JOHN GUZ, Plaintiff and Appellant, v. BECHTEL NATIONAL, INC., et al., Defendants and Respondents, 24 Cal. 4th 317

Opinion BAXTER, J. This case presents questions about the law governing claims of wrongful discharge from employment as it applies to an employer’s motion for

summary judgment. Plaintiff John Guz, a longtime employee of Bechtel National, Inc. (BNI), was released at age 49 when his work unit was eliminated and its tasks were transferred to another Bechtel office. Guz sued BNI and its parent, Bechtel Corporation (hereinafter collectively Bechtel), alleging age discrimination, breach of an implied contract to be terminated only for good cause, and breach of the implied covenant of good faith and fair dealing. The trial court granted Bechtel’s motion for

summary judgment and dismissed the action. In a split decision, the Court of Appeal reversed. The majority found that Bechtel had demonstrated no. grounds to foreclose a trial on any of the claims asserted in the complaint. Having closely reviewed the Court of Appeal’s decision, we reach the following conclusions: First, the Court of Appeal used erroneous grounds to reverse

summary judgment on Guz’s implied contract cause of action. The Court of Appeal found triable evidence (1) that Guz had an actual agreement, implied in fact, to be discharged only for good cause, and (2) that the elimination of Guz’s work unit lacked good cause because Bechtel’s stated reason—a “downturn in.'. . workload”—was not justified by the facts, and was, in truth, a pretext to discharge the unit’s workers for poor performance without following the company’s “progressive discipline” policy.

We acknowledge a triable issue that Guz, like other Bechtel workers, had implied contractual rights under specific provisions of Bechtel’s written personnel policies. But neither the policies, nor other evidence, suggests any contractual restriction on Bechtel’s right to eliminate a work unit as it saw fit, even where dissatisfaction with unit performance was a factor in the decision. The Court of Appeal’s ruling on Guz’s implied contract claim must therefore be reversed.

The Court of Appeal did not reach the additional ground on which Guz claims a contractual breach—i.e., that Bechtel failed to follow its fair layoff policies when, during and after the reorganization, it made individual personnel decisions leading to Guz’s release. Accordingly, we leave that issue to the Court of Appeal on remand. Second, the Court of Appeal erred in restoring Guz’s separate cause of action for breach of the implied covenant of good faith and fair dealing.

Here Guz claims that even if his employment included no express or implied-in-fact agreement limiting Bechtel’s right to discharge him, and was thus “at will” (Lab. Code, § 2922), the covenant of good faith and fair dealing, implied by law in every contract, precluded Bechtel from terminating him arbitrarily, as by failing to follow its own policies, or in bad faith. But while the implied covenant requires mutual fairness in applying a contract’s actual terms, it cannot substantively alter those terms.

If an employment is at will, and thus allows either party to terminate for any or no reason, the implied covenant cannot decree otherwise. Moreover, although any breach of the actual terms of an employment contract also violates the implied covenant, the measure of damages for such a breach remains solely contractual. Hence, where breach of an actual term is alleged, a separate implied covenant claim, based on the same breach, is superfluous. On the other hand, where an implied covenant claim alleges a breach of obligations beyond the agreement’s actual terms, it is invalid.

Finally, we disagree with the Court of Appeal that Guz’s claim of prohibited age discrimination has triable merit. Bechtel presented evidence, largely undisputed, that the reasons for its personnel decisions leading to Guz’s release had nothing to do with his age. In the face of this showing, evidence cited by Guz that certain workers preferred over him were substantially younger is insufficient to permit a rational inference that age played any significant role in his termination.

For the reasons set forth above, we will reverse the judgment of the Court of Appeal and will remand to that court for further proceedings consistent with this opinion. Facts In October 1994, Guz sued Bechtel, challenging the June 1993 termination of his Bechtel employment. The complaint alleged causes of action for breach of an implied employment contract (see Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654 [254 Cal.Rptr. 211, 765 P.2d 373] (Foley)), breach of the covenant of good faith and fair dealing, and age discrimination in violation of the California Fair Employment and Housing Act (FEHA; Gov.

Code, § 12941). After extensive discovery, Bechtel filed a motion for

summary judgment in August 1995. The motion, and Guz’s opposition thereto, attached numerous supporting documents, including declarations and deposition excerpts. On the basis of these submissions, the following facts appear to be essentially undisputed: In 1971, Bechtel hired Guz as an administrative assistant at a salary of $750 per month. Throughout his Bechtel career, Guz worked in “management information,” performing, at various times, duties on both the “awarded” and “overhead” sides of this specialty. He received steady raises and promotions.

His performance reviews were generally favorable, though his March 1992 evaluation indicated he needed to follow through on ideas and should become “fully computer literate in order to improve his long-term job success.” BNI, a division of Bechtel Corporation, is an engineering, construction, and environmental remediation company that focuses on federal government programs, principally for the Departments of Energy and Defense. Prior to 1993, BNI had its own in-house management information unit, the BNI Management Information Group (BNI-MI).

BNI-MI itself represented a 1986 consolidation of two Bechtel management information units, which resulted in the work of these groups being done by fewer people. Between 1986 and 1991, BNI-MI’s size was further reduced from 13 to six persons, and its costs were reduced from $748,000 in 1986 to $400,000 in 1991. Guz had worked for BNI-MI since 1986. In 1992, at age 49, he was employed as a financial reports supervisor, responsible for supervising BNI-MI’s overhead section, which included himself and 44-year-old Dee Minoia. At salary grade 27, Guz earned $5,940 per month.

BNI-MI’s six-member staff also included its manager, Ronald Goldstein (age 50), Goldstein’s secretary Pam Fung (age 45), Robert Wraith (age 41), and Christine Siu (age 34). Guz’s immediate superior was his longtime friend and colleague Goldstein. Goldstein, in turn, reported to Edward Dewey, BNI’s manager of government services. During this time, Bechtel maintained Personnel Policy 1101, dated June 1991, on the subject of termination of employment (Policy 1101).

Policy 1101 stated that “Bechtel employees have no employment agreements guaranteeing continuous service and may resign at their option or be terminated at the option of Bechtel.” Policy 1101 also described several “Categories of Termination,” including “Layoff’ and “Unsatisfactory Performance.” With respect to Unsatisfactory Performance, the policy stated that “[ejmployees who fail to perform their jobs in a satisfactory manner may be terminated, provided the employees have been advised of the specific shortcomings and given an opportunity to improve their performance.” A layoff was defined as “a Bechtel-initiated termination!] of employees caused by a reduction in workload, reorganizations, changes in job requirements, or other circumstances . . . .” Under the Layoff policy, employees subject to termination for this reason “may be placed on ‘holding status’ if there is a possible Bechtel assignment within the following 3-month period.” Guz understood that Policy 1101 applied to him.

In January 1992, Robert Johnstone became president of BNI. While previously running another Bechtel entity, Johnstone had received management information services from the San Francisco Regional Office Management Information Group (SFRO-MI) headed by James Tevis. BNI-MI and SFRO-MI performed similar functions, and John Shaeffer, a veteran Bechtel employee who was several months older than Guz, had overhead reporting duties for SFRO-MI that were similar to Guz’s job within BNI-MI. Johnstone soon became unhappy with the size, cost, and performance of BNI-MI.

In April 1992, he advised Dewey, Goldstein, and Guz that BNI-MI’s work could be done by three people. A May 1992 memo from Dewey to Goldstein warned that Dewey and Johnstone had agreed BNI-MI’s 1992 overhead budget of $365,000 was a “maximum not to be exceeded” and was “subject to further analysis and review, since the real guideline was far below this level.” Between April and October 1992, Guz and Goldstein discussed how to reduce BNI-MI’s work force. In September 1992, Dee Minoia was told to look for another job.

In October 1992, on Dewey’s recommendation, Gold-stein advised Guz to seek another Bechtel position, citing BNI-MI’s reduced budget as the “biggest factor.” By that time, as Guz knew, BNI-MI’s overhead costs for 1992 had already run well over its strict budget. In preparation for his departure, Guz compiled a list of his job tasks, together with his suggestions about who should perform his work once the BNI-MI staff was reduced.

Guz recommended that most of his duties go to Shaeffer in SFRO-MI, and that the small remaining portion of his work, involving the government’s Defense Contract Audit Agency, be transferred to a unit headed by Ann Dersheimer, BNI’s 46-year-old controller, which regularly performed government audit and contract work. In mid-November, Goldstein managed to persuade Dewey, at least temporarily, that Guz was necessary to BNI-MI’s work. With Dewey’s consent, Goldstein asked Guz to stay, and Guz accepted.

Meanwhile, however, Dewey and Johnstone were discussing the possibility of involving SFRO-MI more actively in BNI’s management information needs. In late November 1992, Goldstein received from Dewey, and discussed with Guz, a memo setting BNI-MI’s target overhead budget for 1993 at $250,000. The memo again suggested staff reductions as a means of bringing the unit’s overhead within the budget limits. About the same time, Johnstone asked Tevis to submit a proposal to provide BNI’s management information services through SFRO-MI.

