Burk v. K-Mart Corp.

1989 OK 22, 770 P.2d 24, 4 I.E.R. Cas. (BNA) 182, 1989 Okla. LEXIS 17, 1989 WL 8317

• Court: Supreme Court of Oklahoma
• Decided: February 7, 1989
• Docket: 67785
• Status: Published

Opinions

HODGES, Justice.

A terminable-at-will employee brought an action in contract and tort against her employer for breach of the implied covenant of good faith and fair dealing in her employment contract. Both causes of action were brought in reliance on this Court’s recent decision in Hall v. Farmers Insurance Exchange, 713 P.2d 1027 (Okla.1985). The employee argued the employer’s agents harassed her, prevented her from performing her duties and by so doing constructively discharged her from her job. She further asserts that the employer’s agent told her he would not recommend her for promotion because of her sex. She seeks lost wages, damages for alleged injury to her reputation and punitive damages for breach of the implied covenant.

The employer denied the purported existence of a claim in tort for a breach of an implied covenant of good faith, and also asserted the contract action did not exist because the employee’s termination resulted in no violation of the employee’s constitutional rights.

The United States District Court for the Northern District of Oklahoma certified for this Court’s answer pursuant to the Uniform Certification of Questions of Law Act, 20 O.S.1981 §§ 1601 through 1612, six questions of law:

1. In Oklahoma, is there an implied obligation of good faith and fair dealing in reference to termination in every employment-at-will contract?

2. Is the implied obligation of good faith mutual between the employer and employee?

3. Does the breach of such implied obligation, assuming there is one, sound in contract and/or tort?

4. If the answer to question No. 3 is “contract”, what are the recoverable damages for breach of the implied covenant?

5. If the answer to question No. 3 is “tort”, what is the character of defendant's conduct that would permit recovery of punitive damages?

6. Whether the answer to question No. 3 is tort or contract, or both, what is the extent of the duty, if any, of either party to mitigate damages?

We reject the implication of an obligation of good faith and fair dealing in every employment-at-will contract. Because we answer the first question in the negative it is unnecessary for us to address the remaining questions.

This Court has long recognized the basic principle that an employment contract of indefinite duration may be terminated without cause at any time without incurring liability for breach of contract.¹ Such indefinite employment contracts are deemed terminable-at-will. The classic statement of the at-will rule was that an employer may discharge an employee for good cause, for no cause or even for cause morally wrong, without being thereby guilty of legal wrong.² Principles of freedom of contract and the importance of economic growth are attributed to the development of the terminable-at-will doctrine.³

This Court has observed the terminable-at-will doctrine is “not absolute however, and the interests of the people of Oklahoma are not best served by a marketplace of cut-throat business dealings where the law of the jungle is thinly clad in contractual lace.” Hall, 713 P.2d at 1029. The Oklahoma Legislature, not unlike Congress and other state legislatures, has enacted various statutory exceptions to the doctrine.⁴ Similarly the courts have created exceptions to the employment-at-will rule.

The employment-at-will doctrine has been judicially limited in a few jurisdictions by the imposition of an implied covenant of good faith and fair dealing into the employment contract. The implied covenant which has been viewed as restricting the employer’s ability to discharge purportedly protects the right of the parties to receive the benefits of the employment agreement which they willingly entered. The wrongful denial of the party’s right to those benefits will breach the duty of good faith implicit in the employment contract. This Court has been asked to consider whether such implied covenant exists in Oklahoma. We find that it does not.

In Hall, supra, this Court held a terminable-at-will contract between an insurance agent and insurance company does include an implied covenant of good faith in reference to the termination of an agency relationship. In so holding we quoted with approval from Wright v. Fidelity and Deposit Co. of Maryland, 176 Okla. 274, 54 P.2d 1084, 1087 (1936): “ ‘A contract consists not only of the agreements which the parties have expressed in words, but also of the obligations which are reasonably implied. ... Every contract contains implied covenants that neither party shall do anything that will destroy or injure another party’s right to receive the fruits of the contract.’ ” We concluded in Hall the agent had a breach of contract action where the principal wrongfully terminated the agency for the unconscionable purpose of depriving the agent of the future payments of renewal premiums as a penalty for his having voiced his objections to controversial company actions concerning the termination of a fellow agent.

