Procedural Posture

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Defendant employer appealed the judgment of the Superior Court of Los Angeles County (California), which held that the employer was liable to plaintiff employee for damages arising out of an employment dispute.

Nakase Law Firm are Los Angeles employment lawyers


The employer and the employee orally agreed that the employee was to receive a specified sum and 20 percent of the profits of the employer’s business when the employee agreed to become a general manager for the employer. The contract had no termination date, and the employer failed to gain the approval of the Commissioner of Internal Revenue for the salary paid to the employee as regulations issued under the Salary Stabilization Act of 1942 (Act) might have required. The lower court entered judgment for the employee on both an express contract theory of recovery and on a quantum meruit basis, and it awarded damages for a period that extended beyond the employee’s termination date. The court reversed, holding that the employee’s contract was terminable at will and that the employee’s damages were limited to the period that he actually worked for the company. Because it was possible that the contract was permissible under the Act, the court ruled that the potential illegality of the contract could not be used as a defense by the employer. Because the existence of an express contract invalidated any attempt to recover on a quantum meruit basis, the quantum meruit award was overturned.


The court reversed the lower court’s judgment and held that the employee was not entitled to damages beyond his termination date and that he had no viable quantum meruit claim.