In early December, Tevis submitted a proposed budget of $200,000, which Johnstone accepted. On December 9, 1992, Goldstein informed Guz that BNI-MI was being disbanded, that its work would be done by SFRO-MI, and that Guz was being laid off. Goldstein told Guz the reason he had been selected for layoff was to reduce costs. On December 11, 1992, Guz received a confirmatory letter from Dewey, which referred to “the downturn in our workload” and placed Guz on holding status. In a December 17, 1992, memo to BNI managers, Johnstone announced the transfer of BNI-MI to SFRO-MI effective February 1, 1993.

During the transition period, as he had earlier recommended, Guz transferred his overhead reporting work to Shaeffer and his government audit work to Dersheimer. As part of the transition plan, Tevis consulted with Goldstein “about the positions [Tevis] would need that [he] could cover in [his] group and that [he] couldn’t cover.” According to Tevis’s uncontradicted deposition testimony, Goldstein recommended Wraith and Siu as the best additions to SFRO-MI’s staff.

The reasons, according to Tevis, were that Siu had necessary skills in Bechtel’s ORS computer operating system and occupied a salary grade commensurate with the duties Tevis wished her to assume, and that Wraith “knew the project side” of management information. Guz’s name came up in the discussion, but Tevis and Goldstein “both decided” Shaeffer and another current SFRO-MI employee, Chris Gee, were sufficient to assume Guz’s overhead work. Wraith and Siu, the two youngest members of BNI-MI, were transferred to SFRO-MI, while all the remaining BNI-MI employees, including Guz, were laid off.

Guz was placed on holding status pending possible reassignment to another Bechtel position. During early 1993, while Guz was on holding status, three other positions became available in SFRO-MI, partly because of that unit’s expanded responsibilities for BNI. An existing SFRO-MI employee, 42-year-old John Wallace, was selected for a new SFRO-MI position as supervisor of SFROMI’s work for BNI. Wallace’s former SFRO-MI subordinate, 52-year-old Jan Vreim, was placed in Wallace’s old job.

The third position, vacated by the transfer of another SFRO-MI member, was filled by 38-year-old Barbara Stenho, who also already worked for Bechtel but was a newcomer to SFRO-MI. Tevis explained that Wallace was selected for his position because it required his computer skills, and because his supervisory and project experience suited him for the responsibility of working directly with BNI president Johnstone, who was project oriented. Vreim was also chosen for her ORS computer ability, her history of working with high-level managers, and her project experience.

The SFRO-MI position taken by Stenho required a close working relationship with another Bechtel entity, Bechtel Civil, where Stenho had previously been employed. Stenho was placed in her new job at the specific request of Bechtel Civil’s manager. Though Guz insists he let it be known he wanted to stay at Bechtel, even at a reduced salary, he appears to concede he did not specifically apply for any of the SFRO-MI positions. Tevis never saw Guz’s resume before filling them, and he admitted he never considered Guz for these jobs.

Tevis variously indicated he did not realize Guz was available, thought Guz “only did overhead,” understood from Goldstein that Guz lacked computer skills, and did not know Guz had supervisory experience. Tevis also noted Guz did not have the Bechtel Civil relationship necessary for the Stenho position. After Tevis was asked, at his deposition, to examine Guz’s resume, Tevis acknowledged it indicated Guz might have qualified for the positions taken by Wraith and Wallace. Guz’s original three-month holding status was renewed for an additional three months, but he obtained no other position within Bechtel.

He was terminated on June 11, 1993. Guz sought to furnish evidence that the cost reduction and workload downturn reasons given him for the elimination of BNI-MI, and his own consequent layoff, were arbitrary, false, and pretextual. To rebut the implication that a general business slowdown required BNI to lay off workers, Guz submitted an excerpt from Bechtel Corporation’s 1992 Annual Report. There, Bechtel Corporation’s president stated that the “Bechtel team had an exceptional year,” and that the company as a whole had achieved healthy gains in both revenue from current projects and new work booked.

In his own declaration, Goldstein stated that BNI-MI’s 1992 and projected 1993 workload was high, that BNI-MI’s work volume was not directly related to the overall job hours of BNI, and that because much of BNI-MI’s overhead cost was recoverable under BNI’s government contracts, the net savings from elimination of BNI-MI were only a small fraction of its budget. Guz also submitted additional Bechtel documents discussing specific company personnel policies and practices, including those policies pertaining to laid-off employees.

These documents included Bechtel’s 1989 Reduction-in-Force Guidelines (RIF Guidelines) and Bechtel’s Personnel Policy 302 (Policy 302). Policy 302 described a system of employee ranking (sometimes hereafter called force ranking), which was to be “used alone or in conjunction with other management tools in making personnel decisions in such areas as . . . [sjtaffing.” Rankings were to be based on the fair, objective, and consistent evaluation of employees’ comparative job-relevant skills and performance.

However, Policy 302 also provided that “[ujnique situations may occur in which employee ranking may be inapplicable based on the nature of the personnel decision or the limited size of the ranking group.” (Italics omitted.) The RIF Guidelines specified that when choosing among employees to be retained and released during a reduction in force, the formal ranking system set forth in Policy 302 was to be employed. For this purpose, the RIF Guidelines said, employees should “[ijdeally” be ranked, by similarity of function or level of work activity, in groups of from 20 to 100.

The parties disputed whether Bechtel actually used this force ranking system when eliminating entire units of fewer than 20 employees. Bechtel’s manager of human resources declared that force ranking was inappropriate for small units, such as BNI-MI, whose employees had dissimilar duties, grades, and skills. However, both Guz and Goldstein declared their recollection that force ranking was an established Bechtel policy and was used in 1986 when two management information units, containing 13 employees, were consolidated into a six-member unit, BNI-MI.

The RIF Guidelines also explained the term “holding status” and its benefits. According to the RIF Guidelines, this status could be granted upon layoff, for a renewable three-month period, while the employee awaited possible reassignment. The employee would not receive salary, but Bechtel would maintain his medical, dental, voluntary personal accident, and term life insurance.

Bechtel should also provide the employee with “[tjransfer and [pjlacement [ajssistance.” The “releasing organization” should determine if the employee was qualified for other vacant positions within the same unit, • and “open requisitions” (i.e., solicitation of outside applicants for available positions) should generally be cancelled during a reduction in force. “Efforts should [also] be made to contact discipline counterparts in other Bechtel entities/services” in hopes of placing the employee, and the employee should be considered for future positions. (Italics added.) In his deposition, BNI president Johnstone agreed that Bechtel’s practice was to place an employee on holding status prior to termination, to attempt to reassign the employee during this period, and to “continue to look for positions even after the employee has been laid off.” In their declarations, Goldstein and Guz insisted Guz was qualified for each of the several vacant positions in SFRO-MI, as well as for several other positions that became available within Bechtel.

Addressing Tevis’s specific qualms about Guz, Guz and Goldstein declared that Guz had supervisorial experience, and had worked on both the awarded and overhead sides of management information. Guz further stated that he had taken training for the ORS computer system, “had more than adequate computer skills for [his] position,” and was never told his computer skills were deficient. The trial court granted

summary judgment. The court reasoned that “[Guz] was an at-will employee and has not introduced any evidence that he was ever told at any time that he had permanent employment or that he would be retained as long as he was doing a good job. . . . [f] Plaintiff is unable to establish a prima facie case of age discrimination. . . . Plaintiff is also unable to rebut [Bechtel’s] legitimate business reason for his termination and/or his failure to obtain another position within Bechtel. . . .” Over a vigorous dissent by Presiding Justice Anderson, the Court of Appeal, First Appellate District, Division Four, reversed.

The majority, Justices Poché and Reardon, reasoned as follows: Under Foley, supra, 47 Cal.3d 654, Guz’s longevity, promotions, raises, and favorable performance reviews, together with Bechtel’s written progressive discipline policy and Bechtel officials’ statements of company practices, raised a triable issue that Guz had an implied-in-fact contract to be dismissed only for good cause. There was evidence that Bechtel breached this term by eliminating BNI-MI, on the false ground that workload was declining, as a pretext to weed out poor performers without applying the company’s progressive discipline procedures.

As to Guz’s age discrimination claim, Bechtel was required to advance a credible nondiscriminatory reason for Guz’s termination, after which the burden shifted to Guz to produce evidence that the proffered reason was discriminatory or pretextual. As already noted, however, whether a downturn in workload was the real reason for Bechtel’s action was in legitimate dispute. Hence,

summary judgment on the age discrimination claim was improper. The dissent argued that the trial court properly dismissed all Guz’s causes of action. It reasoned as follows: As to the contract claim, Policy 1101 expressly provided that Bechtel employment was at will. The progressive discipline policy did not apply to general reductions in force, and nothing in Bechtel’s personnel policies otherwise limited its right to eliminate positions. Guz’s mere successful longevity could not prove a contractual right to be terminated only for good cause.

