Plaintiff, Armida Metcalf, appeals the district court's decision granting partial summary judgment for her former employer, defendant Intermountain Gas Company (Intermountain), on two of her five causes of action: i.e., breach of the employment contract, and breach of a covenant of good faith and fair dealing. The trial court denied Intermountain's motion for summary judgment on the three other causes of action: sex discrimination, age discrimination and breach of public policy, each of which is still pending and awaiting trial. On appeal we consider only the dismissal of the claims for (1) breach of employment contract and (2) breach of an implied covenant of good faith and fair dealing.
Metcalf began working for Intermountain in 1979. She performed clerical duties in Intermountain's Hailey, Idaho, office which consisted of seven employees. While on full time status, Metcalf incurred some illness which required her to take sick leave. Under the Intermountain policy an employee could accrue sick leave at a rate of one day per month. Although her illnesses did not exhaust all of her accrued sick leave, Metcalf was absent for eight weeks in 1984 and 1985. During this time, Metcalf underwent a hysterectomy and a thyroidectomy. However, the amount of sick leave which Metcalf took did exceed the company average for that time, as it did for fellow Hailey full time office clerk Betty Munster. According to the manager of the Hailey office, the absences of Metcalf and Munster, the only office clerks, created serious work problems for that office.
In June, 1986, Intermountain hired a part time clerk to replace Munster who retired. This clerk was elevated to full time status in August; in September Metcalf's status was changed from full to part time, in part allegedly because of her sick leave history.
In January, 1986, Metcalf filed discrimination charges against Intermountain with the Idaho Human Rights Commission, alleging age and sex discrimination. Shortly thereafter, her hours were further reduced to two hours per day. In September, 1986, Metcalf voluntarily resigned to pursue other full time employment. The issue on appeal is whether the trial court properly granted summary judgment against Metcalf on the two counts in Metcalf's complaint alleging (1) breach of employment contract, and (2) breach of covenant of good faith and fair dealing.
Regarding the breach of employment contract claim, Metcalf argues that the employment-at-will
We agree with the district court that there is no substantial evidence of an express contract provision precluding the employer from dismissing Metcalf "at will." However, viewing the entire record, including the Personnel Manual and Employee Handbook, we conclude that there is a triable issue of fact regarding whether there was an implied-in-fact contractual agreement that Metcalf's employment would not be terminated or reduced because of her using the accumulated sick leave which both parties agree was part of the oral employment contract.
As the result of numerous decisions of this Court in recent years, it is now settled law in this state that:
Spero v. Lockwood, Inc., 111 Idaho at 75, 721 P.2d at 175 (1986). Thus, in the absence of an agreement between the employer and the employee limiting the employer's (or the employee's) right to terminate the contract at will, either party to the employment agreement may terminate the relationship at any time or for any reason without incurring liability. MacNeil v. Minidoka Memorial Hospital, 108 Idaho 588, 701 P.2d 208 (1985). However, such a limitation on the right of the employer (or the employee) to terminate the employment relationship "can be express or implied." Harkness v. City of Burley, 110 Idaho 353, 356, 715 P.2d 1283, 1286 (1986). A limitation may be implied if, from all the circumstances surrounding the employment relationship, a reasonable person could conclude that both parties intended that the employer's (or the employee's) right to terminate the employment relationship-at-will had been limited by the implied-in-fact agreement of the parties. See, e.g., Spero v. Lockwood, Inc., 111 Idaho 74, 721 P.2d 174 (1986); Wagenseller v. Scottsdale Mem. Hospital, 147 Ariz. 370, 710 P.2d 1025, 1036 (Ariz. 1985) (en banc) ("An implied-in-fact contract term ... is one that is inferred from the statements or conduct of the parties."); 1 A.Corbin, § 17, at 38 (1960).
In the present case the employee handbook was silent on the question of whether the terms and employee benefits set out in the handbook affected or otherwise modified the employer's right to terminate the employment relationship at will.
Accordingly, the partial summary judgment on Metcalf's breach of contract cause of action is reversed, and that cause remanded for trial.