Subsequent to the Hall pronouncement we rendered our opinion in Hinson v. Cameron, 742 P.2d 549 (Okla.1987). In Hinson we observed that the Hall holding has come to be perceived as creating a new cause of action in favor of an at-will employee discharged in bad faith. This Court construed the Hall decision as standing “for the rule that an agent may recover from the principal when the latter has, in bad Taith, deprived him of the fruits of his own labor.” Hinson, 742 P.2d at 552. The plaintiff’s tort claim for wrongful discharge in Hinson failed because the plaintiff was suing her employer for damages other than earned income and the legal relationship dealt with that of master and servant, not principal and agent as in Hall. As the case was factually distinguishable from Hall, the plaintiff was denied a cause of action for wrongful discharge from employment.

In Hall, this Court expressly recognized this implied covenant in the context of an agency contract. In dictum contained in the Hinson opinion we addressed the applicability of the covenant with regard to employment-at-will contracts and left for another day that decision.

Variant approaches have developed in those jurisdictions which have adopted the implication of a covenant of good faith and fair dealing in employment contracts. The most expansive view subjects the employer to liability whenever the employee is discharged without just cause in all employment-at-will contracts.⁵ In Hinson, we noted this approach in assuming there may be a covenant of good faith in every at-will employment contract and concluded the covenant “does not operate to forbid employment severance except for good cause.” Id. at 554 (citing Wagenseller v. Scottsdale Memorial Hospital, 147 Ariz. 870, 710 P.2d 1025, 1040 (1985)). As this Court has correctly observed, if we were to adopt a contrary view we would “ 'subject each discharge to judicial incursions into the amorphous concept of bad faith.’ ” Hinson, 742 P.2d at 554 (citing Parnar v. American Hotels, 65 Hawaii 370, 652 P.2d 625, 629 (1982); Brockmeyer v. Dun & Bradstreet, 113 Wis.2d 561, 335 N.W.2d 834, 838 (1983)).

In Hinson, this Court explicitly declined to impose upon the employer a legal duty not to terminate an at-will employee in bad faith. Today we hold there is no implied covenant of good faith and fair dealing that governs the employer’s decision to terminate in an employment-at-will contract.

Our view is consistent with that of the Supreme Court of Kansas. In Morriss v. Coleman Co., 241 Kan. 501, 738 P.2d 841 (1987), the court surveyed the various jurisdictions concerning this question and concluded “the principle of law stated in Restatement (Second) of Contracts § 205, that every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement, is overly broad and should not be applicable to employment-at-will contracts.”⁶

Similarly, the New Mexico courts have declined to recognize either a tort or contract action for breach of the covenant of good faith and fair dealing, in the context of discharging an at-will employee.⁷ In Vigil v. Arzola, 102 N.M. 682, 699 P.2d 613 (Ct.App.1983), rev’d in part on other grounds, 101 N.M. 687, 687 P.2d 1038 (1984), the court however recognized an action for wrongful discharge by an employer of an at-will employee on the basis of tort focusing on the employer’s duty to act in accordance with public policy. It reasoned such breach of duty is more amenable to tort analysis rather than a contract based analysis. It observed, however, its adoption of the new cause of action did not abrogate the long-standing terminable-at-will rule but only limited its application to those situations in which the employee’s discharge results from the employer’s violation of a clear public policy. While observing several specific categories under the public policy exception, it stated it would not attempt to fully define it but rather would leave such determination on a case-by-case basis.

The Minnesota courts likewise have rejected the implication of a covenant of good faith and fair dealing into every employment contract.⁸ However, they have also followed the majority of jurisdictions and have adopted the judicially created public policy exception to the employment-at-will doctrine.⁹ The Phipps court stated it viewed the public policy exception as significantly different from a covenant of good faith and fair dealing inasmuch as: (1) a public policy exception can be reasonably defined by reference to clear mandates of legislative or judicially recognized public policy, and (2) the courts have traditionally interpreted the effect of illegality on contracts.