Moreover, there was no evidence the elimination of BNI-MI was pretextual, or that Bechtel violated the implied covenant of fair dealing by engaging in intentional, bad faith conduct to deprive Guz of the benefits of his employment. As to age discrimination, Bechtel gave legitimate nondiscriminatory reasons for eliminating BNI-MI, and Guz presented no evidence these reasons were false, let alone excuses for intentional discrimination against Guz on the basis of his We granted review. Discussion I.

Summary judgment rules. On appeal after a motion for

summary judgment has been granted, we review the record de novo, considering all the evidence set forth in the moving and opposition papers except that to which objections have been made and sustained. (Artiglio v. Coming Inc. (1998) 18 Cal.4th 604, 612 [76 Cal.Rptr.2d 479, 957 P.2d 1313].) Under California’s traditional rules, we determine with respect to each cause of action whether the defendant seeking

summary judgment has conclusively negated a necessary element of the plaintiff’s case, or has demonstrated that under no hypothesis is there a material issue of fact that requires the process of trial, such that the defendant is entitled to judgment as a matter of law. (E.g., Calvillo-Silva v. Home Grocery (1998) 19 Cal.4th 714, 735-736 [80 Cal.Rptr.2d 506, 968 P.2d 65] (Calvillo-Silva); Flatt v. Superior Court (1994) 9 Cal.4th 275, 279 [36 Cal.Rptr.2d 537, 885 P.2d 950]; Ann M. v. Pacific Plaza Shopping Center (1993) 6 Cal.4th 666, 673-674 [25 Cal.Rptr.2d 137, 863 P.2d 207]; Molko v.

Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107 [252 Cal.Rptr. 122, 762 P.2d 46].) II. Implied contract claim. Labor Code

section 2922 provides that “[a]n employment, having no specified term, may be terminated at the will of either party on notice to the other.” An at-will employment may be ended by either party “at any time without cause,” for any or no reason, and subject to no procedure except the statutory requirement of notice. (E.g., Foley, supra, 47 Cal.3d 654, 680; Gantt v. Sentry Insurance Co. (1992) 1 Cal.4th 1083, 1094 [4 Cal.Rptr.2d 874, 824 P.2d 680]; Marin v. Jacuzzi (1964) 224 Cal.App.2d 549, 553-554 [36 Cal.Rptr. 880]; see Crosier v.

United Parcel Service, Inc. (1983) 150 Cal.App.3d 1132, 1137 [198 Cal.Rptr. 361].) While the statutory presumption of at-will employment is strong, it is subject to several limitations. For instance, as we have observed, “the employment relationship is fundamentally contractual.” (Foley, supra, 47 Cal.3d 654, 696.) Thus, though Labor Code

section 2922 prevails where the employer and employee have reached no other understanding, it does not overcome their “fundamental . . . freedom of contract” to depart from at-will employment. (47 Cal.3d at p. 677.) The statute does not prevent the parties from agreeing to any limitation, otherwise lawful, on the employer’s termination rights. (Id., at pp. 677, 680.) One example of a contractual departure from at-will status is an agreement that the employee will be terminated only for “good cause” (Foley, supra, 47 Cal.3d 654, 677) in the sense of “ ‘ “a fair and honest cause or reason, regulated by good faith . . .” ’ [citation], as opposed to one that is ‘trivial, capricious, unrelated to business needs or goals, or pretextual . . . .’ [Citations.]” (Scott v.

Pacific Gas & Electric Co. (1995) 11 Cal.4th 454, 467 [46 Cal.Rptr.2d 427, 904 P.2d 834] (Scott); see also Cotran v. Rollins Hudig Hall Internat., Inc. (1998) 17 Cal.4th 93, 104-105 [69 Cal.Rptr.2d 900, 948 P.2d 412]; Pugh v. See’s Candies, Inc. (1981) 116 Cal.App.3d 311, 330 [171 Cal.Rptr. 917] (Pugh).) But the parties are free to define their relationship, including the terms on which it can be ended, as they wish.

The parties may reach any contrary understanding, otherwise lawful, “concerning either the term of employment or the grounds or manner of termination.” (Foley, supra, 47 Cal.3d at p. 680, italics added.) Thus, the employer and employee may enter “ ‘an agreement . . . that ... the employment relationship will continue indefinitely, pending the occurrence of some event such as the employer’s dissatisfaction with the employee’s services or the existence of some “cause” for termination.’ ” (Foley, supra, 47 Cal.3d 654, 680, quoting Pugh, supra, 116 Cal.App.3d 311, 324-325, italics added.) Among the many available options, the parties may agree that the employer’s termination rights will vary with the particular circumstances.

The parties may define for themselves what cause or causes will permit an employee’s termination and may specify the procedures under which termination shall occur. The agreement may restrict the employer’s termination rights to a greater degree in some situations, while leaving the employer freer to act as it sees fit in others.

The contractual understanding need not be express, but may be implied in fact, arising from the parties’ conduct evidencing their actual mutual intent to create such enforceable limitations. (Foley, supra, 47 Cal.3d 654, 680.) In Foley, we identified several factors, apart from express terms, that may bear upon “the existence and content of an . . . [implied-in-fact] agreement” placing limits on the employer’s right to discharge an employee. (Ibid., italics added.) These factors might include “ ‘the personnel policies or practices of the employer, the employee’s longevity of service, actions or communications by the employer reflecting assurances of continued employment, and the practices of the industry in which the employee is engaged.’ ” (Ibid., quoting Pugh, supra, 116 Cal.App.3d 311, 327.) Foley asserted that “the totality of the circumstances” must be examined to determine whether the parties’ conduct, considered in the context of surrounding circumstances, gave rise to an implied-in-fact contract limiting the employer’s termination rights. (Foley, supra, 47 Cal.3d 654, 681.) We did not suggest, however, that every vague combination of Foley factors, shaken together in a bag, necessarily allows a finding that the employee had a right to be discharged only for good cause, as determined in court.

On the contrary, “courts seek to enforce the actual understanding” of the parties to an employment agreement. (Foley, supra, 47 Cal.3d 654, 677, italics added.) Whether that understanding arises from express mutual words of agreement, or from the parties’ conduct evidencing a similar meeting of minds, the exact terms to which the parties have assented deserve equally precise scrutiny. As Foley indicated, it is the “nature of [an implied-in-fact] contract” that must be determined from the “totality of the circumstances.” (Id., at p. 681.) Every case thus turns on its own facts.

Where there is no express agreement, the issue is whether other evidence of the parties’ conduct has a “tendency in reason” (Evid. Code, § 210) to demonstrate the existence of an actual mutual understanding on particular terms and conditions of employment. If such evidence logically permits conflicting inferences, a question of fact is presented. (Foley, supra, 47 Cal.3d at p. 677.) But where the undisputed facts negate the existence or the breach of the contract claimed,

summary judgment is proper. Guz alleges he had an agreement with Bechtel that he would be employed so long as he was performing satisfactorily and would be discharged only for good cause. Guz claims no express understanding to this effect. However, he asserts that such an agreement can be inferred by combining evidence of several Foley factors, including (1) his long service; (2) assurances of continued employment in the form of raises, promotions, and good performance reviews;

(3) Bechtel’s written personnel policies, which suggested that termination for poor performance would be preceded by progressive discipline, that layoffs during a work force reduction would be based on objective criteria, including formal ranking, and that persons laid off would receive placement and reassignment assistance; and (4) testimony by a Bechtel executive that company practice was to terminate employees for a good reason and to reassign, if possible, a laid-off employee who was performing satisfactorily. Guz further urges there is evidence his termination was without good cause in two respects.

First, he insists, the evidence suggests Bechtel had no good cause to eliminate BNl-MI, because the cost reduction and workload downturn reasons Bechtel gave for that decision (1) were not justified by the facts, and (2) were a pretext to terminate him and other individual BNI-MI employees for poor performance without following the company’s progressive discipline rules.

Second, Guz asserts, even if there was good cause to eliminate his work unit, his termination nonetheless lacked good cause because Bechtel failed to accord him fair layoff rights set forth in its written personnel rules, including (1) use of objective force ranking to determine which unit members deserved retention, and (2) fair consideration for other available positions while he was in holding status.. The Court of Appeal agreed with Guz that there was triable evidence of an implied-in-fact contract to terminate him only for good cause.

The court further agreed the evidence warranted a trial on Guz’s first theory of breach, i.e., that Bechtel’s stated economic reason for eliminating his work unit lacked support and was a pretext for firing unsatisfactory workers without resort to progressive discipline procedures. On this basis alone, the Court of Appeal reversed the

summary judgment against Guz’s contract cause of action. The Court of Appeal did not decide whether the evidence justified a trial on Guz’s second theory of breach, i.e., the denial of rights specified by the company’s fair layoff rules. As we shall explain, we find triable evidence that Bechtel’s written personnel documents set forth implied contractual limits on the circumstances under which Guz, and other Bechtel workers, would be terminated. On the other hand, we see no triable evidence of an implied agreement between Guz and Bechtel on additional, different, or broader terms of employment security.

