But what on earth does that mean?

It’s actually rather tricky; in fact, New York’s courts have expressly acknowledged that there is an inherent conflict between the implied good faith in a contract on the one hand, and not allowing plaintiffs to use this implied promise as a sword to create new contractual responsibilities that completely negate the rights that were specifically established by the contract itself.

Perhaps the simplest way to explain this concept – which is concededly more than a bit vague – is that the implied covenant of good faith and fair dealing is breached when the defendant acts to prevent the plaintiff’s ability to perform his end of the contract, or to assure that the benefits of the contract are withheld from the plaintiff. To better illustrate the application of this concept, here’s a few examples from actual cases that were litigated in New York’s courts:

Case #1:         Where a landlord interfered with its tenant’s ability to meet its lease obligation to make repairs, a New York court properly held that the landlord has breached the implied covenant of good faith and fair dealing in their lease agreement. Chemical Bank v. Stahl, 272 AD2d 1, 712 NYS2d 452.

Case #2:           Likewise, in a wrongful termination and breach of contract case, where a consultant who performed work for a corporation in exchange for the option to purchase shares that were exercisable in installments and intrinsically linked to specific events and was then fired without cause, which caused her to forfeit her option (meaning she was not paid at all for her work), her breach of implied covenant of fair dealing was allowed to survive dismissal. Zuckerwise v. Sorceron Inc., 289 AD2d 114, 735 NYS2d 100.

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Absolutely not, held a New York County trial court.

In Nichols v. SG Partners, Inc., the plaintiffs were employed by defendant as placement professionals, earning both a base salary as well as a percentage of defendant’s revenues generated for placements that the plaintiffs made, or commissions. After the plaintiffs found the working conditions “intolerable,” they resigned, and requested that the defendant pay them for the commissions they had earned during their employment. Not surprisingly, the defendant ignored these requests.

Accordingly, the plaintiffs sued the defendants, contending that the defendants were liable for breach of contract, breach of an implied covenant of good faith and fair dealing, unjust enrichment and violation of New York Labor Law (“Labor Law”) §193. The defendant then promptly moved to dismiss the case, arguing, among other things, that since the plaintiffs did not have a written contract the plaintiffs’ claims were barred under New York’s Statute of Frauds (N.Y. Gen. Obl. Law §5-701).

In rejecting the defendant’s argument, the Court cited a long litany of precedent for the proposition that “[B]ecause an at-will employment relationship may be freely terminated by either party at any time for any reason or even no reason, employment agreements of this type generally do not fall under the proscription of the Statute of Frauds.”

Importantly, the Court also noted that if it is later found at trial that an employer willfully withheld the plaintiffs’ wages, in derogation of Labor Law §198.1-a, “an additional amount as liquidated damages equal to twenty-five percent of the total amount of the wages found to be due” (Rasmussen v. Yellow River, Inc. 298 AD2d 322 [1st Dept 2002]; Wolintetz v. Island Stationary Corp., 16 Misc 3d 1133 [NY Dist Ct 2007] (withholding of payment of commissions was a willful act of retaliation for the plaintiff’s leaving the defendant’s employ)).

The message to employers is unmistakably clear: if you wrongfully withhold earned wages or payments due to your former employees, you do so at your own peril.

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In seeking to recover damages for breach of contract and wrongful termination, the plaintiff asserted that he had an implied contract of employment (rather than being a mere “at will” employee) because he had been assured “that [d]efendants would operate the firm, and that [p]laintiff would be permitted to perform his job responsibilities, in accordance with the prevailing laws, rules and regulation of the securities profession.” In a similar vein, he claimed that since the defendants had made clear that he would be terminated for violating any laws, the defendants thereby impliedly warranted that they would not fire him for upholding those same laws.

As you may have guessed, these arguments didn’t even make it out of the starting gate; the Court dismissed the complaint without even requiring the defendants to answer the complaint.

And the reason the Court did so is straightforward: not only did the plaintiff fail to overcome the presumption of employment at will, the plaintiff did not produce any writing that limited the defendant’s right to hire, fire, promote, demote, transfer or take any other employment action it deemed otherwise appropriate.

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In this case, the plaintiff, a former assistant treasurer of the defendant bank, claimed that she was fired as a direct result of her attempts to expose suspicious irregularities with respect to several trade confirmations that had come to her attention. Although she acknowledged that she was an at-will (as opposed to a contract) employee (for more information on the limited rights of at-will employees under New York law, see “Why Most Breach of Contract/Wrongful Termination Claims By At-Will Employees Are Doomed To Fail“), she alleged that the defendant’s own “Personnel Policies and Practices Manual promised to protect her from adverse action in connection with reporting suspicious activities,” and that this promise gave rise to a contractual obligation to protect her from retaliatory termination.

According to the Court, there are two problems that prove fatal to her claim, however. First, the Manual only protected against retaliatory action those who file a Suspicious Activities Report (SAR) – which the plaintiff never did. Second, the Manual also contained an explicit disclaimer that allowed them to terminate any at-will employee.

Thus, the implication of this decision is two-fold:

1. If you are an employee, make sure you read carefully your employment manual before you undertake any actions that might affect your job; and,
2. If you are the employer, make sure that your employment manual is appropriately drafted to protect your right to terminate at-will employees.

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But assuming you clear that first hurdle, there is a second question that may prove even more daunting: Did you have a contract, or were you an “at-will” employee? And the answer to this question is critical, because absent a written contract, the agreement “is presumed to be a hiring at will that may be freely terminated by either party at any time for any reason or even for no reason. Lobosco v. New York Telephone Co./NYNEX, 96 NY2d 312, 316 (2001). Furthermore, there is no exception for firings that violate public policy such as, for example, discharge for exposing an employer’s illegal activities, UNLESS the employee made its employer aware of an express written policy limiting the right of discharge and the employee detrimentally relied on that policy in accepting employment. See,  Weiner v. McGraw Hill, Inc., 57 NY2d 458 (1982).

As you might well surmise, this condition is rare indeed.

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