We pay up to 30% referral fees to lawyers, and per California State Bar Rules.
Nakase Wade law firm represents companies, businesses, and employers – exclusively.
Definition.
An employer breaches the implied covenant of good faith and fair dealing by acting in bad faith to prevent an employee from enjoying the benefits of his or her employment contract, thus causing the employee damage. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683; Sheppard v. Morgan Keegan & Co. (1990) 218 Cal.App.3d 61, 66; see also BAJI 10.05, 10.35, 10.38.)
In every contract, there is an implied promise that each party will not do anything to unfairly interfere with the right of any other party to receive the benefits of the contract. (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658.) “This implied promise means that neither the employer nor the employee will do anything to unfairly interfere with the right of the other to receive the benefits of the employment relationship. Good faith means honesty of purpose without any intention to mislead or to take unfair advantage of another. Generally speaking, it means being faithful to one’s duty or obligation. However, the implied promise of good faith and fair dealing cannot create obligations that are inconsistent with the terms of the contract.” (CACI No. 2423.)
Free lawyers practice guides and over 100 causes of action: Causes of Action in California
We invite your attention to our Disclaimer.
Paula claims that Daniel violated the duty implied in their employment contract to act fairly and in good faith. To establish this claim, Paula must prove: (1) that Paula and Daniel entered into an employment relationship; (2) that Paula substantially performed her job duties (unless her performance was excused or prevented); (3) that all conditions required for Daniel’s performance had occurred or were excused; (4) that Daniel fired Paula in order to avoid paying Paula full benefits under their employment contract; (5) that by doing so, Daniel did not act fairly and in good faith; and (6) that Paula was harmed by Daniel’s conduct.
The employee must have a contract of employment with the employer. (See Harrell v. 20th Century Ins. Co. (9th Cir. 1991) 934 F.2d 203, 207-08; Marketing W., Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 614; BAJI 10.05, subd. (1).)
The employment contract may be written or oral. (See Harrell v. 20th Century Ins. Co. (9th Cir. 1991) 934 F.2d 203, 207-08.)
The employment contract may be express or implied. (Marketing W., Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 614.)
Unless excused, the employee must demonstrate that he or she was performing his or her duties adequately. (Wise v. Southern Pacific Co. (1963) 223 Cal. App. 2d 50, 59; see also Cal. Civ. Code, §§ 1439-1440; Cal. Lab. Code, §§ 2854, 2856-2859; BAJI 10.04.)
The plaintiffs bear the burden of proving that they stood ready to or actually did perform their duties adequately. (Wise v. Southern Pacific Co. (1963) 223 Cal. App. 2d 50, 59.)
The employees must not only use ordinary care and diligence in the performance of their duties, but also must substantially comply with all directions of their employers unless the directions are impossible, unlawful or would impose new and unreasonable burdens on the employees. (Cal. Lab. Code, §§ 2854, 2856.)
Moreover, the element of substantial performance should not be confused with the “good cause” defense: “The action is primarily for breach of contract. It was therefore incumbent upon plaintiff to prove that he was able and offered to fulfill all obligations imposed upon him by the contract. Plaintiff failed to meet this requirement; by voluntarily withdrawing from the contract he excused further performance by defendant.” (Kane v. Sklar (1954) 122 Cal.App.2d 480, 482; see also CACI No. 2420.)
The covenant of good faith and fair dealing is implied in every employment contract. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683.)
There is an implied covenant of good faith and fair dealing implied in every contract that neither party will do anything that will injure the right of the other to receive the benefits of the agreement. (Sheppard v. Morgan Keegan & Co. (1990) 218 Cal.App.3d 61, 66; Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658.)
“[T]he covenant prevents a party from acting in bad faith to frustrate the contract’s actual benefits. Thus, for example, the covenant might be violated if termination of an at-will employee was a mere pretext to cheat the worker out of another contract benefit to which the employee was clearly entitled, such as compensation already earned.” (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 353, fn. 18.)
The precise nature and extent of the duty imposed by the covenant depends on the contract and the parties’ justified expectations. (Sheppard v. Morgan Keegan & Co. (1990) 218 Cal.App.3d 61, 66.)
