Interference of Contract in an At-Will Employment Relationship

Interference of contract is usually a claim made against a third party for interfering with some sort of vendor contract. However, that same claim can be made in employment cases, even in an at-will employment relationship.

Because California is generally an at-will employment state, an employer or an employee may sever the employment relationship at any time (with some very notable exceptions). However, what happens when a third-party induces either the employer to fire or the employee to quit? Well, depending on the circumstances there can be an actionable claim.

In normal interference with contract claims you must show that (1) the third party knew about the contract, (2) the third party acted with substantial certainty that their actions would interrupt the contractual relationship, (3) the contractual relationship was disrupted, and (4) damage from the induced disruption.

The reason for this is because if in a society contracts do not need to be honored, or there were no repercussions for people undermining existing contracts, then our society would fall into chaos. When you cannot trust someone to do as you have paid them to do, then people stop contracting and the economy collapses.

As a result, the policy reason behind holding a third party liable for interfering with a contract they were not a party in makes sense.

However, for an at-will employment relationship, there needs to be an extra showing, you need to show that the improper actions that the third party utilized were themselves unlawful (meaning statutory, regulatory, common law, constitutional, or some other legal standard). The reason is because, technically it is not an interference of a contract but instead it is the tort of interference of prospective economic advantage (that is why it is actionable even in employment relationships without a contract).

In Reeves v. Hanlon (2004) 95 P.3d 513 the court ruled that a showing that the third-party—in that case former employees—illegally tampered with their former employer’s clients and computers was sufficient to satisfy the additional prong, as while it wasn’t directly related to other employees leaving the employer, it caused a sufficiently terrible environment to inspire the other employees to quit.

While that case is from the employer’s prospective, you can apply the law to employee cases as well. If, for example, one employee has a vendetta against another and as a result frames the other employee for stealing company resources, the victim employee would likely succeed on a claim against the framing employee.