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Asmus v. Pac. Bell - 23 Cal. 4th 1, 96 Cal. Rptr. 2d 179, 999 P.2d 71 (2000)

Rule:

An unqualified right to modify or terminate a contract is not enforceable. But the fact that one party reserves the implied power to terminate or modify a unilateral contract is not fatal to its enforcement, if the exercise of the power is subject to limitations, such as fairness and reasonable notice. 

Facts:

In 1986, defendant corporation issued an employment security policy to its management employees. In 1990, defendant notified its managers that industry conditions could force it to discontinue its policy. In 1992, defendant terminated the policy. Plaintiffs, 60 former management employees, filed an action asserting breach of contract and violations of the Employee Retirement Income Security Act. The federal district court certified the question of whether an employer could unilaterally terminate a policy even though a specified condition had not occurred.

Issue:

Was the corporation within its right to unilaterally terminate its "Management Employment Security Policy"?

Answer:

Yes

Conclusion:

The Supreme Court of California answered the question in the affirmative. The court concluded that under contract theory, an employer could terminate a unilateral contract of indefinite duration, so long as its action occurred after a reasonable time, and was subject to prescribed or implied limitations, including reasonable notice and preservation of vested benefits. Plaintiffs enjoyed the benefits of the policy for a reasonable time period, and defendant gave its employees reasonable notice of its intent to terminate the policy.

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