Metcalf also appeals from the trial court's granting of partial summary judgment on her cause of action which alleges that "[i]mplicit in [the parties' employment contract] was a covenant of good faith and fair dealing which governed the circumstances and manner of terminating [her] full time employment." Metcalf asserts essentially that there is an implied-in-law (as distinguished from an implied-in-fact) covenant of good faith and fair dealing in every employment contract. Metcalf makes no specific factual allegations which would support a finding that the parties' agreement contained such a covenant of good faith and fair dealing. Rather, she asserts that the law should imply such a covenant in all employment contracts, or at least in this employment contract.
Until today, this Court has not recognized an implied-in-law covenant of good faith and fair dealing in employment contracts. In MacNeil v. Minidoka Memorial Hospital, 108 Idaho 588, 701 P.2d 208 (1985), this Court unanimously stated:
108 Idaho at 589, 701 P.2d at 209 (emphasis added). In Anderson v. Farm Bureau Mutual Ins. Co. of Idaho, 112 Idaho 461, 732 P.2d 699 (Ct.App. 1987), the Court of Appeals, quoting from our earlier decision in MacNeil v. Minidoka Memorial Hospital,
112 Idaho at 469, 732 P.2d at 707 (emphasis added).
Recently, in Clement v. Farmers Insurance Exchange, 115 Idaho 298, 766 P.2d 768 (1988), a case involving a principal-agent (independent contractor) relationship, appellants had argued "that an implied covenant of good faith and fair dealing so requires the invalidating of an express termination provision of a written contract." The Court responded, "We decline to so hold," stating:
115 Idaho at 300, 766 P.2d at 770.
Nevertheless, it is the opinion of this Court today that in employer-employee relationships (as distinguished from principal-agent (independent contractor) relationships, Clement v. Farmers Insurance Exchange, supra) we should adopt an implied-in-law covenant of good faith and fair dealing (the covenant) as hereinafter outlined. In changing this Court's prior course, it is important to explain what the covenant which we adopt is. For guidance we turn to the rationale of some of our adopting sister states. Recognizing that we are joining the minority view in this country, we further acknowledge the concerns expressed by courts which have rejected the covenant out of concern that it would place undue restrictions on management and would infringe on the employer's legitimate exercise of management discretion.
First, the covenant is implied in contracts. A breach of the covenant is a breach of the employment contract, and is not a tort. The potential recovery results in contract damages, not tort damages. See, Foley v. Interactive Data Corp., 47 Cal.3d 654, 254 Cal.Rptr. 211, 765 P.2d 373 (1988) (en banc); Wagenseller v. Scottsdale Memorial Hospital, 147 Ariz. 370, 710 P.2d 1025 (Ariz. 1985) (en banc). In Wagenseller, the Arizona Supreme Court, while adopting the implied covenant, rejected a rule which would allow tort damages. Referring to an earlier decision in California which allowed for such recovery (later rejected in Foley v. Interactive Data Corp., supra), the Arizona court wrote:
710 P.2d at 1040 (emphasis in original).
The California Supreme Court recently has also rejected the rule that a breach of the implied covenant of good faith and fair dealing is a tort, permitting tort damages. The California Courts of Appeals had adopted such a tort approach commencing with the case of Cleary v. American Airlines, Inc., 111 Cal.App.3d 443, 168 Cal.Rptr. 722 (1980). However, in Foley, the California Supreme Court rejected the doctrine in which a breach of the implied covenant of good faith and fair dealing is a tort. After noting that "[t]he covenant of good faith and fair dealing was developed in the contract arena and is aimed at making effective the agreement's promises," the court in Foley observed that "the clear majority of jurisdictions have either expressly rejected the notion of tort damages for breach of the implied covenant in employment cases or impliedly done so by rejecting any application of the covenant in such a context." 254 Cal. Rptr. at 227, 229, 765 P.2d at 389, 391. The court in Foley then reversed the earlier decisions of the California Courts of Appeals and held that a breach of the covenant of good faith and
Second, we hold that the covenant protects the parties' benefits in their employment contract or relationship, and that any action which violates, nullifies or significantly impairs any benefit or right which either party has in the employment contract, whether express or implied, is a violation of the covenant which we adopt today. When the Arizona Supreme Court adopted the implied covenant of good faith in the Wagenseller case, it carefully considered the concerns of those courts which have rejected the covenant and wrote:
710 P.2d at 1040-1041 (emphasis added).
We agree with the foregoing standard and analysis of the Arizona Supreme Court in Wagenseller, and adopt the implied-in-law covenant of good faith and fair dealing in employment contracts as set out above. 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. However, we reject the "amorphous concept of bad faith" as the standard for determining whether the covenant has been breached. See, Thompson v. St. Regis Paper Co., 102 Wn.2d 219, 685 P.2d 1081, 1086 (1984) (en banc); Brockmeyer v. Dun & Bradstreet, 113 Wis.2d 561, 335 N.W.2d 834, 838 (1983). As those and other courts have pointed out, it is difficult to distinguish a "bad faith" discharge from a no-cause discharge (which is permitted under the at-will doctrine) or a discharge in violation of public policy (which is not permitted under the at-will doctrine). MacNeil v. Minidoka Memorial Hospital, 108 Idaho 588, 701 P.2d 208 (1985); Jackson v. Minidoka Irr. Dist., 98 Idaho 330, 563 P.2d 54 (1977). The California Supreme Court, in Foley v. Interactive Data Corp., 47 Cal.3d 654, 254 Cal.Rptr. 211, 765 P.2d 373 (1988) (en banc), observed that simply interjecting a requirement of "bad faith" does nothing to determine those cases in which damages should be awarded. "Virtually any firing (indeed any breach of a contract term in any context) could provide the basis for a pleading alleging the discharge was in bad faith under the cited standards." 254 Cal. Rptr. at 239, 765 P.2d at 401. Furthermore, a bad faith standard would require a judicial inquiry into the subjective intentions of the party who is alleged to have violated the covenant. As the court stated in Foley, "Resolution of the ensuing inquiry into the employer's motives has been difficult to predict and demonstrates the imprecision of the standards thus far formulated."
We recognize that our decision today is a departure from long established principles of contract law. As the California court in Foley noted:
254 Cal. Rptr. at 235, 765 P.2d at 397. While we have not gone as far in interpreting this implied covenant as a small minority of courts have, see Monge v. Beebe Rubber Co., 114 N.H. 130, 316 A.2d 549 (1974); Toussaint v. Blue Cross & Blue Shield of Michigan, 408 Mich. 579, 292 N.W.2d 880 (1980), we recognize that our decision today is a departure from prior law. Accordingly, it will only be applied prospectively to breaches or violations of the covenant occurring after the effective date of this opinion, and to the claims in this case. Smith v. State, 93 Idaho 795, 473 P.2d 937 (1970). The summary judgment of the trial court is reversed, and the case is remanded to the trial court for further proceedings consistent with this opinion. Costs to appellant. No attorney fees awarded.
JOHNSON, J., concurs. HUNTLEY, J., concurs in the result.
SHEPARD, J., sat, but did not participate due to his untimely death.
HUNTLEY, Justice, concurring.
I concur in Part I and concur in the result in Parts II and III of the majority opinion. I will discuss Part III first and Part II next. Additionally, I will comment upon a problem I see in the trial court's treatment of the "public policy" claim for relief.
As to Part III of the majority opinion, I fully concur that on the facts before the court, Idaho should and does recognize "an implied-at-law covenant of good faith and fair dealing in employment contracts" and, therefore, I concur in the result that the summary judgment must be reversed and the case remanded for further proceedings.
