Brehany v. Nordstrom, Inc.

• Decision Date: 16 May 1991
• Docket Number: No. 20590,20590
• Citation: 812 P.2d 49
• Parties: 122 Lab.Cas. P 56,939, 6 IER Cases 881 Cathy BREHANY, Plaintiff and Appellee, v. NORDSTROM, INC., et al., Defendant, Appellant, and Cross-Appellee. Dennis KNAPP and Barbara Knapp, his wife, Plaintiffs, Appellees, and Cross-Appellants, v. NORDSTROM, INC., et al., Defendant, Appellant, and Cross-Appellee.
• Court: Utah Supreme Court

Page 49

812 P.2d 49

122 Lab.Cas. P 56,939, 6 IER Cases 881

Cathy BREHANY, Plaintiff and Appellee, v. NORDSTROM, INC., et al., Defendant, Appellant, and Cross-Appellee.

Dennis KNAPP and Barbara Knapp, his wife, Plaintiffs, Appellees, and Cross-Appellants, v. NORDSTROM, INC., et al., Defendant, Appellant, and Cross-Appellee.

No. 20590.

Supreme Court of Utah.

May 16, 1991.

Max D. Wheeler, Stephen J. Hill, Stanley J. Preston, Salt Lake City, for Nordstrom, Inc.

D. Gilbert Athay, Salt Lake City, for Brehany and the Knapps.

STEWART, Justice:

Nordstrom, Inc., the defendant in the above consolidated cases, appeals a judgment for $285,000 in favor of Cathy Brehany, Dennis Knapp, and Barbara Knapp for wrongful termination of employment based on breach of an implied-in-law covenant of good faith and fair dealing. The plaintiffs cross-appeal from the trial court's dismissal of their claims for breach of contract and defamation.

I. FACTS

Nordstrom, a regional retail department store, employed plaintiffs Dennis Knapp, Barbara Knapp, and Cathy Brehany at its Crossroads Plaza store in Salt Lake City. Dennis Knapp was hired by Nordstrom in July 1973. After managing a Nordstrom store in California, he became Nordstrom's first general manager in Utah, where he was responsible for staffing the Salt Lake City Crossroads Plaza store with purchasing agents and managers. Barbara Knapp, Dennis Knapp's wife, was hired first by Nordstrom in October 1975 and was a women's fashion buyer for the Salt Lake City store. Plaintiff Cathy Brehany also began working for Nordstrom in southern California. She was later transferred to the Crossroads Plaza store where she worked as a buyer. All three were hired for indefinite terms.

After being hired, each plaintiff received a company employee manual entitled Nordstrom History, Policy & Regulations and signed the following statement at the end of the manual: "I have read and understand the preceding pages of the Nordstrom Policy and Regulation manual. I understand that my continued employment is contingent upon my adhering to the Policies stated therein." The manual explains employment benefits, policies, and privileges and sets forth standards and rules of conduct for employees, the breach of which would justify discharge. Under the manual, written warning was to be given an employee for nine separate offenses that would justify termination of employment. The manual also set forth another eleven offenses that could result in immediate discharge without written warning. Among the latter offenses are the following:

5. Unbecoming conduct bringing reflection or criticism upon the store and its personnel, malicious mischief, neglect or carelessness resulting in injury to individuals or destruction of store or other property.

....

7. [T]he violation of any criminal law or conviction in any court of criminal law while in our employ.

8. Introduction, possession, or use of habit-forming drugs, hallucinogens, illegal narcotics, or intoxicating liquors on the property of the store or reporting for duty under the influence of the same. This includes use or consumption during breaks, lunch, or prior to reporting for work.

Nordstrom's stated objective in promulgating these rules was "to maintain harmony and prevent injustice," and to this end, the rules were to be "strictly enforced in fairness to the group as a whole."

During an internal Nordstrom investigation of drug use among its southern California employees, the corporate security officer learned of reports that two employees who were then working for Nordstrom in Utah had used drugs and had attended parties where drugs were used. Further inquiry disclosed additional information that there was drug use among company employees in Utah and that Dennis and Barbara Knapp and Michael Soule were implicated in using illegal drugs while on company business. A report to management indicated that Cathy Brehany had used drugs, although not while on company business--and not so as to be "high" when she went to work, and attended parties of company employees where drugs were used, but denied using drugs with any co-workers outside of work. The company report also indicated that someone had said that Brehany had a source for drugs. The information from the investigation was gathered from two sources and given to John Nordstrom, co-chairman of the board of directors. Management also sought and obtained from two additional sources confirmation of this information. James Nordstrom, president of Nordstrom, then traveled to Salt Lake City from company headquarters in Seattle, Washington, and terminated the employment of the three plaintiffs and Michael Soule without prior written warning. Dennis Knapp was told that he was fired for using drugs; Barbara Knapp was told she was fired because she was Dennis Knapp's wife; and Cathy Brehany was told she was fired for supplying drugs to employees.

