Opinion ID: 1966804
Heading Depth: 2
Heading Rank: 1

Heading: Substantive Protection of the Implied Covenant of Good Faith and Fair Dealing

Text: ¶ 36. `[G]ood faith' is a concept that `varies ... with the context' in which it is deemed an implied obligation. Carmichael, 161 Vt. at 208, 635 A.2d at 1216 (quoting Restatement (Second) of Contracts § 205 cmt. a (1981)) (omission in original). The covenant's purpose is to ensure faithfulness to an agreed common purpose and consistency with the justified expectations of the other party. Restatement (Second) of Contracts § 205 cmt. a (1981). Here, we are asked to imply the covenant in the context of an express physician's employment agreement allowing for termination on notice from either party with or without cause. ¶ 37. As Dr. LoPresti views it, the agreed common purpose of the physician's employment contract was providing the highest possible quality of patient care. He argues that [a] jury would be entitled to find that firing a doctor because he had upheld the ethical standards of his profession by taking reasonable steps to protect his patients from harm violates the covenant, as it applies to the agreed common purpose he posits. In this respect, his claim based on a violation of the covenant is practically indistinguishable from his public policy claim discussed above. This point is illustrated by the following statements Dr. LoPresti's counsel made at the oral argument on summary judgment in the trial court: The covenant of good faith and fair dealings is a very strong part of Vermont law that stands on equal footing with FEPA [the Vermont Fair Employment Practices Act]. There's some protections for the public that really [ ] the contracts can[`t] outweigh. Our argument about the compelling public interest, the compelling public policy is pretty much the same. I wouldn't make the argument if what Dr. LoPresti did was just to protect his own rights or his own interests. (Emphasis added.) ¶ 38. In the employment termination context, some courts have also recognized the difficulty of distinguishing between violations of the covenant and wrongful termination in violation of public policy. For example, in the seminal case of Monge v. Beebe Rubber Co., the New Hampshire Supreme Court applied the covenant and held that an employer had violated it by terminating an at-will employee who refused to date her foreman. 114 N.H. 130, 316 A.2d 549, 551-52 (1974). The court stated that termination by the employer of a contract of employment at will which is motivated by bad faith or malice... constitutes a breach of the employment contract. Id. at 551. In a subsequent case, however, the court clarified that Monge applied only to a situation where an employee is discharged because he performed an act that public policy would encourage, or refused to do that which public policy would condemn. Howard v. Dorr Woolen Co., 120 N.H. 295, 414 A.2d 1273, 1274 (1980). In concurring with the Idaho Supreme Court's decision to recognize the applicability of the covenant in the at-will employment context, Associate Justice Huntley discussed the interplay of the covenant and public policy as he saw it: When the contract is at will, the employer need not show good cause for the termination. However, the at will employer may not terminate an employee for bad causes or reasons, i.e., those contrary to public policy, because such terminations are made in bad faith, and as such, are in contravention of [the covenant]. Metcalf v. Intermountain Gas Co., 116 Idaho 622, 778 P.2d 744, 752 (1989) (Huntley, J., concurring) (emphasis added). We see no reason, in the context of this case, to blur the distinction between harms for which the covenant provides a remedy and harms for which public policy provides a remedy. We will not, therefore, allow Dr. LoPresti's claim for breach of the covenant, as he has fashioned it, to go forward. ¶ 39. More importantly, we have already held that the covenant does not apply to at-will employment agreements when the plaintiff's argument amounts to no more than an objection to the other party's freedom to avail itself of the at-will arrangement by terminating the agreement for reasons that the other party does not accept. Dicks v. Jensen, 172 Vt. 43, 52, 768 A.2d 1279, 1285-86 (2001). While the agreement at issue here is not truly at-will in the sense that there is a written contract that requires a notice period before no-cause termination, we have treated them as equivalents for the reasons stated supra ¶ 18. Accordingly, the rationale behind our rejection of the employer's claim in Dicks applies here. ¶ 40. Though writing in the context of classic at-will employment arrangements, the Supreme Court of Connecticut summarized what is our essential position in this case: Although we endorse the applicability of the good faith and fair dealing principle to employment contracts, its essence is the fulfillment of the reasonable expectations of the parties. Where employment is