Opinion ID: 1386717
Heading Depth: 1
Heading Rank: 2

Heading: wrongful discharge and breach of covenant of good faith and fair dealing

Text: We first address Nordstrom's contention that the trial court erred in instructing the jury that it could find for the plaintiffs based on a breach of an implied covenant of good faith dealing in the context of an indefinite-term employment contract. Closely related to that issue is the plaintiffs' cross-appeal urging error in the trial court's dismissal of their claims for breach of implied contract terms based on the provisions in the Nordstrom employee manual. We conclude that (1) Nordstrom is correct in contending that the trial court erred in holding that Utah law recognizes a claim for relief for wrongful discharge based on breach of an implied-in-law covenant of good faith and fair dealing; and (2) the plaintiffs are correct in arguing that the court also erred in not instructing the jury that provisions in the Nordstrom employee manual could be found to limit the right of an employer to discharge an indefinite-term employee. Nevertheless, for reasons explained below, we hold that the latter error was harmless as to Dennis and Barbara Knapp. Because of our ruling on the covenant of good faith and fair dealing, it is not necessary to address the other five issues raised by Nordstrom. We also affirm the trial court's dismissal of the plaintiffs' defamation claims. Nordstrom contends that because the plaintiffs were hired for indefinite terms, they were at-will employees under established Utah law and could be fired for any or no reason. Although the at-will rule has been recognized and applied in numerous older cases, it has become identified in recent times with the case of Bihlmaier v. Carson, 603 P.2d 790 (Utah 1979). Bihlmaier reiterated the general rule: The general rule concerning personal employment contracts is, in the absence of some further express or implied stipulation as to the duration of the employment or of a good consideration in addition to the services contracted to be rendered, the contract is no more than an indefinite general hiring which is terminable at the will of either party.... When an individual is hired for an indefinite term, he has no right of action against his employer for breach of the employment contract upon being discharged. 603 P.2d at 792 (footnotes omitted). Accord Crane Co. v. Dahle, 576 P.2d 870 (Utah 1978); Held v. American Linen Supply Co., 6 Utah 2d 106, 307 P.2d 210 (1957). See also Amos v. Corporation of the Presiding Bishop of the Church of Jesus Christ of Latter-Day Saints, 594 F. Supp. 791, 829 (D.Utah 1984), rev'd, 483 U.S. 327, 107 S.Ct. 2862, 97 L.Ed.2d 273 (1987). After Bihlmaier was decided, Rose v. Allied Development Co., 719 P.2d 83 (Utah 1986), expanded the Bihlmaier doctrine and held that a limitation on an employer's absolute right to discharge an employee hired under an indefinite term employment contract had to be supported either by an agreement of the parties or by consideration beyond the rendering of services under the employment contract. After Rose, this Court modified the at-will doctrine as it had been applied. Berube v. Fashion Centre, Ltd., 771 P.2d 1033, 1044-45 (Utah 1989), held that the presumption of an at-will discharge right created by an indefinite term employment agreement could be modified by implied-in-fact contract terms found in an employment manual and that an employee's continued performance of services could be adequate consideration for those terms. The lead opinion in Berube, written by Justice Durham and concurred in by the author of this opinion, surveyed the the doctrines that have developed in other jurisdictions that limit the absolute and arbitrary right of employers to discharge indefinite-term employees. That opinion identified three general exceptions to the terminable-at-will doctrine developed in other states. 771 P.2d at 1041-42. First, a number of courts have held that an employer may not terminate an indefinite-term employment contract for motivations that contravene public policy. 771 P.2d at 1042-43. Second, a number of courts have held that employment manuals and company policy statements concerning the terms of employment may provide terms that limit an employer's absolute right to discharge for any or no reason. 771 P.2d at 1044-46. Third, a few states have held that an indefinite-term employment contract is subject to an implied-in-law covenant of good faith and fair dealing that makes an employer liable for a bad faith discharge. 771 P.2d at 1046-47. Justice Zimmerman filed a separate opinion concurring in portions of Justice Durham's opinion, 771 P.2d at 1050-53, and Justice Howe, joined by Chief Justice Hall, did the same. 771 P.2d at 1050. In sum, Justices Durham, Stewart, and Zimmerman agreed that an indefinite-term employment contract creates a rebuttable presumption that the employment is on an at-will basis. 771 P.2d at 1044, 1051. The same three justices concurred in the proposition that employment manual provisions may constitute implied-in-fact terms of the employment arrangement, even without additional consideration, that restrict the absolute right of an employer to terminate the employment of an indefinite-term employee. [1] 771 P.2d at 1045, 1051. Lowe v. Sorenson Research Co. Inc., 779 P.2d 668, 670 (Utah 1989), and Caldwell v. Ford, Bacon & Davis Utah, Inc., 777 P.2d 483, 485 (Utah 1989), followed Berube and held that an employer's policy statements in the form of bulletins, as well as an employment manual, could rebut the presumption of an at-will employment relationship and establish additional terms of the employment contract that limited an employer's right of discharge. Caldwell also squarely ruled that although the terms of the manual were not made known to the employee before hiring, they could still be found to rebut the at-will presumption and to constitute the terms of an agreement. 