I do have several concerns with the analysis. First, the opinion rejects the "bad faith" standard and purports to enunciate a standard which on analysis is no standard or guiding star at all, the opinion stating at page 628, 778 P.2d at 750:
Such is far too liberal and loose a standard for me. My analysis would be as follows:
Breach of a Covenant of Good Faith and Fair Dealing
Count Four of the Complaint asserts that there existed a covenant of good faith and fair dealing which may be implied in Metcalf's contract of employment with IGC, and which was breached in IGC's bad faith demotion and forced termination of Metcalf. Relying upon the Idaho Court of Appeals' decision in Holmes v. Union Oil Co. of California, Inc., 114 Idaho 773, 760 P.2d 1189 (1988), in which the Court of
Idaho has not yet had a case squarely ruling on whether there exists a covenant of good faith and fair dealing in the employment context. However, numerous other jurisdictions have recognized this cause of action. See, e.g. Monge v. Beebe Rubber Co., 114 N.H. 130, 316 A.2d 549 (1974), but compare, Howard v. Dorr Woolen Co., 120 N.H. 295, 414 A.2d 1273 (1980) and Cloutier v. Great Atlantic & Pacific Tea Co., 121 N.H. 915, 436 A.2d 1140 (1981); see also, Fortune v. Nat'l Cash Register, 373 Mass. 96, 364 N.E.2d 1251 (1977); Cleary v. American Airlines, 111 Cal.App.3d 443, 168 Cal.Rptr. 722 (1980); Pugh v. See's Candies, 116 Cal.App.3d 311, 171 Cal.Rptr. 917 (1981) modified on other grounds, 117 Cal. App.3d 520A (1981); Gates v. Life of Montana Ins. Co., 196 Mont. 178, 638 P.2d 1063, 1067 (1982); Flanigan v. Prudential Federal Savings & Loan Assoc., 221 Mont. 419, 720 P.2d 257 (1986); Mitford v. de Lasala, 666 P.2d 1000 (Alaska 1983); Wagenseller v. Scottsdale Mem. Hospital, 147 Ariz. 370, 710 P.2d 1025 (Ariz. 1985).
Instructive are the Idaho decisions of White v. Unigard Mut. Ins. Co., 112 Idaho 94, 730 P.2d 1014, 1017 (1986), recognizing the covenant in insurance contracts, Luzar v. Western Surety Co., 107 Idaho 693, 692 P.2d 337, 340 (1984), holding "good faith and fair dealing are implied obligations of every contract." Jackson v. Minidoka Irrigation Dist., citing Monge with approval; and Rosecrans v. Intermountain Soap Co., 100 Idaho 785, 605 P.2d 963 (1980) imposing a "good faith" requirement on discharge of an employee pursuant to a contract for a definite term.
Some courts have rejected the cause of action for breach of the covenant of good faith and fair dealing because of an inability to distinguish it from the principal that "good cause" is not necessary to discharge an "at will" employee. The review of the authorities which follow demonstrates that the covenant of good faith and fair dealing and the principle that employment contracts are "at will" may happily co-exist.
Good Faith and Public Policy
Jackson cites various case law examples of terminations at will that contravene public policy: Petermann v. International Brotherhood of Teamsters, 174 Cal.App.2d 184, 344 P.2d 25 (1959) (employee fired for refusing to give false testimony before the California Legislature); Frampton v. Central Indiana Gas Co., 260 Ind. 249, 297 N.E.2d 425 (1973) (plaintiff fired for reporting an injury in order to collect worker's compensation); Nees v. Hocks, 272 Or. 210, 536 P.2d 512 (1975) (employee discharged for serving jury duty against her employer's wishes); and, Monge v. Beebe Rubber Co., 114 N.H. 130, 316 A.2d 549 (1974) (married employee harassed and eventually fired for refusing to go out with her foreman).
In Jackson, we quoted with approval the following from Monge:
Id., 98 Idaho at 334, 563 P.2d at 58. Further, in Jackson, supra we recognized the following public policy considerations:
Using the Jackson definition of public policy, a bad faith termination certainly "contravenes good morals or any established interests of society." Further, employer bad faith or retaliation is not in "the best interest of the economic system or the public good." Employees and agents are not grist for business mills. As discussed below, the requirements of good faith and fair dealing are not new ideas either to contract or agency law. Every contract of employment is imbued with a covenant requiring the parties to deal with one another in an atmosphere of good faith and fair dealing. In other words, the parties must not act in bad faith.
