Employment at Will

In wrongful dismissal cases based on an implied covenant of good faith and fair dealing, the discharged employee typically contends that the employer has indicated in various ways that the employee has job security and will be treated fairly. For example, long time employees who have consistently received favorable evaluations might claim that their length of service and positive performance reviews were signs that their job would be secure as long as they performed satisfactorily.

Courts that have recognized good-faith-and-fair-dealing exceptions have found either covenants implied in fact or covenants implied in law. Covenants implied in fact have been found in "objective manifestations," including repeated promotions and pay increases, that might reasonably give an employee cause to believe that he or she has job security and will be treated fairly (Dare v. Montana Petroleum Marketing, 687 P.2d 1015 [Mont. 1984]; Kerr v. Gibson's Products Co., 733 P.2d 1292 [Mont. 1987]).

A few jurisdictions have recognized implied-in-law covenants of good faith and fair dealing. California courts have ruled that every employment contract carries with it an implied covenant that neither party will impede the other from receiving the benefits of the agreement. In deciding whether such a covenant is to be inferred, a court looks at such factors as whether the company properly followed its stated personnel policies, the length of the person's employment, any job security assurances that may have been made, a presence or lack of prior criticism of performance, and basic notions of fairness.

In Khanna v. Microdata Corp., 170 Cal. App. 3d 250, 215 Cal. Rptr. 860 (1985), for example, a California court of appeals ruled that a company violated an implied covenant when it fired a leading salesman who had brought suit against the company for unpaid commissions. The court found that a breach of an implied-in-law covenant is established whenever an employer engages in a bad-faith action outside a contract and attempts to frustrate an employee's enjoyment of her or his contract rights.