Opinion ID: 1182150
Heading Depth: 1
Heading Rank: 3

Heading: contract vs. tort characterization

Text: The second issue before this court is whether the public policy exception sounds in tort or in contract. Characterizing a case as tort or contract orients the parties to the requisite elements of proof, permits anticipation of potential defenses, and defines the remedies available. See William L. Mauk, Wrongful Discharge: The Erosion of 100 Years of Employer Privilege, 21 Idaho L.Rev. 201, 208 (1985) [hereinafter Mauk]. Essentially, the standard of orientation in addressing this problem focuses on the duty which has allegedly been breached, asking whether that duty arises from a promise set forth in the contract or is one imposed by law, independent of contract. Id. at 209. Of those courts recognizing the public policy exception to the at-will doctrine, the overwhelming majority adopt the tort theory. [5] We agree with the majority and hold that the exception sounds in tort. [6] An employer's obligation to refrain from discharging an employee who refuses to commit a criminal act does not depend upon any express or implied promise arising from the employment contract. Instead, the tort cause of action arises out of the contractual relationship. See DCR Inc. v. Peak Alarm Co., 663 P.2d 433, 437 (Utah 1983) (burglar alarm company which breached duty of due care liable in tort even though relationship giving rise to duty originated in service contract between parties); see also Tameny, 164 Cal.Rptr. at 843-44, 610 P.2d at 1334; Malone v. University of Kansas Medical Ctr., 220 Kan. 371, 552 P.2d 885, 888 (Kan.1976); Burk v. K-Mart Corp., 770 P.2d 24, 28 (Okla.1989). The employer's liability is based on violation of a legal duty independently imposed as a result of what the defendant undertook to do with relation to the [employee's] interests. DCR Inc., 663 P.2d at 437 (quoting Carl S. Hawkins, Retaining Traditional Tort Liability in the Nonmedical Professions, 1981 B.Y.U.L.Rev. 33, 36). Our holding that tort theory applies to the public policy exception is not inconsistent with our decision in Beck v. Farmers Insurance Exchange, 701 P.2d 795 (Utah 1985). In Beck, we held that a claim based on a breach of the implied covenant of good faith and fair dealing gives rise to a claim for breach of contract. Id. at 798. Tort damages in such a case can be obtained only upon a showing of independently actionable tortious conduct. See id. at 800 n. 3. Because the public policy exception is imposed by law, the employment agreement is involved only because it forms the basis of the relationship; the agreement is tangential to the reason for discharge. This is not the case with regard to the covenant of good faith and fair dealing. The covenant of good faith is read into contracts in order to protect the express covenants or promises of the contract, not to protect some general public policy interest not directly tied to the contract's purpose. Foley v. Interactive Data Corp., 47 Cal.3d 654, 254 Cal.Rptr. 211, 232, 765 P.2d 373, 394 (1988). The very nature of the public policy exception, therefore, distinguishes it from the implied covenant of good faith and fair dealing discussed in Beck. Further, our holding that the public policy exception sounds in tort is consistent with our adoption of the tort of intentional interference with economic relations in Leigh Furniture & Carpet Co. v. Isom, 657 P.2d 293 (Utah 1982). Under Leigh Furniture, to recover damages for that tort, the plaintiff must prove (1) that the defendant intentionally interfered with the plaintiff's existing or potential economic relations, (2) for an improper purpose or by improper means, (3) causing injury to the plaintiff. Id. at 304. The improper-purpose alternative of the second part of the test is satisfied where the means used to interfere with a party's economic relations are contrary to law, such as violations of statutes, regulations, or recognized common law rules. Such acts are illegal or tortious in themselves and hence are clearly `improper' means of interference. Id. at 308. The discharge of an employee because of his failure to violate a clear and substantial public policy is an improper purpose under this definition. The imposition of tort damages is therefore entirely appropriate and consistent. Accord W. Page Keeton, et al., Prosser and Keeton on the Law of Torts § 130, at 1029-30 (5th ed. 1984). As discussed above, the duty at issue in actions for wrongful termination in violation of public policy does not arise out of the employment contract. It is imposed by law, and thus is properly conceptualized as a tort. Significant consequences flow from this conceptual approach, one of which is the type of damages available. When a contract theory is applied, compensation may be limited to economic losses such as back pay. Keeton § 130, at 1029 (citing Brockmeyer v. Dun & Bradstreet, 113 Wis.2d 561, 335 N.W.2d 834 (1983)). Moreover, concepts of foreseeability and mitigation apply. Brockmeyer, 335 N.W.2d at 841. In contrast, [a] tort theory will permit the recovery to transcend these limits and may also serve to avoid limitations on recovery that may be imposed by the collective bargaining agreement or other contract. Keeton § 130, at 1029. Most notably, a plaintiff may recover punitive damages under tort law. In the case of the public policy exception, potential punitive damages will exert a valuable deterrent effect on employers who might otherwise subject their employees to a choice between violating the law or losing their jobs. The employment-at-will doctrine does not grant an employer the privilege of subjecting its employees to the risks of criminal liability. Boyle v. Vista Eyewear, Inc., 700 S.W.2d 859, 872 (Mo.Ct. App.1985). The potential for the imposition of punitive damages under the public policy exception will, we believe, provide an incentive for employers to refrain from using their unique economic position to coerce employee conduct that contravenes clear and substantial public policies. Moreover, it will encourage employees to engage in lawful conduct and report violations of the law.