A distinction frequently is made between the bad faith and public policy exceptions to termination of employment at will.
Good Faith and Good Cause
The concept of "good faith" has little if anything to do with the concept of "good cause." "Good cause" termination issues cannot arise when the employment contract is "at will." Where good cause is required, the employer must show that the employee did something wrong that justified the termination. 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 implied covenant of good faith and fair dealing. An employee may be considered "at will" under the good faith theory, insofar as there need not be proof of cause or notice prior to the personnel action, and still be entitled to sue for a "bad faith" breach of the employment relationship. "Good faith" involves a limitation of the employer's seemingly (assumed) absolute discretion.
In recognizing the implied covenant of good faith and fair dealing, but refusing to
Wagenseller, 710 P.2d 1025, 1040-41. The concept of the implied covenant of good faith and fair dealing, as explained by Wagenseller requires that "neither party do anything that will injure the rights of the other to receive the benefits of their agreement."
The Covenant Applied
In this case, if there was a contract between Armida Metcalf and the Intermountain Gas co., one of the elements may have been to provide the benefit of generous sick leave, without fear of reprisal or detriment to employees who avail themselves of that benefit offering. The conduct of IGC in penalizing Armida Metcalf for becoming sick, and thereby utilizing the sick leave benefits which she had accrued through her labors and service, may, therefore, have constituted a breach of the duty which IGC owed fairly and in good faith to Metcalf. On the record in this case, the dismissal of the cause of action for breach of the implied covenant of good faith and fair dealing must be reversed because a jury question is presented as to whether the covenant was breached.
Secondly, I concur in the majority's ruling in Part II that the dismissal of the contract claim for relief must be reversed.
The majority opinion and the district court opinion both seem to be confused as to what the requirements for an express contract are, they seeming, as I read them, to believe that if a contract is part oral and part policy manual, it is an implied contract rather than an express contract. Thus, the majority states at page 624, 778 P.2d at 746:
It seems to me that if employer states "I offer employment as per this manual" and employee says "I accept," the parties have an express contract. The issue then becomes one of interpreting the contract rather than a word game as to whether it is express or implied. I would treat this issue in the following manner:
Personnel Policies and Manuals and Employee Handbooks as Contracts
For over a decade, it has been the recognized law in this jurisdiction that personnel policies and employee handbooks, and the statements and promises contained therein can have contractual status. Jackson v. Minidoka Irrigation Dist., 98 Idaho 330, 334, 563 P.2d 54 (1977).
When the existence of a contract is in issue, and the evidence is conflicting or admits to more than one inference, it is for the trier of fact to decide whether a contract in fact exists. Johnson v. Allied Stores Corp., 106 Idaho 363, 679 P.2d 640 (1984); Harkness v. City of Burley, 110 Idaho 353, 359, 715 P.2d 1283 (1986). The Johnson court stated:
Johnson, supra, 106 Idaho at 368, 679 P.2d 640.
IGC's argument on this point can be paraphrased as follows:
IGC's argument is facially circular. Metcalf concedes that the "employment at will doctrine" has been adopted in Idaho, but disagrees as to what is required to modify an employee's presumed "at will" status.
Distilled to its essence the question before us is whether a contract is presumed "at will" unless the reasons for discharge are specifically and exhaustively limited or enumerated, or whether the terms of a personnel manual or handbook, presented with the expectation that the employee will rely on them, creates a question for the jury as to whether the document is binding on the employer.
If there is evidence that the policy manual or handbook was presented with the expectation that the employee will rely on it, and that the employee reasonably relied thereon, then there is a question of fact for the jury. To say that the reasons which constitute "good cause" must be exhaustive before a contract exists is analogous to stating that in a commercial contract the parties must list all the conceivable reasons for nonperformance and if the list is not "all inclusive" then either party may excuse
A leading case in this area of employment law is Toussaint v. Blue Cross and Blue Shield of Michigan, 408 Mich. 579, 292 N.W.2d 880, 892 (1980). The following excerpt which explains the standard for determining whether personnel manuals, etc., may constitute a contract articulates the approach urged by Metcalf:
See Spero v. Lockwood Inc., 111 Idaho 74, 77, 721 P.2d 174, 177-78, (Bistline, J. dissent quoting Toussaint v. Blue Cross and Blue Shield of Michigan, 408 Mich. 579, 292 N.W.2d 880, 892 (1980). In Johnson v. Allied Stores, supra, this court ruled that the existence of a contract with respect to benefits conferred to the employee was "for the jury to decide." The court did not say that it must be shown that the employer's personnel policies provided an exhaustive list of the reasons for discharge before a contract pertaining to benefits can be said to exist.