As Bechtel suggests, the personnel documents themselves did not restrict Bechtel’s freedom to reorganize, reduce, and consolidate its work force for whatever reasons it wished. Thus, contrary to the Court of Appeal’s holding, Bechtel had the absolute right to eliminate Guz’s work unit and to transfer the unit’s responsibilities to another company entity, even if the decision was influenced by dissatisfaction with the eliminated unit’s performance, and even if the personnel documents entitled an individual employee to progressive discipline procedures before being fired for poor performance.

The basis on which the Court of Appeal overturned this portion of the trial court’s

summary judgment was therefore erroneous, and the Court of Appeal’s decision in this regard must be reversed. Having so concluded, we need not address the issue the Court of Appeal never reached, i.e., whether Guz has a triable claim that, in the course of the reorganization, Bechtel denied him fair layoff protections, such as objective ranking and placement assistance, as guaranteed by the company’s written personnel provisions. We leave that question to the Court of Appeal on remand. The following paragraphs describe in detail our reasoning on these matters.

At the outset, Bechtel insists that the existence of implied contractual limitations on its termination rights is negated because Bechtel expressly disclaimed all such agreements. Bechtel suggests the at-will presumption of Labor Code 2922 was conclusively reinforced by language Bechtel inserted in Policy 1101, which specified that the company’s employees “have no . . . agreements guaranteeing continuous service and may be terminated at [Bechtel’s] option.” As Bechtel points out, Guz concedes he understood Policy 1101 applied to him.

This express disclaimer, reinforced by the statutory presumption of at-will employment, satisfied Bechtel’s initial burden, if any, to show that Guz’s claim of a contract limiting Bechtel’s termination rights had no merit. But neither the disclaimer nor the statutory presumption necessarily foreclosed Guz from proving the existence and breach of such an agreement. Cases in California and elsewhere have held that at-will provisions in personnel handbooks, manuals, or memoranda do not bar, or necessarily overcome, other evidence of the employer’s contrary intent (see, e.g., Thomka v.

Financial Corp. (1993) 15 Cal.App.4th 877, 884-885 [19 Cal.Rptr.2d 382]; Walker v. Blue Cross of California (1992) 4 Cal.App.4th 985, 993 [6 Cal.Rptr.2d 184] (Walker); Wilkerson v. Wells Fargo Bank (1989) 212 Cal.App.3d 1217, 1227-1228 [261 Cal.Rptr. 185] {Wilkerson)), particularly where other provisions in the employer’s personnel documents themselves suggest limits on the employer’s termination rights (see, e.g., Wood v. Loyola Marymount University (1990) 218 Cal.App.3d 661, 665-669 [267 Cal.Rptr. 230]; Zaccardi v. Zale Corp. (10th Cir. 1988) 856 F.2d 1473, 1476-1477; O’Loughlin v.

The Pritchard Corp. (D.Kan. 1997) 972 F.Supp. 1352, 1369-1370; Farnum v. Brattleboro Retreat, Inc. (1995) 164 Vt. 488 [671 A.2d 1249, 1254-1255]; Swanson v. Liquid Air Corp. (1992) 118 Wash.2d 512 [826 P.2d 664, 668-677]; Jones v. Central Peninsula General Hosp. (Alaska 1989) 779 P.2d 783, 788).

The reasoning, express or implied, is that parol evidence is admissible to explain, supplement, or even contradict the terms of an unintegrated agreement, and that handbook disclaimers should not permit an employer, at its whim, to repudiate promises it has otherwise made in its own self-interest, and on which it intended an employee to rely. We agree that disclaimer language in an employee handbook or policy manual does not necessarily mean an employee is employed at will.

But even if a handbook disclaimer is not controlling (Wilkerson, supra, 212 Cal.App.3d 1217, 1227) in every case, neither can such a provision be ignored in determining whether the parties’ conduct was intended, and reasonably understood, to create binding limits on an employer’s statutory right to terminate the relationship at will.

Like any direct expression of employer intent, communicated to employees and intended to apply to them, such language must be taken into account, along with all other pertinent evidence, in ascertaining the terms on which a worker was employed. (Ibid,) We examine accordingly the evidence cited by Guz in support of his implied contract claim.

At the outset, it is undisputed that Guz received no individual promises or representations that Bechtel would retain him except for good cause, or upon other specified circumstances. (See Foley, supra, 47 Cal.3d 654, 680.) Nor does Guz seriously claim that the practice in Bechtel’s industry was to provide secure employment. {Ibid.) Indeed, the undisputed evidence suggested that because Bechtel, like other members of its industry, operated by competitive bidding from project to project, its work force fluctuated widely and, in terms of raw numbers, was in general decline.

However, Guz insists his own undisputed long and successful service at Bechtel constitutes strong evidence of an implied contract for permanent employment except upon good cause.

Guz argues that by retaining him for over 20 years, and by providing him with steady raises, promotions, commendations, and good performance reviews during his tenure, Bechtel engaged in “actions . . . reflecting assurances of continued employment.” {Foley, supra, 47 Cal.3d 654, 680.) Bechtel responds that an individual employee’s mere long and praiseworthy service has little or no tendency to show an implied agreement between the parties that the employee is no longer terminable at will.

A number of post-Foley California decisions have suggested that long duration of service, regular promotions, favorable performance reviews, praise from supervisors, and salary increases do not, without more, imply an employer’s contractual intent to relinquish its at-will rights. {Horn v. Cushman & Wakefield Western, Inc. (1999) 72 Cal.App.4th 798, 817-819 [85 Cal.Rptr.2d 459] {Horn); Kovatch v. California Casualty Management Co. (1998) 65 Cal.App.4th 1256, 1276 [77 Cal.Rptr.2d 217]; Davis v.

Consolidated Freightways (1994) 29 Cal.App.4th 354, 368 [34 Cal.Rptr.2d 438]; Tollefson, supra, 219 Cal.App.3d 843, 856; Miller v. Pepsi-Cola Bottling Co. (1989) 210 Cal.App.3d 1554, 1559 [259 Cal.Rptr. 56]; see also Hoy v. Sears, Roebuck & Co. (N.D.Cal. 1994) 861 F.Supp. 881, 886.) These decisions reason that such events are but natural consequences of a well-functioning employment relationship, and thus have no special tendency to prove that the employer’s at-will implied agreement, reasonably understood as such by the employee, has become one that limits the employer’s future termination rights.

We agree that an employee’s mere passage of time in the employer’s service, even where marked with tangible indicia that the employer approves the employee’s work, cannot alone form an implied-in-fact contract that the employee is no longer at will. Absent other evidence of the employer’s intent, longevity, raises and promotions are their own rewards for the employee’s continuing valued service; they do not, in and of themselves, additionally constitute a contractual guarantee of future employment security.

A rule granting such contract rights on the basis of successful longevity alone would discourage the retention and promotion of employees. On the other hand, long and successful service is not necessarily irrelevant to the existence of such a contract. Over the period of an employee’s tenure, the employer can certainly communicate, by its written and unwritten policies and practices, or by informal assurances, that seniority and longevity do create rights against termination at will.

The issue is whether the employer’s words or conduct, on which an employee reasonably relied, gave rise to that specific understanding. Read in context, Foley, supra, 47 Cal.3d 654, did not hold otherwise. In the first place, Foley’s reference to lengthy, successful service as evidence of an implied contract not to terminate at will was simply quoted, with little independent analysis, from Pugh, supra, 116 Cal.App.3d 311, 328. Pugh, in turn, had adopted wholesale the reasoning of Cleary v.

American Airlines, Inc. (1980) 111 Cal.App.3d 443 [168 Cal.Rptr. 722] (Cleary) that “ ‘[termination of employment without legal cause [after long service] offends the implied-in-law covenant of good faith and fair dealing contained in all contracts, including employment contracts.’ ” (Pugh, supra, 116 Cal.App.3d at p. 328, quoting Cleary, supra, 111 Cal.App.3d at p. 455, italics added.) In other words, these cases suggested, because the arbitrary termination of a veteran employee is neither fair nor in good faith, such conduct violates the implied covenant contained in every employment contract, regardless of its terms.

But Foley itself discredited this line of reasoning. There we “reiterated that the employment relationship is fundamentally contractual” (Foley, supra, 47 Cal.3d 654, 696), and we made clear that the implied covenant of good faith and fair dealing cannot supply limitations on termination rights to which the parties have not actually agreed. (Foley, supra, at p. 698, fn. 39; see also discussion, post.) Insofar as Foley applied the long service factor to its own facts, it did so consistently with the principles of implied-in-fact contracts.

