Opinion ID: 1997619
Heading Depth: 2
Heading Rank: 3

Heading: The Narrow Application of the Covenant of Good Faith and Fair Dealing to the Facts of this Case

Text: 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.