777 P.2d at 485. However, because the employer's policy statements in Caldwell did not purport to establish limitations on the employer's right to discharge, the employer's discharge of the employee did not, as a matter of law, breach the employment contract. 777 P.2d at 486. Subsequently, in Loose v. Nature-All Corp., 785 P.2d 1096, 1097-98 (Utah 1989), the Court refused to recognize an implied-in-law covenant of good faith and fair dealing that would limit an employer's right to discharge indefinite-term employees to instances in which the employer could show good cause. Here, the plaintiffs correctly observe that every contract is subject to an implied covenant of good faith. For example, in Resource Management Co. v. Weston Ranch & Livestock Co., 706 P.2d 1028, 1037 (Utah 1985), the Court, in referring to the implied covenant of good faith, stated that, courts endeavor to construe contracts so as not to grant one of the parties an absolute and arbitrary right to terminate a contract. See also Beck v. Farmer's Ins. Exch., 701 P.2d 795, 797-98 (Utah 1985). From that premise, the plaintiffs argue that an employer may discharge an indefinite-term employee only if the employer can show that the discharge is made in good faith, meaning, specifically, that the employer has good cause for the discharge. The purpose and function of the implied covenant of good faith generally recognized in all contracts is different from the purpose and function of the so-called covenant of good faith and fair dealing in employment contracts. Under the implied covenant of good faith applied in Resource Management, the parties to a contract are deemed to intend that the terms of a contract should be construed in a manner which assumes the parties intended that the duties and rights created by the contract should be performed and exercised in good faith. Such a covenant cannot be construed, however, to establish new, independent rights or duties not agreed upon by the parties. Nor can a covenant of good faith be used to nullify a right granted by a contract to one of the parties or to require a party vested with a contract right to exercise that right in a manner contrary to that party's legitimate self-interest. See Rio Algom Corp. v. JIMCO Ltd., 618 P.2d 497, 505 (Utah 1980). The covenant of good faith recognized in Resource Management cannot be construed to change an indefinite-term, at-will employment contract into a contract that requires an employer to have good cause to justify a discharge. Ordinarily the at-will doctrine is not made a substantive term of an employment contract which the parties specifically agree to. Absent such an explicit term, an indefinite-term employment contract raises only a presumption that the employment is at-will, as Berube held. Of course the at-will doctrine may be altered by terms contained in an employment manual. Berube, 771 P.2d at 1045; see also Leikvold v. Valley View Community Hosp., 141 Ariz. 544, 546, 688 P.2d 170, 172 (1984); Toussaint v. Blue Cross & Blue Shield of Michigan, 408 Mich. 579, 597-99, 292 N.W.2d 880, 884-85 (1980). However, in the absence of express terms limiting the right of an employer to discharge for any or no reason and in the absence of provisions establishing procedures by which a discharge should be effectuated, it would be inconsistent to hold that an employer, on the basis of the implied covenant of good faith, is bound to a substantive limitation on the employer's right to discharge. Murphy v. American Home Products Corp., 58 N.Y.2d 293, 304-05, 461 N.Y.S.2d 232, 237, 448 N.E.2d 86, 91 (1983), states that proposition in the following language: No obligation can be implied, however, which would be inconsistent with other terms of the contractual relationship. Thus, in the case now before us, plaintiff's employment was at will, a relationship in which the law accords the employer an unfettered right to terminate the employment at any time. In the context of such an employment it would be incongruous to say that an inference may be drawn that the employer impliedly agreed to a provision which would be destructive of his right of termination. The parties may by express agreement limit or restrict the employer's right of discharge, but to imply such a limitation from the existence of an unrestricted right would be internally inconsistent. In sum, the trial court erred in instructing the jury that it could find for the plaintiffs on the basis of a breach of an implied-in-law covenant of good faith and fair dealing. The trial court also erred in failing to recognize the validity of the plaintiffs' theory that the terms of an employment manual can rebut the inference of an at-will right to discharge. The plaintiffs tried the case on the theory that certain terms in Nordstrom's employee policy manual dealing with the termination of employees were implied terms of the contract of employment and limited Nordstrom's right to discharge. Under Berube, Lowe, Caldwell, and