clearly terminable at will, a party cannot ordinarily be deemed to lack good faith in exercising this contractual right. Like other contract provisions, which are unenforceable when violative of public policy, the right to discharge at will is subject to the same restriction. We see no reason presently, therefore, to enlarge the circumstances under which an at-will employee may successfully challenge his dismissal beyond the situation where the reason for his discharge involves impropriety ... derived from some important violation of public policy. Magnan v. Anaconda Indus., Inc., 193 Conn. 558, 479 A.2d 781, 788-89 (1984) (internal citation omitted). ¶ 41. Above and beyond the allegations that Physician Group fired him in violation of public policy, Dr. LoPresti also claims that he was fired because he demanded a higher standard for patient care than Physician Group was interested in providing. His specific allegations were related not only to the referral issue, but also to clashes he had with management over the number of patients a Physician Group doctor would be required to see in a day. He claims that termination for this reason was inconsistent with his justified expectations under the contract that incorporated the notion, contained in Physician Group's own code of ethics, that care of the sick was the physician's first responsibility and sacred trust. See Carmichael, 161 Vt. at 208, 635 A.2d at 1216 (covenant emphasizes `consistency with the justified expectations of the other party') (quoting Restatement (Second) of Contracts § 205 cmt. a (1981)). Assuming that Dr. LoPresti can prove this allegation, as a matter of law, the covenant still will not provide a remedy where the express contract makes both parties aware that either party can terminate the agreement, upon proper notice, for any reason. Putting aside the public policy aspect, Dr. LoPresti's claim under the covenant is based on his not unwarranted dissatisfaction with the reasons he believes were behind his firing. We cannot recognize this as an acceptable ground on which to challenge employer personnel decisions that are based on freely negotiated with or without cause termination clauses, because to do so would essentially render such clauses meaningless. ¶ 42. We note, however, that our holding in this case will not necessarily preclude the covenant's application in the employment termination context when a plaintiff's claim for damages is based on accrued benefits and not solely on implied tenure, i.e., permanent employment until just cause for termination arises. See Ross v. Times Mirror, Inc., 164 Vt. 13, 23, 665 A.2d 580, 586 (1995) (reserving judgment on whether Court would recognize the covenant in the context of nontenure terms of at-will contract). Even when the employment arrangement gives the employer absolute discretion to terminate the contract without cause, courts have held employers liable for breaching the covenant where the termination was based on the employer's desire to avoid paying the employee benefits earned under the contract. See, e.g., Fortune v. Nat'l Cash Register Co., 373 Mass. 96, 364 N.E.2d 1251, 1255-57 (1977) (notwithstanding written contract allowing either party to terminate the contract on written notice, employer violated implied covenant of good faith and fair dealing by terminating employee in order to avoid paying him commissions and bonuses to which he would have been entitled but for the termination); see also Magnan, 479 A.2d at 787-88 (expressing a willingness to accept employee claims based on implied covenant of good faith and fair dealing when the employer's termination decision has the effect of depriving the employee of compensation that is clearly identifiable and is related to the employee's past service.)(internal quotation marks omitted). Such cases are based on the principle that any action by either party which violates, nullifies or significantly impairs any benefit of the employment contract is a violation of the implied-in-law covenant of good faith and fair dealing. Metcalf, 778 P.2d at 750; see also Restatement (Second) of Contracts § 205 cmt. a (1981) (covenant emphasizes consistency with the justified expectations of the other party). ¶ 43. Dr. LoPresti's claim does not require us to apply the covenant to restore accrued benefits that were lost as a result of his being fired. He cannot claim that Physician Group deprived him of any benefit of the employment contract by terminating him when it did. The contract required only that Dr. LoPresti be given written notice of termination six months in advance, and the opportunity to work for the contracted salary during the period following the notice until the date of termination. He does not dispute that he was given this notice, not does he dispute that he was paid for all the services he rendered. Moreover, in light of the freely negotiated with or without cause termination clause, lifetime employment was clearly not a benefit of the contract.