Opinion ID: 1997619
Heading Depth: 1
Heading Rank: 4

Heading: Good Faith And Fair Dealing in At-Will Employment

Text: DuPont contends that the Covenant does not extend to the facts of this case. [5] It points to the central importance of the Doctrine which provides a heavy presumption that a contract for employment, unless otherwise expressly stated, is at-will in nature, with duration indefinite. Merrill v. Crothall-American, Inc., Del.Supr., 606 A.2d 96, 102 (1992). [6] The Doctrine has a long history in Delaware [7] and the United States. [8] The Covenant, perhaps in less robust form and by a different name, also has a long history. See Blish v. Thompson Automatic Arms Corp., Del.Supr., 64 A.2d 581 (1948); Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 118 N.E. 214 (1917); Heney v. Sutro & Co., 28 Cal.App. 698, 153 P. 972 (1915). [9]
While at-will employment remains a heavy presumption, this Court recognized the limited application of the Covenant to an at-will employment contract in Merrill v. Crothall-American, Inc., Del.Supr., 606 A.2d 96 (1992). In so holding, this Court stated: It has been said that to constitute a breach of the implied covenant of good faith, the conduct of the employer must constitute `an aspect of fraud, deceit or misrepresentation.' We think this characterization of an employer's duty under the covenant is accurate. The lodestar here is candor. An employer acts in bad faith when it induces another to enter into an employment contract through actions, words, or the withholding of information, which is intentionally deceptive in some material way to the contract. Such conduct constitutes an aspect of fraud, deceit or misrepresentation. Id. at 101 (citations omitted). Merrill produced evidence from which a rational jury could infer that he had been hired by Crothall when Crothall had the intention of replacing him as soon as it found a suitable replacement. Construing the facts in favor of Merrill, the non-movant, it appeared that Crothall allowed Merrill to believe that the job offer was for an indefinite duration when, at the very same time, Crothall was actively pursuing Merrill's replacement. Merrill left his prior employment based on that understanding. Merrill's claim, therefore, survived a summary judgment motion. Thus, Merrill was essentially a case where the Covenant was predicated on fraud in the inducement. [10] In Merrill, this Court carefully limited its holding by noting that [a]n employer has wide latitude in deciding how it conducts its business including its employment undertakings,... id. at 101, and explicitly reserving decision with respect to what constitutes justification for termination of an at-will employment contract, id. at 102. The Court stated further: Nothing said here is to be construed as limiting an employer's freedom to terminate an at-will employment contract for its own legitimate business reasons, or even highly subjective, reasons. Such a contract is still terminable by either party for any reason not motivated by bad faith. Id. at 103.
With respect to the termination of at-will employment, the Court in Merrill held that the duty of good faith may be breached by termination in some circumstances ... or some other public policy implicated by such a termination.... Id. at 102. Merrill made clear the limited range of situations in which the duty may be breached, citing cases which illustrate the limitation. [11] These cases, taken together with the facts of Merrill, support the proposition that the Covenant limits at-will employment only in very narrowly defined categories. [12] See Wagenseller v. Scottsdale Mem. Hosp., 147 Ariz. 370, 710 P.2d 1025, 1031 (1985) (The trend has been to modify the at-will rule by creating exceptions to its operation). The Supreme Judicial Court of Massachusetts, in the well-known case of Fortune v. National Cash Register Co., 373 Mass. 96, 364 N.E.2d 1251 (1977), held that a rational jury could find that the employer had breached the Covenant by terminating a commissioned salesman after he had secured a large sale but before he became entitled to the commission at closing, simply to avoid paying him the commission. In Magnan v. Anaconda Indus., Inc., 193 Conn. 558, 479 A.2d 781, 788 (1984), the Supreme Court of Connecticut held that a plaintiff could survive summary judgment on his claim that the employer fired him in retaliation for refusing to sign an untrue statement, noting that breach of the Covenant cannot be predicated simply upon the absence of good cause for a discharge. In Monge v. Beebe Rubber Co., 114 N.H. 130, 316 A.2d 549 (1974), the New Hampshire Supreme Court held that an employer breached the Covenant when it terminated an employee for refusing the sexual demands of her employer. Monge has been cited to stand for a public policy exception to at-will employment. Wagenseller, 710 P.2d at 1032. The public policy exception, whether conceived of independently as a tort or as arising from the Covenant, generally requires a clear mandate of public policy. As Chancellor Allen has described this category: [E]mployees who seek protection from firing on the basis that their actions were