At trial, Dennis Knapp admitted using cocaine and marijuana in the presence of vendors while representing Nordstrom on buying trips. He also testified that James Nordstrom told him he was fired because he had used illegal drugs and had used poor judgment in bringing employees to Salt Lake City who he knew had drug problems. Barbara Knapp also admitted at trial using marijuana in the presence of other employees and while on buying trips in the presence of vendors. She testified, however, that she was told she was terminated because she was Dennis Knapp's wife. Cathy Brehany denied using or selling drugs, but admitted associating with others who used illegal drugs. She testified that James Nordstrom told her she was terminated because of reports that she had been supplying drugs to employees. The day after the terminations, James Nordstrom stated in a meeting of managers and buyers from the Salt Lake City store that the termination of Dennis Knapp was drug-related. Cathy Brehany had not at that time been discharged. The next day, the new manager of the Salt Lake store told a meeting of buyers and managers that drug use would not be tolerated and that if anyone had a drug problem, he or she should resign.

Dennis and Barbara Knapp and Cathy Brehany filed complaints alleging claims for (1) wrongful discharge, (2) breach of the contract of employment, (3) intentional infliction of emotional distress, and (4) defamation. Before trial, the trial court dismissed the plaintiffs' claims for wrongful discharge and intentional infliction of emotional distress for failure to state claims upon which relief could be granted. The plaintiffs have not appealed the dismissal of those claims.

At the close of all evidence, the trial court granted Nordstrom's motion for a directed verdict as to the plaintiffs' defamation claims on the ground that the defamatory statements published to company managers and buyers in the Salt Lake store by James Nordstrom were privileged communications. The court also ruled as a matter of law that since the plaintiffs' employment contracts were for indefinite terms, they were at-will employees and had no valid claim for breach of contract based on the termination of their employment.

Nevertheless, the trial court instructed the jury that the law recognizes an implied "right of good faith dealing which is protected in the courts" and that the plaintiffs could recover damages if Nordstrom breached the implied covenant of "good faith dealing." The trial court did not, however, define the term "good faith" in its instructions to the jury. The jury returned special verdicts finding that Nordstrom had terminated the plaintiffs' employment in "bad faith" and awarding Dennis Knapp $150,000, Barbara Knapp $80,000, and Cathy Brehany $55,000. The trial court thereafter denied Nordstrom's motions for a new trial, judgment notwithstanding the verdict, and a remittitur.

On this appeal, Nordstrom contends that (1) the trial court erred in instructing the jury that an employer's right to terminate employees hired under indefinite-term employment contracts is limited by an implied-in-law covenant of good faith and fair dealing; (2) there was insufficient evidence to justify the jury's verdict that the plaintiffs were fired in bad faith; (3) the trial court failed to instruct the jury on the meaning of the terms good faith and bad faith; (4) the issue of bad faith termination should not have been submitted to the jury because it was neither raised in the pleadings nor tried; (5) the instructions on damages were in error; and (6) the evidence of damages was insufficient to support the jury's award. The plaintiffs cross-appeal on the ground that the trial court erred in dismissing their claims for defamation and wrongful termination based on provisions contained in Nordstrom's employee manual.

II. WRONGFUL DISCHARGE AND BREACH OF COVENANT OF GOOD FAITH AND FAIR DEALING

We first address Nordstrom's contention that the trial court erred in instructing the jury that it could find for the plaintiffs based on a breach of an implied covenant of "good faith dealing" in the context of an indefinite-term employment contract. Closely related to that issue is the plaintiffs' cross-appeal urging error in the trial court's dismissal of their claims for breach of implied contract terms based on the provisions in the Nordstrom employee manual. We conclude that (1) Nordstrom is correct in contending that the trial court erred in holding that Utah law recognizes a claim for relief for wrongful discharge based on breach of an implied-in-law covenant of good faith and fair dealing; and (2) the plaintiffs are correct in arguing that the court also erred in not instructing the jury that provisions in the Nordstrom employee manual could be found to limit the right of an employer to discharge an indefinite-term employee. Nevertheless, for reasons explained below, we hold that the latter error was harmless as to Dennis and Barbara Knapp. Because of our ruling on the covenant of good faith and fair...