In Foley, the employer claimed the employee’s six years and nine months of service was too short a period to evidence an implied agreement not to discharge at will.

We answered that “[l]ength of employment [was] a relevant consideration” and the plaintiffs length of service was “sufficient time for conduct to occur on which a trier of fact could find the existence of an implied contract.” (Foley, supra, 47 Cal.3d 654, 681, italics added.) Prominent among the conduct alleged by the Foley plaintiff was “repeated oral assurances of job security.” (Foley, supra, 47 Cal.3d at p. 681, italics added.) We therefore decline to interpret Foley as holding that long, successful service, standing alone, can demonstrate an implied-in-fact contract right not to be terminated at will.

In the case before us, there is no indication that employee longevity is a significant factor in determining the existence or content of an implied contract limiting the employer’s termination rights. Guz claims no particular “ ‘actions or communications by [Bechtel]’ ” (Foley, supra, 47 Cal.3d 654, 680), and no industry customs, practices, or policies (ibid.), which suggest that by virtue of his successful longevity in Bechtel’s employ, he had earned a contractual right against future termination at will. If anything, Bechtel had communicated otherwise.

The company’s Policy 1101 stated that Bechtel employees had no contracts guaranteeing their continuous employment and could be terminated at Bechtel’s option. Nothing in this language suggested any exception for senior workers, or for those who had received regular raises and promotions. While occasional references to seniority appear in other sections of Bechtel’s personnel documents, the narrow context of these references undermines an inference that Bechtel additionally intended, or employees had reason to expect, special immunities from termination based on their extended or successful service.

Accordingly, the undoubted length and merit of Guz’s Bechtel career does not bolster his claim that his at-will status had been altered by an implied contract. We must look elsewhere for evidence raising a triable issue that Bechtel entered and breached an implied contract limiting its right to terminate Guz’s employment. Guz asserts that Bechtel’s personnel documents, read as a whole, strongly support his claim of an implied agreement for employment security. As Guz suggests, an employer’s written personnel policies may be an important source of implied-contract evidence.

We have made clear that “the trier of fact can infer an agreement to limit the grounds for termination based on the employee’s reasonable reliance on the company’s personnel manual or policies.” (Foley, supra, 47 Cal.3d 654, 681-682.) “The principle that implied employment contract terms may arise from the employer’s official . . . policies and practices is one that long predates Foley . . . . ‘Of late years the attitude of the courts (as well as of employers in general) is to consider regulations of this type which offer additional advantages to employees as being in effect offers of a unilateral contract which offer is accepted if the employee continues in the employment, and not as being mere offers of gifts.’ ([Chinn v.

China Nat. Aviation Corp. (1955) 98,] 99-100 [291 P.2d 91]; see also Newberger v. Rifkind (1972) 28 Cal.App.3d 1070, 1076 [104 Cal.Rptr. 663, 57 A.L.R.3d 1232] [implied unilateral contract for stock option agreement]; Hunter v. Sparling (1948) 87 Cal.App.2d 711, 721-722 [197 P.2d 807] [enforceable promise to pay pension benefits inferred from personnel policies].) In Hepp v. LockheedCalifonia Co. (1978) 86 Cal.App.3d 714 [150 Cal.Rptr. 408], this reasoning was extended to policies regarding nonmonetary employment benefits.

There the court held that it was a question of fact whether an employer’s [written] policy of preferential hiring for its laid-off employees was to be considered an implied contractual promise on which its employees could reasonably rely. (Id. at p. 719.)” (Scott, supra, 11 Cal.4th 454, 464.) When an employer promulgates formal personnel policies and procedures in handbooks, manuals, and memoranda disseminated to employees, a strong inference may arise that the employer intended workers to rely on these policies as terms and conditions of their employment, and that employees did reasonably so rely. (See, e.g., Scott, supra, 11 Cal.4th 454, 465.) Both parties derive benefits from such an arrangement.

From the employees’ perspective, formal policies promote fairness and consistency, guarding against the arbitrary, capricious, and incongruous treatment of similar cases.

By the same token, such policies may also help the employer by enhancing worker morale, loyalty, and productivity, providing competitive advantage in the labor market, and minimizing employee litigation. (See id., at pp. 469-470; see also Foley, supra, 47 Cal.3d 654, 681.) For these reasons, logic suggests that the employer may intend, and employees may understand, such generally promulgated policies as a systematic approach to personnel relations, providing a clear and uniform alternative to haphazard practices, understandings, and arrangements within the company.

Therefore, where the employer has chosen to maintain such written policies, the terms they describe must be a central focus of the contractual analysis. Finally, Guz asserts there is evidence that, industry custom and written company personnel policies aside, Bechtel had an unwritten “polic[y] or practice[]” (Foley, supra, 47 Cal.3d 654, 680) to release its employees only for cause.

As the sole evidence of this policy, Guz points to the deposition testimony of Johnstone, BNI’s president, who stated his understanding that Bechtel terminated workers only with “good reason” or for “lack of [available] work.” But there is no evidence that Bechtel employees were aware of such an unwritten policy, and it flies in the face of Bechtel’s general disclaimer.

This brief and vague statement, by a single Bechtel official, that Bechtel sought to avoid arbitrary firings is insufficient as a matter of law to permit a finding that the company, by an unwritten practice or policy on which employees reasonably relied, had contracted away its right to discharge Guz at will. In sum, if there is any significant evidence that Guz had an implied contract against termination at will, that evidence flows exclusively from Bechtel’s written personnel documents.

It follows that there is no triable issue of an implied contract on terms broader than the specific provisions of those documents. In reviewing the Court of Appeal’s determination that Bechtel may have breached contractual obligations to Guz by eliminating his work unit, we must therefore focus on the pertinent written provisions. As noted above, Bechtel’s written personnel provisions covering termination from employment fell into two categories.

The parties do not dispute that certain of these provisions, expressly denominated “Policies” (including Policies 1101 and 302), were disseminated to employees and were intended by Bechtel to inform workers of rules applicable to their employment. There seems little doubt, and we conclude, a triable issue exists that thfc specific provisions of these Policies did become an implicit part of the employment contracts of the Bechtel employees they covered, including Guz. Guz also points to another Bechtel document, the RIF Guidelines, that addressed procedures for implementing reductions in the work force.

Evidence suggesting the contractual status of this document is somewhat closer. On the one hand, the “Guidelines” label and evidence indicating this document was distributed primarily to supervisors for their use, weigh against an inference that Bechtel intended a widely disseminated policy on which employees might directly rely. (See, e.g., Knights v. Hewlett Packard (1991) 230 Cal.App.3d 775, 780 [281 Cal.Rptr. 295].) Moreover, there was some evidence that even some Bechtel managers were unaware of the force ranking system set forth in Policy 302 and the RIF Guidelines.

On the other hand, the formality, tone, length, and detail of the RIF Guidelines suggest they were not intended as merely precatory. The RIF Guidelines comprised a minimum of six single-spaced pages, and were distributed under a cover letter suggesting that they represented “corporate policy.” In some instances, the RIF Guidelines defined or supplemented terms and provisions directly set forth in Policies 302 and 1101, such as the holding status described in Policy 1101 and the formal personnel ranking system described in Policy 302.

There was also some evidence that Bechtel employees, including Guz, were aware of RIF Guideline procedures such as force ranking, had observed that the company followed these procedures in the past, and believed them to be Bechtel’s policy. Goldstein, Guz’s supervisor at BNI-MI, declared that as a supervisor, he received and was “instructed to follow” the RIF Guidelines. On balance, we are persuaded a triable issue exists that the RIF Guidelines, like the formally denominated Policies, formed part of an implied contract between Bechtel and its employees.

As Bechtel stresses, Policy 1101 itself purported to disclaim any employment security rights. However, Bechtel had inserted other language, not only in Policy 1101 itself, but in other written personnel documents, which described detailed rules and procedures for the termination of employees under particular circumstances.

Moreover, the specific language of Bechtel’s disclaimer, stating that employees had no contracts “guaranteeing . . . continuous service” (italics added) and were terminable at Bechtel’s “option,” did not foreclose an understanding between Bechtel and all its workers that Bechtel would make its termination decisions within the limits of its written personnel rules. Given these ambiguities, a fact finder could rationally determine that despite its general disclaimer, Bechtel had bound itself to the specific provisions of these documents.

In holding that Bechtel may have breached the terms of an implied contract with Guz by eliminating his work unit, the Court of Appeal relied on two premises. Focusing on one reason Guz was given for this decision—a “downturn in . . . workload”—the Court of Appeal concluded that even if this reason were taken at face value, the evidence permitted a determination that it was arbitrary and unreasonable, and thus without good cause, because it lacked support in the facts.

Second, the Court of Appeal found triable evidence that this stated reason was pretextual, in that it masked Bechtel’s true purpose to dismiss BNI-MI’s workers on the basis of the unit’s poor performance, but without affording each member the benefit of the progressive discipline rules set forth in the company’s personnel documents. On the facts before us, we conclude that both these premises were in error.