An employer breaches the covenant by acting in bad faith with the intent to frustrate the employee’s enjoyment of his or her contract rights. (Shapiro v. Wells Fargo Realty Advisors (1984) 152 Cal. App. 3d 467, 478-79.) “The reason for an employee’s dismissal and whether that reason constitutes bad faith are evidentiary questions most properly resolved by the trier of fact.” (Luck v. Southern Pacific Transportation Co. (1990) 218 Cal.App.3d 1, 26.)
Simply by terminating an at will employee, an employer does not violate the implied-in-law covenant of good faith and fair dealing. (Guz v. Bechtel Nat., Inc. (2000) 24 Cal.4th 317.)
An employer may breach the covenant of good faith and fair dealing by terminating an employee for reasons extraneous to the employment contract. (Pettus v. Cole (1996) 49 Cal.App.4th 402, 463 n.45 [discharging an employee for refusing to submit to employer-mandated course of medical treatment was a breach of covenant].)
An employee’s allegations that she had been granted medical leave under the employer’s policy which allowed leave extensions with certification and employer approval, and that the employer fired her without (1) considering extending her leave, and (2) suggesting that she use her vacation time to extend her time off until she was able to return to work, presented a triable issue that the employer’s conduct was extraneous to the contract and done to frustrate her enjoyment of contract benefits. (Walker v. Blue Cross (1992) 4 Cal.App.4th 985, 996-97.)
An at-will employee (one whose employment contract had no specified term) was allowed to maintain a breach of covenant claim against his employer where the facts suggested that the employer may have fired the employee to avoid paying commissions due. (Khanna v. Microdata Corp. (1985) 170 Cal.App.3d 250.)
An at-will employee had a valid claim for breach of the implied covenant where he accepted a job offer, moved halfway across the country, and was placed on the payroll, but was terminated two days before he was to commence working full-time. (Sheppard v. Morgan Keegan & Co. (1990) 218 Cal.App.3d 61, 66 [“implicit within the implied covenant of good faith and fair dealing is the understanding that an employer cannot expect a new [at-will] employee to sever his former employment and move across the country only to be terminated before the ink dries on his new lease, or before he has had a chance to demonstrate his ability to satisfy the requirements of the job”].)
In an at-will employment relationship, breach of the implied covenant cannot logically be based on a claim that discharge was made without good cause because, by definition, an at-will employee may be terminated without cause. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 682.)
An employer who terminated an employee on grounds that the employee violated the employer’s “conflict of interest” policy because she was romantically involved with an employee of a competitor was liable because the employer did not have an honest belief that the employee’s romantic relationship constituted a conflict of interest. (Rulon-Miller v. International Business Machines Corp. (1984) 162 Cal.App.3d 241, 251-53.)
When an employee with an implied contract not to be terminated except for “good cause” is fired for misconduct, the role of the jury is not to decide whether misconduct occurred, but rather to decide whether the employer had reasonable grounds for believing that the misconduct occurred and otherwise acted fairly. (Cotran v. Rollins Hudig Hall Int’l, Inc. (1998)17 Cal.4th 93. 69.)
An employee with an express, written, one-year employment contract could not use the implied covenant to require his employer to renew the contract. (Tollefson v. Roman Catholic Bishop (1990) 219 Cal.App.3d 843, 855 [employer did not need good cause to justify the non-renewal].)
The employee must show that the employer’s bad faith conduct caused the employee to lose the benefits of the contract. (Flait v. North American Watch Corp. (1992) 3 Cal.App.4th 467, 480-81.)
“The plaintiff has the burden of proving his damage. The law is settled that he has the duty of minimizing that damage. While the contract wages are prima facie [evidence of] his damage, his actual damage is the amount of money he was out of pocket by reason of the wrongful discharge.” (Erler v. Five Points Motors, Inc. (1967) 249 Cal.App.2d 567-568.)
“When an employment contract expressly provides that it may be terminated at will or for any reason … the covenant of good faith and fair dealing cannot be used to imply a requirement for good cause to terminate.” (Rose v. Wells Fargo & Co. (9th Cir. 1990) 902 F.2d 1417, 1426 [at-will employee who was terminated without cause failed to state a claim for breach of the implied covenant because employment contract did not require good cause for termination].)
An employer who discharged an at-will employee without cause did not violate the implied covenant because the employee was not deprived of any benefit. (Slivinsky v. Watkins-Johnson Co. (1990) 221 Cal. App. 3d 799, 806 [employer was not liable for laying off employee on account of downturn in employer’s business because employee had agreed that her employment was terminable at-will when she signed job application and employment agreement containing at-will provisions].)
