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« Employer handbooks #6 | Main | Discharge in violation of public policy #8 »

Good faith and fair dealing #7
by Ross Runkel at LawMemo

Two basic principles of contract law seem inconsistent with each other, and cause courts a problem.

One - Employment at-will: The principle that an employer can fire an employee at any time and for any reason and without advance warning. Unless the employer and employee have a different agreement, this usually will be the rule a court will apply.

Two - Covenant of good faith and fair dealing: The principle that every contract includes an implied duty to act in good faith as to the performance and enforcement of the contract.

Let's say an employer fires Jane because she is a vegetarian. Other than that, Jane has been an excellent employee and the employer has no need to reduce the overall number of employees.

If a court applies the at-will doctrine by itself, then Jane has no contract claim.

If a court applies the covenant of good faith and fair dealing, then Jane has a good argument that this was not in good faith.

Courts vary from state-to-state on how to deal with this.

  • Some courts say that the covenant of good faith and fair dealing applies to all contracts, including at-will contracts.
  • Some courts say that the covenant of good faith and fair dealing is totally inconsistent with the idea of at-will employment, so the covenant of good faith and fair dealing will not be used in these cases.
  • This is state law, which varies from state-to-state, so the outcome will depend on which state you're in.

Coming next: Discharge in violation of public policy: Employment Law 101: #8

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