Bechtel’s written personnel documents—which, as we have seen, are the sole source of any contractual limits on Bechtel’s rights to terminate Guz— imposed no restrictions upon the company’s prerogatives to eliminate jobs or work units, for any or no reason, even if this would lead to the release of existing employees such as Guz. Policy 1101 itself did address a category of termination labeled “Layoff.” However, this

section simply defined that term as a “Bechtel-initiated termination[] of employees caused by a reduction in workload, reorganizations, changes in job requirements, or other circumstances such as failure to meet [a] client’s site access requirements.” (Italics added.) Policy 1101 further provided that persons scheduled for layoff were entitled to advance notice to facilitate reassignment efforts and job search assistance, and that “[a] surplus employee[] [might] be placed on ‘holding status’ if there [was] a possible Bechtel reassignment within the following 3-month period.” By proceeding in this fashion, Policy 1101 confirmed that Bechtel was free to “reorganize]” itself, or to “change[] . . . job requirements,” and to “initiate[]” employee “terminations . . . caused by” this process, so long as Bechtel provided the requisite advance notice.

The RIF Guidelines set forth more detailed procedures for selecting individual layoff candidates, and for helping such persons obtain jobs elsewhere within the company. But the RIF Guidelines, like the Policies, neither stated nor implied any limits on Bechtel’s freedom to implement the reorganization itself. Guz, like the Court of Appeal, focuses on a separate

section of Policy 1101, titled “Unsatisfactory Performance.” This section, the so-called progressive discipline provision, stated that “[e]mployees who fail to perform their jobs in a satisfactory manner may be terminated, provided the employees have been advised of the specific shortcomings and given an opportunity to improve their performance.” (Italics added.) Like the Court of Appeal, Guz cites BNI president Johnstone’s disclosure that he was unhappy with BNI-MI’s work product as evidence that the elimination of BNI-MI was a pretext for firing its individual members without resort to the progressive discipline policy.

However, as Bechtel suggests, Policy 1101 cannot reasonably be construed to conflate the separate Unsatisfactory Performance and Layoff provisions in this manner. Whatever rights Policy 1101 gave an employee threatened with replacement on account of his or her individual poor performance, we see nothing in Bechtel’s personnel documents which, despite Bechtel’s general disclaimer, limited Bechtel’s prerogative to eliminate an entire work unit, and thus its individual jobs, even if the decision was influenced by a belief that the unit’s work would be better performed elsewhere within the company.

Accordingly, we conclude the Court of Appeal erred in finding, on the grounds it stated, that Guz’s implied contract claim was triable. Insofar as the Court of Appeal used these incorrect grounds to overturn the trial court’s contrary determination, and thus to reinstate Guz’s contractual cause of action, the Court of Appeal’s decision must be reversed.

The Court of Appeal did not address Guz’s second theory, i.e., that Bechtel also breached its implied contract by failing, during and after the reorganization, to provide him personally with the fair layoff protections, including force ranking and reassignment help, which are set forth in its Policies and RIF Guidelines. This theory raises difficult questions, including what the proper remedy, if any, should be if Guz ultimately shows that Bechtel breached a contractual obligation to follow certain procedural policies in the termination process.

However, we commonly decline to decide issues not addressed by the Court of Appeal. (See, e.g., Hughes v. Board of Architectural Examiners (1998) 17 Cal.4th 763, 795 [72 Cal.Rptr.2d 624, 952 P.2d 641].) We will follow that practice here. On remand, the Court of Appeal should confront this issue and should determine whether Guz has raised a triable issue on this theory. III. Implied covenant claim.

Bechtel next urges that the trial court properly dismissed Guz’s separate claim for breach of the implied covenant of good faith and fair dealing because, on the facts and arguments presented, this theory of recovery is either inapplicable or superfluous. We agree.

The sole asserted basis for Guz’s implied covenant claim is that Bechtel violated its established personnel policies when it terminated him without a prior opportunity to improve his “unsatisfactory” performance, used no force ranking or other objective criteria when selecting him for layoff, and omitted to consider him for other positions for which he was qualified. Guz urges that even if his contract was for employment at will, the implied covenant of good faith and fair dealing precluded Bechtel from “unfairly” denying him the contract’s benefits by failing to follow its own termination policies.

Thus, Guz argues, in effect, that the implied covenant can impose substantive terms and conditions beyond those to which the contract parties actually agreed. However, as indicated above, such a theory directly contradicts our conclusions in Foley, supra, 47 Cal.3d 654. The covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made. (E.g., Waller v. Truck Ins.

Exchange, Inc. (1995) 11 Cal.4th 1, 36 [44 Cal.Rptr.2d 370, 900 P.2d 619].) The covenant thus cannot “ ‘be endowed with an existence independent of its contractual underpinnings.’ ” (Ibid., quoting Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1153 [271 Cal.Rptr. 246].) It cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement. Labor Code

section 2922 establishes the presumption that an employer may terminate its employees at will, for any or no reason. A fortiori, the employer may act peremptorily, arbitrarily, or inconsistently, without providing specific protections such as prior warning, fair procedures, objective evaluation, or preferential reassignment. Because the employment relationship is “fundamentally contractual” {Foley, supra, 47 Cal.3d 654, 696), limitations on these employer prerogatives are a matter of the parties’ specific agreement, express or implied in fact.

The mere existence of an employment relationship affords no expectation, protectible by law, that employment will continue, or will end only on certain conditions, unless the parties have actually adopted such terms. Thus if the employer’s termination decisions, however arbitrary, do not breach such a substantive contract provision, they are not precluded by the covenant.

This logic led us to emphasize in Foley that “breach of the implied covenant cannot logically be based on a claim that [the] discharge [of an at-will employee] was made without good cause.” {Foley, supra, 47 Cal.3d 654, 698, fn. 39.) As we noted, “[b]ecause the implied covenant protects only the parties’ right to receive the benefit of their agreement, and, in an at-will relationship there is no agreement to terminate only for good cause, the implied covenant standing alone cannot be read to impose such a duty. [Citation.]” {Ibid.) The same reasoning applies to any case where an employee argues that even if his employment was at will, his arbitrary dismissal frustrated his contract benefits and thus violated the implied covenant of good faith and fair dealing.

Precisely because employment at will allows the employer freedom to terminate the relationship as it chooses, the employer does not frustrate the employee’s contractual rights merely by doing so. In such a case, “the employee cannot complain about a deprivation of the benefits of continued employment, for the agreement never provided for á continuation of its benefits in the first instance.” {Hejmadi v.

AMFAC, Inc. (1988) 202 Cal.App.3d 525, 547 [249 Cal.Rptr. 5].) Guz cites several decisions suggesting that the implied covenant precludes an employer from terminating even an at-will employee unfairly, such as by refusing to follow its own established policies and practices. {Rulon-Miller v.

International Business Machines Corp. (1984) 162 Cal.App.3d 241, 247 [208 Cal.Rptr. 524] {Rulon-Miller) [employer’s duty of fair dealing requires that “like cases be treated alike”; thus, employer’s termination rules and regulations, if any, must be followed]; see Gray, supra, 181 Cal.App.3d 813, 820-821 [long service plus violation of employer policies may establish breach of covenant of “fair treatment”]; Khanna, supra, 170 Cal.App.3d 250, 262 [implied covenant may be violated by termination of at-will employee where employer engaged in bad faith actions, extraneous to the contract, to frustrate benefits of employment]; Pugh, supra, 116 Cal.App.3d 311, 327-329 [termination after long service, in violation of employer policies, may breach implied covenant to refrain from arbitrary treatment]; Cleary, supra, 111 Cal.App.3d 443, 455-456 [same]; see also Kern v.

Levelor Lorentzen, Inc. (9th Cir. 1990) 899 F.2d 772, 111 [covenant requires “cooperation in carrying out the contract and honesty in creating or settling disputes”; breach of covenant may thus be shown where employee establishes lengthy satisfactory service and violation of employer’s termination policies].) But insofar as these authorities suggest that the implied covenant may impose limits on an employer’s termination rights beyond those either expressed or implied in fact in the employment contract itself, they contravene the persuasive reasoning of Foley, and are therefore disapproved.

Similarly at odds with Foley are suggestions that independent recovery for breach of the implied covenant may be available if the employer terminated the employee in “bad faith” or “without probable cause,” i.e., without determining “honestly and in good faith that good cause for discharge existed.” (Walker, supra, 4 Cal.App.4th 985, 997; see also, e.g., Wilkerson, supra, 212 Cal.App.3d 1217, 1231; Burton v. Security Pacific Nat.