Those jurisdictions which have adopted the public policy exception have done so to accommodate the competing interests of society, the employee and the employer. As aptly stated by the Illinois Court of Appeals in Palmateer v. International Harvester Co., 85 Ill.2d 124, 129, 52 Ill.Dec. 13, 15, 421 N.E.2d 876, 878 (1981):

“With the rise of large corporations conducting specialized operations and employing relatively immobile workers who often have no other place to market their skills, recognition that the employer and employee do not stand on equal footing is realistic. In addition, unchecked employer power, like unchecked employee power, has been seen to present a distinct threat to the public policy carefully considered and adopted by society as a whole. As a result, it is now recognized that a proper balance must be maintained among the employer’s interest in operating a business efficiently and profitably, the employee’s interest in earning a livelihood, and society’s interest in seeing its public policies carried out.” (citations omitted).

We thus follow the modern trend and adopt today the public policy exception to the at-will termination rule in a narrow class of cases in which the dischargé is contrary to a clear mandate of public policy as articulated by constitutional, statutory or decisional law. We recognize this new cause of action in tort.¹⁰ It is well settled in Oklahoma a tort may arise in the course of the performance of a contract and that tort may then be the basis for recovery even though it is the contract that creates the relationship between the parties.¹¹ An employer’s termination of an at-will employee in contravention of a clear mandate of public policy is a tortious breach of contractual obligations.¹²

In Hinson, this Court identified various actionable public policy grounds recognized by other jurisdictions under our discussion concerning the nationally recognized public policy exception. In light of the vague meaning of the term public policy we be-lfeve the public policy exception must be tightly circumscribed. The Supreme Court of Hawaii in Parnar v. Americana Hotels, Inc., 652 P.2d at 631, in holding that an employer may be held liable where his discharge of an employee violates a clear mandate of public policy, stated:

“In determining whether a clear mandate of public policy is violated, courts should inquire whether the employer’s conduct contravenes the letter or purpose of a constitutional, statutory, or regulatory provision or scheme. Prior judicial decisions may also establish the relevant public policy. However, courts should proceed cautiously if called upon to declare public policy absent some prior legislative or judicial expression on the subject.”

Accordingly, we believe the circumstances which present an actionable tort claim under Oklahoma law is where an employee is discharged for refusing to act in violation of an established and well-defined public policy or for performing an act consistent with a clear and compelling public policy-

We note that where the employee’s discharge is motivated by the employer’s desire to avoid payment of benefits already earned by the employee, such as future commissions based on past service as in the Hall case, the discharge has been characterized “as a reason contrary to public purpose.” ¹³

We think the public policy exception to the at-will employment doctrine adopted today “serves the cause of equity as well as the interests of the marketplace.” Hall, 713 P.2d at 1031. In Brockmeyer, supra, the court described the practical effect of the narrowly circumscribed public policy exception:

“Employee job security interests are safeguarded against employer actions that undermine fundamental policy preferences. Employers retain sufficient flexibility to make needed personnel decisions in order to adapt to changing economic conditions. Society also benefits from our holding in a number of ways. A more stable job market is achieved. Well-established public policies are advanced. Finally, the public is protected against frivolous lawsuits since courts will be able to screen cases on motions to dismiss for failure to state a claim or for summary judgment if the discharged employee cannot allege a clear expression of public policy.” Id. 335 N.W.2d at 841.

In sum, we hold there is no implied obligation of good faith and fair dealing in reference to termination in any employment-at-will contract. We do recognize today a limited public policy exception to the terminable-at-will rule as an actionable tort claim in cases in which the discharge is contrary to a clear mandate of public policy-

CERTIFIED QUESTIONS ANSWERED.

HARGRAVE, C.J., and HODGES, DOOLIN, ALMA WILSON and SUMMERS, JJ., concur. KAUGER, J., concurs in result. OPALA, V.C.J., and LAVENDER, J., concur in part, dissent in part. SIMMS, J., dissents.

