 1364 ], Ponsock was a forklift driver with 10 years longevity, whose pension would vest in another 6 months. He discovered that the battery cover on his forklift needed painting. Finding a damaged (and thus unsaleable) can of spray paint, he used it to paint the forklift. Although *708 other forklifts had been painted in a similar manner without any action against the employee in question, Ponsock was fired for “defacing” company property and “stealing” a can of paint. When he attempted to explain his conduct, he was excluded from the premises. After a long period of unemployment, he finally obtained a job as a laborer at half his previous wage with no benefits. This income was inadequate to meet mortgage payments, and Ponsock was forced to sell his home at a loss.

Traditional contract damages would not compensate Ponsock for the loss incurred on the sale of a home, or for emotional suffering. In addition, such damages would do nothing to deter further arbitrary actions. The employer would be required to compensate Ponsock for the difference between his prior wage and his present wage, but since Ponsock could be replaced by a lower wage worker whose pension would not vest for many years, the employer might profit from his wrong.

A second significant similarity is that both insurance contracts and employment contracts arise from a context of disparity of bargaining power. Numerous cases have noted this disparity in insurance cases; it has led to the adoption of a general rule that insurance contracts are construed against the insurer. There are fewer cases in the employment context, but here the principle is embodied in a statutory finding that “the individual unorganized worker is helpless to exercise actual liberty of contract and to protect his freedom of labor, and thereby to obtain acceptable terms and conditions of employment.” (Lab. Code, § 923.)

All contracts, including contracts for employment at will, include a covenant of good faith and fair dealing, but the arbitrary discharge of an employee at will is not a breach of contract. (See discussion in maj. opn., ante, at p. 698, fn. 39.)

The importance of predictability of damages, as the majority note (see ante, p. 683, fn. 25), is that it facilitates economically efficient breach. A party who can calculate damages can determine whether he can profit by breaching his contract, accepting liability in return for the benefits of breach. This attitude may be appropriate in a commercial context. It should not be condoned in the employer-employee relationship, where breach may cause injury beyond that of mere loss of income, injury which cannot easily be mitigated. It is difficult to summon sympathy for the employer who needs predictability of damages so he can calculate whether he will profit by firing his employee in breach of the employment contract.

Of course, tort law is rife with subjective elements—“malice,” “willful misconduct,” “reckless disregard,” and, in insurance cases, “bad faith.”

Some cases and writers have suggested that the courts should also consider whether the employer acted reasonably. Since the majority abolish the entire cause of action, it is pointless now to decide that question. I would note only that the concept of reasonableness, like that of bad faith, is one familiar to tort law, and not generally considered so unpredictable or subjective as to justify denial of relief for injuries suflered.

The majority’s fear that plaintiffs will plead bad faith when they have no basis for that pleading seems exaggerated. I see no more reason to fear false pleading in this context than in any other cause of action. In any case, the majority’s decision will not limit initiation and prosecution of litigation since plaintiffs will retain a contractual remedy. At best, it prevents plaintiffs from including false and groundless tort claims in their complaint, but does so only by also preventing them from including true and meritorious claims.

Many of the commentators the majority cite to support their assertion that a tort remedy for bad faith discharge could have economic drawbacks are inapposite. A number of the articles deal solely with commercial contracts, and do not discuss a tort remedy for employees. (See Louderback & Jurika, Standards for Limiting the Tort of Bad Faith Breach of Contract (1982) 16 U.S.F. L.Rev. 187; Putz & Klippen, Commercial Bad Faith: Attorney Fees—Not Tort Liability—is the Remedy for Stonewalling, supra, 21 U.S.F. L.Rev. 419; Traynor, op. cit. supra, 8 Bus. L. News 1; Comment, Reconstructing Breach of the Implied Covenant of Good Faith and Fair Dealing as a Tort, supra, 73 Cal.L.Rev. 1291.) Others are primarily concerned with the rights of at-will employees, but the tort remedy for bad faith breach applies almost exclusively to cases involving employees with contractual protection against arbitrary discharge. (E.g., Gould, The Idea of the Job as Property in Contemporary America: The Legal and Collective Bargaining Framework, supra, B.Y.U. L. Rev. 885, 905.)

Most important, most of the commentators recognize the problem of inadequacy of contract damages and, if they do not support a tort remedy, support some alternative. I doubt that any would support the majority’s act of abolishing tort damages without providing an alternative.

The majority are not entirely consistent on this point, for they appear to leave open the possibility that the courts, without legislative action, could expand the measure of damages recoverable for discharge in breach of contract. I find it difficult to see why a common law court has greater ability to change the measure of damages in contract than to create a cause of action in tort.

But the practical problem with the majority’s suggestion is that while they abolish the cause of action in tort, they only suggest the possibility of expanded contract damages. This is to trade a bird in the hand for the hope there will be one in the bush next year. Employees lose an adequate remedy, and may or may not get a replacement sometime.

The majority disapprove Cleary v. American Airlines, Inc., supra, 111 Cal.App.3d 443 , “and its progeny.” (Ante, p. 700, fn. 42.) The progeny of Cleary include Koehrer v. Superior Court, supra, 181 Cal.App.3d 1155 ; Gray v. Superior Court, supra, 181 Cal.App.3d 813 ; Khanna v. Microdata Corp., supra, 170 Cal.App.3d 250 ; Rulon-Miller v. International Business Machines Corp., supra, 162 Cal.App.3d 241 ; Shapiro v. Wells Fargo Realty Advisors, su *714 pra, 152 Cal.App.3d 467 ; and Crosier v. United Parcel Service, Inc., supra, 150 Cal.App.3d 1132 .

The majority refer to decisions of other jurisdictions, but present a misleading count. Five decisions of other jurisdictions uphold a tort cause of action (Huber v. Standard Ins. Co., supra, 841 F.2d 980 ; Carter v. Catamore Co., Inc. (N.D.Ill. 1983) 571 F.Supp. 94, 97 [R.I. law]; Dare v. Montana Petroleum Marketing Co. (Mont. 1984) 687 P.2d 1015, 1020 ; Gates v. Life of Montana Ins. Co. (1983) 205 Mont. 304 [ 668 P.2d 213 ]; K Mart Corp. v. Ponsock, supra, 732 P.2d 1364, 1369-1370 ); three reject that cause of action (Arco Alaska, Inc. v. Akers (Alaska 1988) 753 P.2d 1150, 1153-1154 ; Martin v. Federal Life Ins. Co. (1982) 109 Ill.App.3d 596 [ 440 N.E.2d 998, 1006 ]; Murphy v. American Home Products Corp. (1983) 58 N.Y.2d 293 [ 461 N.Y.S.2d 232, 238 , 448 N.E.2d 86 ].) If we discount Huber as based on California law, the count stands at four to three. The majority compile a more extensive list of decisions by including cases involving quite different issues. A number of those decisions hold (contrary to California law) that there is no implied covenant of good faith in contracts for employment at will—a holding which says nothing about whether tort damages would be awarded for the breach, in bad faith, of a contract barring termination without good cause.

If we count all cases, including California decisions and those based on California law, the current count is 13 cases upholding a tort cause of action and 3 rejecting it. This figure does not include the 10 or so additional cases upholding the cause of action depublished by the grant of review by this court and held pending the present decision.

For the proposed legislation relating to wrongful discharge, see ante, page 714; for proposed legislation concerning insurance bad faith, see Moradi-Shalal v. Fireman’s Fund Ins. Companies, supra, 46 Cal.3d 287 , 300 and pages 295-296 (Mosk, J., dis.).