Bank (1988) 197 Cal.App.3d 972, 979 [243 Cal.Rptr. 277]; Rulon-Miller, supra, 162 Cal.App.3d 241, 253.) Where the employment contract itself allows the employer to terminate at will, its motive and lack of care in doing so are, in most cases at least, irrelevant. (But see fn. 18, post.) A number of Court of Appeal decisions since Foley have recognized that the implied covenant of good faith and fair dealing imposes no independent limits on an employer’s prerogative to dismiss employees. (E.g., Camp, supra, 35 Cal.App.4th 620, 631 [implied covenant did not preclude unfair termination where there was no express or implied-in-fact contract limiting employer’s termination rights]; Flait v.

North American Watch Corp. (1992) 3 Cal.App.4th 467, 480-481 [4 Cal.Rptr.2d 522] [employment contract contained express at-will term; because employee thus could not show her termination broke any “contractual covenant or promise,” implied covenant claim must fail]; Slivinsky v.

Watkins-Johnson Co. (1990) 221 Cal.App.3d 799, 806 [270 Cal.Rptr. 585] [where contract contained express at-will clause, implied covenant claim must fail because employee could not show her termination without good cause frustrated “the [parties’] intentions and reasonable expectations . . . within the contract”].) We affirm that this is the law. Of course, as we have indicated above, the employer’s personnel policies and practices may become implied-in-fact terms of the contract between employer and employee.

If that has occurred, the employer’s failure to follow such policies when terminating an employee is a breach of the contract itself. A breach of the contract may also constitute a breach of the implied covenant of good faith and fair dealing. But insofar as the employer’s acts are directly actionable as a breach of an implied-in-fact contract term, a claim that merely realleges that breach as a violation of the covenant is superfluous.

This is because, as we explained at length in Foley, the remedy for breach of an employment agreement, including the covenant of good faith and fair dealing implied by law therein, is solely contractual. In the employment context, an implied covenant theory affords no separate measure of recovery, such as tort damages. {Foley, supra, 47 Cal.3d 654, 682-700.) Allegations that the breach was wrongful, in bad faith, arbitrary, and unfair are unavailing; there is no tort of “bad faith breach” of an employment contract. We adhere to these principles here.

To the extent Guz’s implied covenant cause of action seeks to impose limits on Bechtel’s termination rights beyond those to which the parties actually agreed, the claim is invalid. To the extent the implied covenant claim seeks simply to invoke terms to which the parties did agree, it is superfluous. Guz’s remedy, if any, for Bechtel’s alleged violation of its personnel policies depends on proof that they were contract terms to which the parties actually agreed. The trial court thus properly dismissed the implied covenant cause of action. IV. Age discrimination claim.

Bechtel urges that the trial court correctly granted

summary adjudication against Guz’s claim that he was terminated because of his age, in violation of the FEHA. Bechtel contends that, in order to survive

summary judgment, Guz was obliged to demonstrate a prima facie case of discrimination, but could not do so because it is undisputed that the bulk of his duties were assumed by an older employee. Alternatively, Bechtel insists it proffered a legitimate, nondiscriminatory reason for Guz’s termination, i.e., a reduction in force resulting in the elimination of his job, which Guz failed to rebut with evidence that this justification was a pretext for age-related animus against him. We agree with Bechtel that it was entitled to judgment as a matter of law against Guz’s age discrimination claim. In support of its motion for

summary judgment, Bechtel offered extensive evidence of its reasons, unrelated to age, for eliminating BNI-MI, and for the ensuing individual personnel decisions that led to Guz’s final release. In substantial measure, Guz’s written response to Bechtel’s motion conceded the truth, if not the wisdom, of Bechtel’s explanation. To survive

summary judgment, Guz was thus obliged to point to evidence raising a triable issue—i.e., permitting an inference—that, notwithstanding Bechtel’s showing, its ostensible reasons were a mask for prohibited age bias. To sustain that burden, Guz first argues there are several triable bases for concluding that Bechtel’s stated reasons are false. None of Guz’s theories are persuasive. As sole independent support for an inference that Bechtel discriminated, Guz cites comparative-age evidence which suggests, in his view, that Bechtel’s decisions favored younger over older workers.

But Guz’s claim of statistical age bias is weak in numerous respects. In the face of Bechtel’s strong and unrebutted showing that it took its actions for nondiscriminatory reasons, the evidence of age favoritism on which Guz relies manifestly lacks sufficient probative force to allow a finding of intentional age discrimination. In the pages that follow, we explain our reasoning in detail. A. General principles (McDonnell Douglas test).

Because of the similarity between state and federal employment discrimination laws, California courts look to pertinent federal precedent when applying our own statutes. (See, e.g., Mixon v. Fair Employment & Housing Com. (1987) 192 Cal.App.3d 1306, 1316 [237 Cal.Rptr. 884] {Mixon).) In particular, California has adopted the three-stage burden-shifting test established by the United States Supreme Court for trying claims of discrimination, including age discrimination, based on a theory of disparate treatment. {Texas Dept, of Community Affairs v.

Burdine (1981) 450 U.S. 248 [101 S.Ct. 1089, 67 L.Ed.2d 207] {Burdine); McDonnell Douglas Corp. v. Green (1973) 411 U.S. 792 [93 S.Ct. 1817, 36 L.Ed.2d 668] (McDonnell Douglas); Martin v. Lockheed Missiles & Space Co. (1994) 29 Cal.App.4th 1718, 1730 [35 Cal.Rptr.2d 181] {Martin); Ewing v. Gill Industries, Inc. (1992) 3 Cal.App.4th 601, 610-611, 614 [4 Cal.Rptr.2d 640] (Ewing); County of Alameda v. Fair Employment & Housing Com. (1984) 153 Cal.App.3d 499, 504 [200 Cal.Rptr. 381]; see Gonzales v.

MetPath, Inc. (1989) 214 Cal.App.3d 422, 426 [262 Cal.Rptr. 654].) This so-called McDonnell Douglas test reflects the principle that direct evidence of intentional discrimination is rare, and that such claims must usually be proved circumstantially. Thus, by successive steps of increasingly narrow focus, the test allows discrimination to be inferred from facts that create a reasonable likelihood of bias and are not satisfactorily explained. At trial, the McDonnell Douglas test places on the plaintiff the initial burden to establish a prima facie case of discrimination.

This step is designed to eliminate at the outset the most patently meritless claims, as where the plaintiff is not a member of the protected class or was clearly unqualified, or where the job he sought was withdrawn and never filled. (Burdine, supra, 450 U.S. 248, 253-254 [101 S.Ct. 1089, 1093-1094]; Caldwell v.

Paramount Unified School Dist. (1995) 41 Cal.App.4th 189, 202 [48 Cal.Rptr.2d 448] (Caldwell).) While the plaintiff’s prima facie burden is “not onerous” (Burdine, supra, at p. 253 [101 S.Ct. at pp. 1093-1094]), he must at least show “ ‘actions taken by the employer from which one can infer, if such actions remain unexplained, that it is more likely than not that such actions were “based on a [prohibited] discriminatory criterion . . . .” [Citation].’ [Citation.]” (Ibarbia v. Regents of University of California (1987) 191 Cal.App.3d 1318, 1327-1328 [237 Cal.Rptr. 92], quoting Furnco Construction Corp. v.

Waters (1978) 438 U.S. 567, 576 [98 S.Ct. 2943, 2949, 57 L.Ed.2d 957].) The specific elements of a prima facie case may vary depending on the particular facts. (Burdine, supra, 450 U.S. 248, 253, fn. 6 [101 S.Ct. 1089, 1094]; see also Teamsters, supra, 431 U.S. 324, 358 [97 S.Ct. 1843, 1866].) Generally, the plaintiff must provide evidence that (1) he was a member of a protected class, (2) he was qualified for the position he sought or was performing competently in the position he held, (3) he suffered an adverse employment action, such as termination, demotion, or denial of an available job, and (4) some other circumstance suggests discriminatory motive. (E.g., Burdine, supra, at p. 253 [101 S.Ct. at pp. 1093-1094]; Nidds v.

Schindler Elevator Corp. (9th Cir. 1996) 113 F.3d 912, 917 (Nidds) [FEHA claim]; Rose v. Wells Fargo & Co. (9th Cir. 1990) 902 F.2d 1417, 1421.) If, at trial, the plaintiff establishes a prima facie case, a presumption of discrimination arises. (St. Mary’s Honor Center v.

Hicks (1993) 509 U.S. 502, 506 [113 S.Ct. 2742, 2746-2747, 125 L.Ed.2d 407] (Hicks); Burdine, supra, 450 U.S. 248, 254 [101 S.Ct. 1089, 1094].) This presumption, though “rebuttable,” is “legally mandatory.” (Burdine, supra, at p. 254, fn. 7 [101 S.Ct. at p. 1094]; see also Hicks, supra, at p. 506 [113 S.Ct. at pp. 2746-2747].) Thus, in a trial, “[i]f the trier of fact believes the plaintiff’s evidence, and if the employer is silent in the face of the presumption, the court must enter judgment for the plaintiff because no issue of fact remains in the case.” (Burdine, supra, at p. 254 [101 S.Ct. at p. 1094], fn. omitted; see also Hicks, supra, at p. 506 [113 S.Ct. at pp. 2746-2747].) Accordingly, at this trial stage, the burden shifts to the employer to rebut the presumption by producing admissible evidence, sufficient to “raise[] a genuine issue of fact” and to “justify a judgment for the [employer],” that its action was taken for a legitimate, nondiscriminatory reason. (Burdine, supra, 450 U.S. at pp. 254-255 [101 S.Ct. at p. 1094]; Clark v.

