Burk v. K-Mart Corp.

• Decision Date: 07 February 1989
• Docket Number: K-MART,No. 67785,67785
• Citation: 770 P.2d 24,1989 OK 22
• Court: Oklahoma Supreme Court
• Parties: 113 Lab.Cas. P 56,100, 4 IER Cases 182, 1989 OK 22 Helen Jenean BURK, Plaintiff, v.CORPORATION, Defendant.

Page 24

770 P.2d 24

113 Lab.Cas. P 56,100, 4 IER Cases 182,

1989 OK 22

Helen Jenean BURK, Plaintiff, v. K-MART CORPORATION, Defendant.

No. 67785.

Supreme Court of Oklahoma.

Feb. 7, 1989.

Certified Questions from the United States District Court for the Northern District of Oklahoma; Thomas R. Brett, Presiding.

Terminable-at-will employee brought a contract and tort action against her employer for breach of the implied covenant of good faith and fair dealing. The United States District Court for the Northern District of Oklahoma, Thomas Brett, Judge, certified for this Court's answer six questions of law.

CERTIFIED QUESTIONS ANSWERED.

Earl W. Wolfe, Tulsa, for plaintiff.

Doerner, Stuart, Saunders, Daniel & Anderson by Lynn Paul Mattson, Charles S. Plumb and Kathy R. Neal, Tulsa, for defendant.

Redwine and Kappel by Henry W. Kappel, Norman, for amicus curiae George Driscoll.

Horning, Johnson, Grove, Moore & Hulett by James R. Moore and William C. Isbell, Oklahoma City, for amicus curiae Oklahoma State Lodge Fraternal Order of Police Professional Fire Fighters of Oklahoma.

Boone, Smith, Davis & Hurst by Frederic N. Schneider, III, David P. Page and Carol A. Grissom, Tulsa, for amicus curiae American Airlines, Inc.

Hall, Estill, Hardwick, Gable, Golden & Nelson by J. Patrick Cremin, Tulsa, for amicus curiae Oklahoma Council of the American Soc. for Personnel Admin.

Ben A. Goff, P.C. by Ben A. Goff and Marilyn D. Barringer, Oklahoma City, amicus curiae for plaintiff.

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 faith, 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. 370, 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...