An employee who sued his employer for terminating him after he complained that his supervisor was sexually harassing a female employee failed to state a claim for breach of the implied covenant because he was an at-will employee and failed to show that his termination violated any contractual covenant or promise. (Flait v. North American Watch Corp. (1992) 3 Cal.App.4th 467, 481.)
Contract damages are of two types – general damages (sometimes called direct damages) and special damages (sometimes called consequential damages). (Lewis Jorge Construction Management, Inc. v. Pomona Unified School Dist. (2004) 34 Cal.4th 960, 968.)
“ ‘Contract damages are generally limited to those within the contemplation of the parties when the contract was entered into or at least reasonably foreseeable by them at that time; consequential damages beyond the expectation of the parties are not recoverable. This limitation on available damages serves to encourage contractual relations and commercial activity by enabling parties to estimate in advance the financial risks of their enterprise.’ ‘In contrast, tort damages are awarded to [fully] compensate the victim for [all] injury suffered.’ ” (Erlich v. Menezes (1999) 21 Cal.4th 543, 550.)
The obligation to employ another in personal service cannot be specifically enforced. (Cal. Civ. Code, §3390.)
California courts do not recognize a right to punitive or exemplary damages for breach of contract, unless the breach occurs in connection with an intentional tort. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 700.)
Tort damages are not available for breach of implied covenant of good faith and fair dealing in an employment contract. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 700; Aragon-Haas v. Family Security Ins. Serv., Inc. (1991) 231 Cal.App.3d 232, 240.)
Cases permitting recovery for emotional distress typically involve mental anguish stemming from more personal undertakings the traumatic results of which were unavoidable. Thus, when the express object of the contract is the mental and emotional well-being of one of the contracting parties, the breach of the contract may give rise to damages for mental suffering or emotional distress. (Erlich v. Menezes (1999) 21 Cal.4th 543, 559.)
“In the absence of a statute authorizing attorneys’ fees as an element of damages, or of a contract to pay such fees in event of the party’s recovery, attorneys’ fees paid by a successful party in an action are never recoverable against the unsuccessful party.” (Jen–Mar Constr. Co. v. Brown (1967) 247 Cal.App.2d 564, 573; Cal. Code Civ. Proc., § 1021.)
The statute of limitations for breach of a written contract is four years. (Cal. Civ. Proc. Code, §337(1).) The limitations period for breach of an oral contract is two years. (Cal. Civ. Proc. Code, §339(1).) If you are alleging tortious breach of contract causing personal injury, then the statute of limitations is two years. Note: Prior to 2003, the statute of limitations for personal injury actions was one year from the date of injury. (Cal. Civ. Proc. Code, §340.) Effective January 1, 2003, the new Code of Civil Procedure §335.1 extends the statute of limitations to two years.
An employer who acts in good faith on an honest but mistaken belief that discharge of an employee is required by a legitimate business reason has not breached the implied covenant of good faith and fair dealing. (BAJI 10.37.)
“[B]ecause the implied covenant of good faith and fair dealing requires the employer to act fairly and in good faith, an employer’s honest though mistaken belief that legitimate business reasons provided good cause for discharge, will negate a claim it sought in bad faith to deprive the employee of the benefits of the contract.” (Wilkerson v. Wells Fargo Bank (1989) 212 Cal.App.3d 1217, 123.)
Daniel claims that he did not breach the duty to act fairly and in good faith because he believed that there was a legitimate and reasonable business purpose for the conduct. To succeed, Daniel must prove both of the following: (1) that his conduct was based on an honest belief that Paula was not substantially performing her job duties; and (2) that, if true, Paula not substantially performing her job duties would have been a legitimate and reasonable business purpose for the conduct.
“[T]he contract compensation for the unexpired period of the contract affords a prima facie measure of damages; the actual measured damage, however, is the contract amount reduced by compensation received during the unexpired term; if, however, such other compensation has not been received, the contract amount may still be reduced or eliminated by a showing that the employee, by the exercise of reasonable diligence and effort, could have procured comparable employment and thus mitigated the damages.” (Erler v. Five Points Motors, Inc. (1967) 249 Cal.App.2d 560, 562.)
“The burden of proof is on the party whose breach caused damage, to establish matters relied on to mitigate damage.” (Steelduct Co. v. Henger-Seltzer Co. (1945) 26 Cal.2d 634, 654.)