What are Implied Contracts?
Implied contracts are specifically allowed under the California Civil Code, §1621. That provisions defines an implied contract as “… one, the existence and terms of which are manifested by conduct.” In interpreting this provision, California courts have held that the standard rules with respect to contract formation apply. That is, to be enforceable, an implied contract ” … must be founded upon an ascertained agreement of the parties to perform it” and, of course, the court must be able to figure out what obligations the parties bound themselves to. In most cases, the issue of implied contract is the issue of implied consent. That is, an offer might be made that is clear and shows that one party is, without question, agreeing to perform. But did the other party agree? Courts look to three factors:
- Situation and
- Relation of the parties
A common example of implied contracts and implied consent is found in employment situations. Suppose, for example, that an employer wishes to require its employees to arbitrate any and all disputes. The employer sends out a notice on paper or via email stating that, going forward, “… all disputes relating to your employment are subject to mandatory arbitration. Your continued work for the COMPANY constitutes your agreement to arbitrate.” If the employee continues to do work in the normal manner for the employer, under California law, the employee will be deemed to have consented to the new terms of employment. The employee’s conduct is evidence of his/her consent. California courts will also take the relationship and the situation into account. In our example, the relationship was one of employer-employee and the situation included, presumably, a long-term ongoing relationship that might have included previous examples of new employment terms that were accepted by conduct.
An example of how the foregoing legal principles work in practice can be found in the case of Gorlach v. Sports Club Co., 209 Cal. App. 4th 1497 (Cal. App. 2nd Dist., 2012). In that case, the plaintiff was the human resources director for a sports and fitness club. A dispute arose, and she brought suit against her former employer, the Sports Club Company. The Sports Club sought to compel arbitration and the plaintiff argued that she had not agreed to arbitrate employment-related disputes. When she first began working for the Sports Club, there was no arbitration requirement. However, in 2010, the Club amended its Team Member Handbook to include an arbitration agreement which stated: “As a condition to employment, all Team Members must sign the Mutual Agreement to Arbitrate Claims found in Appendix 4.” Gorlach received the new handbook and admitted that she had read it. Further, Gorlach continued to work for the Sports Club after receiving the new handbook.
Under normal circumstances, that would have been sufficient to bind her to the agreement to arbitration. Indeed, the court in the Gorlach case specifically affirmed this by stating that “California law permits employers to implement policies that may become unilateral implied-in-fact contracts when employees accept them by continuing their employment.”
However, under the specific circumstances of the case, the court focused on the actual offer made by the Sports Club and what actual conduct the Sports Club required. The Gorlach court focused on the words “must sign the Mutual Agreement…” From those words, the court concluded that a signature was required for enforceability of the implied agreement to arbitrate. In other words, continued employment was not the conduct that implied consent. Since Gorlach did not sign the handbook, it was held that she was not bound to arbitrate.
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