1 . Hinson v. Cameron, 742 P.2d at 552 n. 6; Pierce v. Franklin Elect. Co., 737 P.2d 921, 923 n. 4 (Okla.1987); Singh v. Cities Service Oil Co., 554 P.2d 1367, 1369 (Okla.1976); Foster v. Atlas Life Ins. Co., 154 Okla. 30, 6 P.2d 805, 808 (1932).

2 . Hillesland v. Federal Land Bank Ass’n, 407 N.W.2d 206, 211 (N.D.1987) (quoting Payne v. Western & Atlantic Railroad Co., 81 Tenn. 507, 519-520 (1884), overruled on other grounds, Hutton v. Watters, 132 Tenn. 527, 179 S.W. 134, 137-138 (1915)). See also 9 S. Williston, Contracts § 1-17 (3d ed. 1967).

3 . Parnar v. Americana Hotels, Inc., 65 Haw. 370, 652 P.2d 625, 628 (1982). See also Feinman, The Development of the Employment at Will Rule, 20 Amer.J.Leg.Hist. 118 (1976); Blades, Employment at Will vs. Individual Freedom: On Limiting the Abusive Exercise of Employer Power, 67 Colum.L.Rev. 1404 (1967).

4 . 25 O.S.Supp. 1985 §§ 1302, 1505(c)(1) (discriminatory practice for an employer to discharge an individual because of race, color, religion, sex, national origin, age, or handicap and the Oklahoma Human Rights Commission has authority to order reinstatement with or without back pay, less amount earned or earna-ble with reasonable diligence by such employees); 38 O.S.1981 §§ 34 and 35 (employer who discharges employee because of employee’s absence from employment due to serving on a grand jury is civilly liable for both actual and exemplary damages as well as guilty of criminal misdemeanor); 44 O.S.1981 § 208 (employer subject to fine or imprisonment for discharge of employee because of serving in military forces); 40 O.S.1981 § 199 (misdemeanor for employer to discharge employee because employee filed a complaint with employer or the Commissioner of Labor with regard to hour or safety violations); 85 O.S.1981 §§ 5 and 6 (employee who has filed a workers’ compensation claim may not be discharged for exercising statutory right and is entitled to recover damages from the employer).

5 . Cleary v. American Airlines, Inc., 111 Cal.App. 3d 443, 168 Cal.Rptr. 722 (1980); Khanna v. Microdata Corp., 170 Cal.App.3d 250, 262, 215 Cal.Rptr. 860, 867 (1985). See also cases cited in Hinson, 742 P.2d at 554 n. 17.

6 . See also Pittman v. Larson Distributing Co., 724 P.2d 1379 (Colo.App. 1986).

7 . Salazar v. Furr’s, Inc., 629 F.Supp. 1403, 1409-10 (D.N.M.1986).

8 . Hunt v. IBM Mid America Employees Federal Credit Union, 384 N.W.2d 853 (Minn.1986).

9 . Phipps v. Clark Oil & Refining Corp., 396 N.W.2d 588 (Minn.App.1986).

10 . Recoverable damages including punitive damages in such actions are governed by our statutory and common law principles of tort liability.

11 . Hall Jones Oil Corporation v. Claro, 459 P.2d 858, 861 (Okla.1969); Woods Petroleum v. Delhi Gas Pipeline, 700 P.2d 1023, 1027 (Okla.App. 1983).

12 .We note that other actions for breach of contract are not disturbed by this opinion.

13 . Cort v. Bristol-Myers Co., 385 Mass. 300, 431 N.E.2d 908 (1982). See also Magnan v. Anaconda Industries, Inc., 193 Conn. 558, 479 A.2d 781, 787-88 n. 20 (1984); Notes, Employers and Employees: A Call for Oklahoma’s Adoption of the Whistle-Blower Exception to the Employment-at-Will Doctrine, 40 Okla.L.Rev. 285, 296 (1987); cf. Sooner Broadcasting Company v. Grotkop, 280 P.2d 457, 461 (Okla.1955).