Loose, the plaintiffs could recover if they proved that proposition and a breach of the terms of the manual purportedly limiting the right to discharge. The plaintiffs must therefore establish two propositions. First, do any of the provisions in the manual purport to limit or modify Nordstrom's unfettered right to discharge its employees? If so, did Nordstrom violate any of those provisions? If the terms of the manual do purport to limit Nordstrom's power to discharge, the question of whether they become implied terms of the contract of employment is primarily a factual issue. Lowe v. Sorensen Research Co., 779 P.2d 668, 670 (Utah 1989). The evidence that is relevant to that determination includes the language of the manual itself, the employer's course of conduct, and pertinent oral representations. Leikvold v. Valley View Community Hosp., 141 Ariz. 544, 548, 688 P.2d 170, 174 (1984). Ordinarily, the proper construction of contractual terms in the first instance raises an issue of law to be decided by a court, unless the contract terms are ambiguous and raise factual issues. Caldwell v. Ford, Bacon & Davis Utah, Inc., 777 P.2d 483, 486 (Utah 1989). Thus, when it is plain that a manual or bulletin does not limit the right to discharge at will, the case need not go to a jury. 777 P.2d at 486. Here there are arguable issues as to just what the terms of the manual were intended to accomplish. The manual sets forth a number of different types of conduct that may result in discharge. The manual, under the heading Regulations Protecting You and Your Store, sets out nine categories of conduct which may result in discharge after a written warning. However, the manual also sets out another eleven categories of conduct which may result in immediate dismissal without prior written notice or warning. Although the rules seem to limit Nordstrom's right to discharge without prior warning to the categories listed, there is an inherent ambiguity in the rules. Viewing both categories together, a legitimate issue arises as to whether all the offenses listed are intended to constitute the exclusive grounds for discharge. If not, a factual issue may exist regarding Nordstrom's course of conduct in construing its rules. In any event, the manual purports to have some binding effect with respect to employees. They were required to sign the manual, and they were informed that their continued employment depended on their adherence to its terms. [2] Nevertheless, the issue as to Dennis and Barbara Knapp may be disposed of as a matter of law because of admitted facts and our assumption (in their favor) that the manual does restrict Nordstrom's right to discharge for any or no reason. The manual stated that the continued employment of the employees was consideration for their signing the manual. The manual provides that an employee may be immediately discharged, without prior notice for introduction, possession, or use of habit-forming drugs, hallucinogens, illegal narcotics, or intoxicating liquors on the property of the store or for violation of any criminal law or conviction in any court of criminal law while in our employ. Both Dennis and Barbara Knapp admitted at trial that they had used drugs while on buying trips for Nordstrom. Clearly, their admitted use of narcotics justified summary dismissal under the terms of paragraph 8 of the manual. Their use of drugs was directly prohibited and also constituted a crime. Whether Cathy Brehany committed an act which subjected her to immediate discharge without warning is problematic. It is not clear which provision or provisions, if any, in the manual might have provided a basis for her discharge. Although she allegedly associated with other employees who used drugs, no evidence demonstrated that she used drugs. Whether she arranged a sale of drugs and was therefore guilty of a technical violation of the law is a factual issue. Thus, on remand the trial court must determine which provisions, if any, apply to her, what conduct provided a basis for her discharge, and whether she was arguably entitled to a prior written warning before discharge. Possibly Nordstrom's rules dealing with dismissal with or without prior written warning, were intended to be the only grounds justifying dismissal. If that is the case, Brehany may have been unjustifiably discharged or may have been entitled to a warning. If, however, the rules are not found to be the only possible grounds for discharge, the rule in Bihlmaier might apply so that Brehany would be subject to the at-will doctrine. We do not foreclose the possibility that Nordstrom's rules could be subject to the interpretation that they are not exclusive. If they are not, the rules may nevertheless be found to be binding with respect to those types of conduct specifically described in the rules which permit a dismissal only with prior warning. In short, with respect to Cathy Brehany triable factual issues exist as to whether the dismissal rules in the manual rebut the presumption of an at-will power to discharge, either in whole or in part. On remand, the trial court will have to determine which terms in the manual apply, if any, and if the rules are held applicable, whether Nordstrom violated them. The judgment as to the Knapps must accordingly be reversed and judgment entered for Nordstrom on the breach of contract claim. As to Cathy Brehany's claim of breach of contract, the matter is remanded to the trial court for a new trial.