Claremont University Center (1992) 6 Cal.App.4th 639, 663-664 [8 Cal.Rptr.2d 151] (Clark); see Hicks, supra, 509 U.S. at pp. 506-507, 509 [113 S.Ct. at pp. 2746-2747, 2748] [“evidence which, taken as true, would permit the conclusion that there was a nondiscriminatory reason” (italics omitted)].) If the employer sustains this burden, the presumption of discrimination disappears. (Hicks, supra, 509 U.S. 502, 510-511 [113 S.Ct. 2742, 2748-2749] ; Burdine, supra, 450 U.S. 248, 255 [101 S.Ct. 1089, 1094-1095]; Mixon, supra, 192 Cal.App.3d 1306, 1319.) The plaintiff must then have the opportunity to attack the employer’s proffered reasons as pretexts for discrimination, or to offer any other evidence of discriminatory motive. (Hicks, supra, at pp. 515-518 [113 S.Ct. at pp. 2751-2753]; Burdine, supra, at p. 256 [101 S.Ct. at p. 1095]; Clark, supra, 6 Cal.App.4th 639, 664-665.) In an appropriate case, evidence of dishonest reasons, considered together with the elements of the prima facie case, may permit a finding of prohibited bias. (Reeves, supra, 530 U.S. 133, 148-149 [120 S.Ct. 2097, 2109]; Hicks, supra, at pp. 511, 518 [113 S.Ct. at pp. 2749-2750, 2753].) The ultimate burden of persuasion on the issue of actual discrimination remains with the plaintiff. (Reeves, supra, 530 U.S. at pp. 142-143 [120 S.Ct. at p. 2106]; Hicks, supra, at p. 518 [113 S.Ct. at p. 2753]; U.

S. Postal Service Bd. of Govs. v. Aikens (1983) 460 U.S. 711, 716 [103 S.Ct. 1478, 1482, 75 L.Ed.2d 403]; Burdine, supra, at p. 256 [101 S.Ct. at p. 1095].) B. Application. The Courts of Appeal have pondered how the McDonnell Douglas formula should apply, under California law, to an employer’s motion for

summary judgment against a claim of prohibited discrimination. Code of Civil Procedure

section 437c provides that on

summary judgment, the moving party must establish entitlement to “judgment as a matter of law.” (Id., subd. (c).) A moving defendant may do so by “show[ing]” that the plaintiff’s action “has no merit” (id., subds. (a), (c)(2)), i.e., that “one or more elements . , . cannot be established” or “there is a complete defense” (ibid.). Only after the defendant has met that burden must the plaintiff respond with admissible evidence raising a triable issue. (Ibid.) Several California decisions have suggested that because a plaintiff opposing

summary judgment need not demonstrate triable issues until the moving defendant has made an initial no-merit “showing],” the McDonnell Douglas burdens are “reversed” on a defense motion for

summary judgment against a claim of discrimination in employment. (Sada v. Robert F. Kennedy Medical Center (1997) 56 Cal.App.4th 138, 150-151 [65 Cal.Rptr.2d 112]; Addy v. Bliss & Glennon (1996) 44 Cal.App.4th 205, 216 [51 Cal.Rptr.2d 642]; Martin, supra, 29 Cal.App.4th 1718, 1730-1731; University of Southern California v. Superior Court (1990) 222 Cal.App.3d 1028, 1036 [272 Cal.Rptr. 264] (University of Southern California)). Other California cases, however, have indicated that the plaintiff can survive an employer’s motion for

summary judgment only by presenting, at the outset, triable evidence satisfying the prima facie elements of McDonnell Douglas. (See, e.g., Horn, supra, 72 Cal.App.4th 798, 805-807; Hersant v. Department of Social Services (1997) 57 Cal.App.4th 997, 1002-1006 [67 Cal.Rptr.2d 483] (Hersant); Caldwell, supra, 41 Cal.App.4th 189, 203.) Bechtel urges we adopt the latter view and impose an initial prima facie burden on a plaintiff opposing an employer’s motion for

summary judgment. Here, Bechtel insists, Guz could not demonstrate a prima facie case, because the transfer of Guz’s specific BNI-MI duties to an older worker, Shaeffer, negated an inference of anti-age animus as a matter of law. In response, Guz argues he should have no prima facie burden to avoid

summary judgment. However, Guz asserts, if he did have such a burden, he satisfied it by pointing to evidence that, when implementing its work force reduction, Bechtel treated younger employees more favorably than older. We need not resolve the “prima facie burden” issue, for an alternative analysis disposes of Guz’s cause of action. In its

summary judgment motion, Bechtel did not stand mute, relying solely on the premise that Guz failed to demonstrate a prima facie case of age discrimination. As an additional basis for its motion, Bechtel proceeded directly to the second step of the McDonnell Douglas formula.

Bechtel set forth competent, admissible evidence (Reeves, supra, 530 U.S. 133, 142-143 [120 S.Ct. 2097, 2106]; Hicks, supra, 509 U.S. 502, 507 [113 S.Ct. 2742, 2747]; Burdine, supra, 450 U.S. 248, 254-255 [101 S.Ct. 1089, 1094-1095]) of its reasons, unrelated to age bias, why it eliminated Guz’s work unit, BNI-MI, and thereafter chose persons other than Guz for vacant positions in the unit to which BNI-MI’s functions were transferred. Bechtel’s explanation of nondiscriminatory reasons was creditable on its face.

Indeed, as we explain below, Guz has largely conceded the truth, if not the wisdom, of Bechtel’s proffered reasons. Guz thus had the burden to rebut this facially dispositive showing by pointing to evidence which nonetheless raises a rational inference that intentional discrimination occurred. (See discussion, post.) For reasons we hereafter set forth, Guz has failed to do so. As an initial matter, Bechtel argues that the exercise of its prerogative to eliminate Guz’s work unit and position constitutes, as a matter of law, a legitimate, nondiscriminatory reason for his termination.

However, downsizing alone is not necessarily a sufficient explanation, under the FEHA, for the consequent dismissal of an age-protected worker. An employer’s freedom to consolidate or reduce its work force, and to eliminate positions in the process, does not mean it may “use the occasion as a convenient opportunity to get rid of its [older] workers.” (Matthews v. Commonwealth Edison Co. (7th Cir. 1997) 128 F.3d 1194, 1195; see also, e.g., Cronin v. Aetna Life Ins. Co. (2d Cir. 1995) 46 F.3d 196, 204 (Cronin); Uffelman v.

Lone Star Steel Co. (5th Cir. 1989) 863 F.2d 404, 407-408.) Invocation of a right to downsize does not resolve whether the employer had a discriminatory motive for cutting back its work force, or engaged in intentional discrimination when deciding which individual workers to retain and release. Where these are issues, the employer’s explanation must address them. (See, e.g., Throgmorton v. U.S.

Forgecraft Corp. (8th Cir. 1992) 965 F.2d 643, 646-647.) On the other hand, if nondiscriminatory, Bechtel’s true reasons need not necessarily have been wise or correct. (See, e.g., Horn, supra, 72 Cal.App.4th 798, 807; Hersant, supra, 57 Cal.App.4th 997, 1009.) While the objective soundness of an employer’s proffered reasons supports their credibility (see discussion, post), the ultimate issue is simply whether the employer acted with a motive to discriminate illegally.

Thus, “legitimate” reasons (Burdine, supra, 450 U.S. at p. 254 [101 S.Ct. at p. 1094]) in this context are reasons that are facially unrelated to prohibited bias, and which, if true, would thus preclude a finding of discrimination. (See, e.g., Kariotis v. Navistar Intern. Transp. Corp. (7th Cir. 1997) 131 F.3d 672, 676 [suggesting that proffered reasons, if “nondiscriminatory on their face” and “honestly believed” by employer, will suffice even if “foolish or trivial or baseless”]; McCoy v.

WGN Continental Broadcasting Co. (7th Cir. 1992) 957 F.2d 368, 373 [ultimate issue is whether employer “honestly believed in the reasons it offers”]; see also Fuentes v. Perskie (3d Cir. 1994) 32 F.3d 759, 765 [issue is discriminatory animus, not whether employer’s decision was “wrong or mistaken,” or whether employer is “wise, shrewd, prudent, or competent”].) With these principles in mind, we examine Bechtel’s showing of its reasons for the decisions leading to Guz’s dismissal. A substantial portion of this evidence was the deposition testimony of Bechtel officials, given under questioning by Guz’s

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