In Holmes v. Union Oil Company, 114 Idaho 773, 760 P.2d 1189 (1988), the Idaho Court of Appeals quoted with approval from a decision of the Alabama Supreme Court, on the elements of proof required for giving the employer's personnel policy statements significance:
Hoffman La Roche, Inc. v. Campbell, 512 So.2d 725 (Ala. 1987). This language clearly supports Metcalf's expectation and reliance analysis rather than IGC's exhaustive list analysis.
Finally, it should be noted that a limitation on the employer's (or employee's) right to terminate employment "can be express or implied." Harkness v. City of Burley, 110 Idaho 353, 356, 715 P.2d 1283, 1286 (1986). Contracts may be partly express and partly implied in fact. John D. Calamari & Joseph M. Perrillo, Contracts, 2d (1977) p. 19.
The facts in this record demonstrate that the question of whether there was an express contract, an implied in fact contract, or combination thereof, was preserved for resolution by the jury. The sick leave policy was specific. It was communicated to Metcalf through the formal orientation and documents provided during her probationary period. A jury could find that Metcalf accepted the offer by remaining employed after becoming aware of the sick leave program. If the jury were to decide that this language did not constitute an express term, it could still decide that the language and/or the surrounding circumstances were sufficient to find an implied in fact contract promising that employees would
The issuance of "rules of conduct" may be evidence of a good cause criteria limitation on "at will" status or, as was found in Jones v. EG & G Idaho, Inc., 111 Idaho 591, 726 P.2d 703 (1986) the statements of the employer may be so vague as to permit no reasonable expectations of protection on the part of the employees.
The personnel policies of IGC, insofar as they address involuntary termination, are decidedly different than those discussed in Jones. In Jones, the employees were employed under a handbook which stated that the listed infractions which would warrant discharge were not all inclusive. The employees each misappropriated one pair of safety shoes. As a result they were fired. It was not an infraction enumerated in the employer's handbook, but the employees were on notice that the handbook was not all inclusive. There was no express or implied limitation on the employer's power to fine an employee for stealing work shoes from the business. To the contrary, the language that the list of infractions for which an employee could be fired "was not all inclusive" and at the very least implied that there were other reasons for which employees could be fired. As a result, there was no triable question of fact for the jury.
In this case, IGC's policy was far more elaborate, specific and more limiting in its intended application. Included in IGC's policy manual was § 605 which states:
Taken as a whole, it is evident that IGC designed, implemented and distributed a sick leave policy which proposed to be "fair." Rather than listing some of the reasons for which an employee could be discharged, the portion of the IGC policy in question guaranteed the employee's right to a specified amount of sick leave. The employee took sick leave within those specified limits and was punished as a result. Hence, there is a triable issue of fact as to whether the employee relied upon the guarantees provided by the employer's personnel manual, and did not exceed those guarantees and whether such reliance was expected by the employer.
The majority opinion fails to address one further issue I deem worthy of comment.
Breach of Public Policy
In granting summary judgment, the district court did not specifically address the punitive use of sick leave in the context of appellant's cause of action for breach of public policy. Instead, it held that the public policy claim is "tied to the sex and age discrimination complaints and therefore will not be dismissed." I disagree. The plain wording of the complaint did not so tie the three claims together. The sex and age discrimination claims are separate from the general breach of public policy claim. Furthermore, we need not determine whether a breach of public policy claim exists in addition to the breach of implied covenant of good faith and fair dealing claim because that issue was not raised on appeal.
BISTLINE, J., concurs.