Proving Breach of the Implied Covenant of Good Faith and Fair Dealing in California Employment Contracts

Introduction

In California, every employment contract—written or oral—contains an implied promise that both the employer and employee will act in good faith and deal fairly with one another throughout the employment relationship (Foley v. Interactive Data Corp., 47 Cal.3d 654, 693 (Cal. 1988); Comunale v. Traders & Gen. Ins. Co., 50 Cal.2d 654, 658 (Cal. 1958)). Good faith means honesty of purpose, faithful performance, and avoiding any act or omission that unfairly interferes with the other party’s right to receive the contract’s benefits.

What Does the Implied Covenant Require?

Good faith requires honest intent, no intent to mislead or take unfair advantage, and consistency with contractual obligations. Crucially, the implied covenant cannot create obligations that contradict the explicit terms of the contract (Foley, 47 Cal.3d at 693).

Six Elements to Prove a Breach

To prevail on a claim for breach of the implied covenant of good faith and fair dealing in employment, an employee must prove:

• The existence of an employment relationship;

• Substantial performance of required job duties, unless excused or prevented;

• That all conditions required for the employer’s performance had occurred or were excused (see Cal. Civ. Code § 1439);

• That the employer engaged in conduct preventing the employee from receiving the contract’s benefits;

• That the employer did not act fairly and in good faith;

• Harm to the employee as a result of the employer’s conduct

(CACI No. 2423).

Relationship to Contract Claims and Remedies

A breach of contract may also amount to a breach of the implied covenant. However, where alleged conduct is directly actionable as breach of contract, the implied covenant does not provide for additional tort damages in the employment context (Guz v. Bechtel Nat’l, Inc., 24 Cal.4th 317, 352 (Cal. 2000)). Termination of an at-will employment alone does not qualify as a breach of the covenant (Eisenberg v. Alameda Newspapers, Inc., 74 Cal.App.4th 1359, 1391 (Cal. Ct. App. 1999)).

Fact Issues and Bad Faith

Whether an employer acted with bad faith is typically a jury question and depends on evidence concerning the parties’ actions and intent (Luck v. S. Pac. Transp. Co., 218 Cal.App.3d 1, 26 (Cal. Ct. App. 1990)).

California Employer Takeaways

• Do not use powers under the contract to deprive an employee of earned or promised benefits.

• Make all employment decisions—including discipline and termination—with documented honesty and fairness.

• Use careful records to support good faith actions and fair dealing in contract administration.

• The implied covenant does not confer rights beyond those set by the parties’ contract.

Citations:

Cal. Civ. Code § 1439; Foley v. Interactive Data Corp., 47 Cal.3d 654, 693; Comunale v. Traders & Gen. Ins. Co., 50 Cal.2d 654, 658; Guz v. Bechtel Nat’l, Inc., 24 Cal.4th 317, 352; Eisenberg v. Alameda Newspapers, Inc., 74 Cal.App.4th 1359, 1391; Luck v. S. Pac. Transp. Co., 218 Cal.App.3d 1, 26; CACI No. 2423.