protected by a public policy, must assert a public interest recognized by some legislative, administrative or judicial authority, and the employee must occupy a position with responsibility for that particular interest. Shearin v. E.F. Hutton Group, Inc., Del.Ch., 652 A.2d 578, 587-89 (1994) (lawyer employee fired for refusing to violate her ethical duties may have a cause of action). [13] Pressman's claim cannot fit within the public policy category since he does not identify an explicit and recognizable public policy. He alleges that DuPont fired him in retaliation for questioning the propriety of Pensak's business practices. This fact, standing alone, does not rise to the level of a legally cognizable public policy exception. As one treatise states: Employees who uncover and blow the whistle on questionable internal financial and business practices [absent illegality] have won no support from the courts. Holloway & Leech, Employment Termination: Rights and Remedies at 180, (2d ed. 1993) (citing cases). Another category of exceptions to the Doctrine created by the Covenant is exemplified by Merrill. In these cases, the employer is liable for misrepresenting some important fact, most often the employer's present intentions, and the employee relies thereon either to accept a new position or remain in a present one. In Shebar v. Sanyo Bus. Sys. Corp., 218 N.J.Super. 111, 526 A.2d 1144 (1987), aff'd, 111 N.J. 276, 544 A.2d 377 (1988), the defendant-employer convinced an executive not to resign in favor of a competitor's offer. Four months later, the executive was summarily fired. The court held that the executive stated a claim for fraud. Id.; see also Wildes v. Pens Unlimited Co., Me. Supr., 389 A.2d 837 (1978) (claim stated for fraud where company hired employee from another job knowing that position would be eliminated within days). This category is not applicable to the facts of this case. Another exception applies when an employer uses its superior bargaining power [to] ... depriv[e] the employee of `compensation that is clearly identifiable and is related to the employee's past service.' Magnan, 479 A.2d at 788 (quoting Cort v. Bristol-Myers Co., 385 Mass. 300, 431 N.E.2d 908, 910 (1982)); see, e.g. Fortune v. National Cash Register, 373 Mass. 96, 364 N.E.2d 1251 (1977); Zimmer v. Wells Management Corp., S.D.N.Y., 348 F.Supp. 540 (1972); Metcalf v. Intermountain Gas Co., 116 Idaho 622, 778 P.2d 744 (1989). The Arizona Supreme Court has described this line of cases as protecting an employee from a discharge based on an employer's desire to avoid the payment of benefits already earned by the employee, such as the sales commission in Fortune.... Wagenseller, 710 P.2d at 1040. [14] Pressman's claim also does not fall in this category. In its verdict for DuPont on the implied-in-fact contract claim, the jury necessarily found that Pressman did not have a promise of secure employment. He has not identified another benefit to which he was entitled, such as earned commissions.
Courts have been reluctant to recognize a broad application of the Covenant out of a concern that the Covenant could thereby swallow the Doctrine and effectively end at-will employment. Wagenseller, 710 P.2d at 1040 (adopt[ing] such a rule ... would tread perilously close to abolishing completely the at-will doctrine ...); Magnan, 479 A.2d at 788 (complexity of the multifarious employment relationships counsels against broad covenant requiring cause for dismissal); Thompson v. St. Regis Paper Co., 102 Wash.2d 219, 685 P.2d 1081 (1984); see also Arthur Leonard, A New Common Law of Employment Termination, 66 N.C.L.Rev. 631, 656 (1988). The presumption of at-will employment is a fixture of American law, and continues to be followed in Delaware and in the vast majority of jurisdictions. Although the Covenant is a generally acknowledged principle, its precise contours are not fixed. We begin with an analysis of various contexts where the concept of good faith is employed. Although both the Doctrine and the Covenant are products of decisional law and not statutory law, the Uniform Commercial Code (UCC) is appropriate to consider by analogy. The UCC defines good faith as honesty in fact in the conduct or transaction concerned, 6 Del.C. § 1-201(19), and honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade, 6 Del.C. § 2-103(1)(b). The Restatement comments: The phrase good faith is used in a variety of contexts, and its meaning varies somewhat with the context. Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party; it excludes a variety of types of conduct characterized as involving bad faith because they violate community standards of decency, fairness or reasonableness. Restatement (Second) of Contracts § 205, cmt. a. (1979). [15] See also Summers, Good Faith in General Contract Law and the Sales Provisions of the Uniform Commercial Code, 54 Va.L.Rev. 195, 201 (1968): [Good faith is] an excluder. It is a phrase without general meaning (or meanings) of its own and serves to exclude a wide range of heterogenous forms of bad faith. In a particular context the phrase takes on specific meaning, but usually this is only by way of contrast with the specific form of bad faith actually or hypothetically excluded. The Covenant is best understood as a way of implying terms in the agreement. Farnsworth, Good Faith Performance and Commercial Reasonableness under the Uniform Commercial Code, 30 U.Chi.L.Rev. 666, 670 (1963). It is a way of honoring the reasonable expectations created by the autonomous expressions of the contracting parties. Tymshare, Inc. v. Covell, D.C.Cir., 727 F.2d 1145, 1152 (1984); accord Pierce v. International Ins. Co. of Ill., Del.Supr., 671 A.2d 1361, 1366 (1996). One method of analyzing the Covenant is to ask what the parties likely would have done if they had considered the issue involved. See Katz v. Oak Indus., Inc., Del. Ch., 508 A.2d 873, 880 (1986) ([I]s it clear from what was expressly agreed upon that the parties who negotiated the express terms of the contract would have agreed to proscribe the act later complained of ... had they thought to negotiate with respect to that matter?); Market St. Assoc. Ltd. Partnership v. Frey, 7th Cir., 941 F.2d 588, 595 (1991) (the Covenant is a stab at approximating the terms the parties would have negotiated had they foreseen the circumstances that have given rise to their dispute); accord Burton, Breach of Contract and the Common Law Duty to Perform in Good Faith, 94 Harv.L.Rev. 369, 387 (1980); but see Lillard, Fifty Jurisdictions in Search of a Standard: The Covenant of Good Faith and Fair Dealing in the Employment Context, 57 Mo.L.Rev. 1233, 1241 (1992) (asserting that good faith and at-will employment are incompatible). [16] The application of the Covenant here relates solely to an act or acts of the employer manifesting bad faith or unfair dealing achieved by deceit or misrepresentation in falsifying or manipulating a record to create fictitious grounds to terminate employment. Since an assurance of continued employment is antithetical to at-will employment, no legally cognizable harm arises solely from the termination itself. See Wagenseller, 710 P.2d at 1040. Here, the harm derives from Pensak's creation of false grounds and manufacturing a record in order to establish a fictitious basis for termination. The evidence viewed in the light most favorable to Pressman shows that Pensak set out on a campaign to discredit Pressman by creating fictitious negative information about Pressman's work and hiding positive information. Based on the distorted record he created, Pensak went to his superiors and caused Pressman to be terminated. If the jury believed that Pensak did these acts, and did them intentionally, they amounted to a breach of the Covenant. But the trial court overstated the issue in its charge to the jury by permitting the jury to find in Pressman's favor if they found that DuPont discharged Pressman maliciously, that is as a result of hatred, ill will or intent to injure, or effects the discharge in bad faith, that is through acts of fraud, deceit or intentional misrepresentation (emphasis supplied). Employment relationships are complex, ambiguous and, ultimately, personal. One commentator has described the peculiar features of employment: Employment agreements are intrinsically different from commercial contracts in many fundamental ways. Employment agreements create an ongoing personal relationship between employee and employer  or in larger companies, with the employer's managerial and supervisory agents  which transcends purely economic interests. Leonard, 66 N.C.L.Rev. 631, 656 (1988). This aspect of employment relationships counsels caution about creating causes of action based solely on personal motivations. Employees and their supervisors work closely together and personality clashes have the potential to interfere seriously with the achievement of an organization's mission. Dislike, hatred or ill will, alone, cannot be the basis for a cause of action for termination of an at-will employment. The jury instruction here, which is expressed in the disjunctive, would permit a cause of action where an employee was discharged because of dislike, openly expressed. Here, if the jury believed that Pensak, not having authority unilaterally to fire Pressman, maliciously employed deceit and subterfuge to manufacture grounds for Pressman's dismissal at the hands of Pensak's superiors, Pensak went beyond the broad, permissible scope of the Doctrine and crossed into the limited zone of the Covenant. DuPont was made aware after the fact of this course of events and ratified Pensak's actions. Thus, DuPont can be held liable to Pressman on this claim based upon carefully limited instructions to the jury. The precise problem with the trial court's instruction to the jury is that its disjunctive formulation did not tie the malice of Pensak toward Pressman to the intent to injure him by causing him to be terminated based on falsified grounds. The instruction would have permitted the jury, for example, to render a verdict for Pressman if they found he was terminated because Pensak hated him or harbored ill will toward him. The breadth of the jury charge therefore was inconsistent with the breadth of the Doctrine and the limited exception created by the Covenant.