Now we're talking about an interpretive doctrine called good faith and fair dealing. What I like about this next topic is, it's a perfect counterpoint to the permanent employment interpretation rule that we just covered. What you're going to notice, is that interpretation questions are about whether or not one of the parties is breaching the contract. Has one of these parties failed to do something that they promised they would do? Typically, one party does something that seems antagonistic and the other one gets mad and claims is a breach of this contract. The party who did the antagonistic thing says, "Wait, I was allowed to do that. We agreed, right?" If you recall in Skagerberg, the paper company said, "We are allowed to fire him, because permanent employment actually means at-will employment and at-will employment is a total free for all." "The employer said, "We're allowed to do what we just did. I know it's antagonistic, but this is antagonism that's built into our deal." What I want to talk about in this section are the constraints that good faith and fair dealing place on the interpretation of at-will employment and what employers are able to do. We already know about some constraint on at-will employment, like you can fire someone for lots of reasons, but you can't fire them because of their race or gender. You can't fire them for taking Family Medical Leave that's 12 weeks or shorter. You can't fire them for insisting on proper safety precautions. Most of those are statutory constraints on what employers can do, so legislation comes in and says, "Hey employers, you're constraint in the following way," but there's also a constraint from the common law itself. The common law, which is the law of courts interpreting cases, has for hundreds of years enforced a duty of good faith and fair dealing, which is sometimes called an implied covenant of good faith and fair dealing. It has a very moralistic tone and language to it. What this idea of good faith and fair dealing is going to cash out to in any particular case is really pretty hotly contested, but the idea is, this is a term that doesn't always appear literally in a contract, but that courts are going to read in, they're going to say that the contract implicitly promises that the parties will behave in good faith with one another and then the court's going to try to figure out what it means to act in good faith given the contract's specific obligations. So good faith, the meaning of it's going to change depending on what the other parts of the deal are. Let's try this out with an employment case that I think will fill intuitive. In the late 1960s an employee named Orville Fortune worked for the National Cash Register company selling cash registers. Fortune had an at-will employment contract with NCR, the National Cash Register company, that was always terminal at-will without cause, we were familiar with this. The way he was paid was with a weekly salary plus a bonus for sales that were made within the territory assigned to him. It was a whole competition structure where he'd get a 75 percent bonus credit if the territory was assigned to him at the date of the order and a 25 percent if it was assigned at the date of delivery, a 100 percent if it was assigned to him at both times. Basically the whole idea was the way he was compensated depended on whether this territory was assigned to him or not. Fortune initiated a big deal for the sale and delivery of cash registers to First National Bank in late 1968. Then a month later he was fired. He protested of the firing a bit and they told him, "Well, you can stay on just to keep this First National account stable, but you're not like a real salesperson anymore and so the pay is going to be reduced and you will get the commission". Then he was truly fired two years later in 1970. Fortune sued and then NCR responds and says, "Listen, he can't sue for us firing him. He is an at-will employee. We're allowed to discharge him for any reason", and the court said, "Actually, that's not quite right." I'm going to quote what the court said. The court says, "We believe that whereas here, commissions are to be paid for work performed by the employee, the employers decision to terminate it's at-will employee should be made in good faith. NCR's right to make decisions in its own interest is not in our view unduly hampered by requirement of adherence to this standard,". The court says, yes, it is true that NCR can make hiring and firing decisions in its own interests at will, but that is going to be constrained by the requirement of adherence to a standard of goodwill and fair dealing. Their decision to terminate must be made in good faith. What Fortune is asking for is this commission basically on the machines that have been delivered since he's been fired. The question is going to be, did National Cash Register breach their contract? The question is, whether do they have an obligation to act in good faith and if they do have that obligation, did they act in good faith? Well, the court says clearly, yes, they do have to act in good faith even if there's an at-will employment deal. That means says as a court, that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. It's hard to know what this means, that received their fruits of the contract. It seems like anytime you fire someone, the person who is fired doesn't receive the fruits of the contract. The interesting thing about the good faith inquiry is it's pretty context-specific and nuanced. The court might say, "Listen, if you're a salaried employee and you're in an at-will employment situation and you're fired after the first eight months of working for this place, you have not failed to receive the fruits of the contract." You basically knew, you were going to get your salary for as long as the company wanted to give you your salary. What's different here, the reason the court says here, there's bad faith is because of the timing of the discharge. Basically, what it looks like is that the company has waited until Fortune has made his big deal, but before he can get the commission because a big part of the commission comes upon the delivery of the machines, he's fired, so that the company gets the benefit of his salesmanship, but does not have to pay him for that benefit and that says the court is different. That's something you're doing to undermine the very compensation structure that you have promised. This court finds in favor of the employee. What's especially interesting about this case, I think, is that the duty of good faith and fair dealing is used to interpret the nature of the employer's obligations to the employee in light of the fact that the employer does appear to have the right to fire Fortune at-will. What does it mean now to be able to fire someone at-will? Like National Cash Register throwing up it's arm and saying like, "Well, do we ever have this right anyway?" The court says, "Yeah, it means you can fire him for a lot of pretty capricious reasons, but not to strategically deprive him of the contracts implicit bargain." Is to targeted manipulation of a loophole that the court is worried about here and that the court says is in violation of the duty of good faith and fair dealing.
