For those unfamiliar with employment law, it might surprise you to learn that in the United States most states do not recognize an implied covenant of good faith and fair dealing (GFFD) in employment contracts, even though such covenants are deemed to exist in commercial contracts under the UCC.

By my last count, only nine states have adopted GFFD in employment contracts. Though the type of GFFD implied in employment contracts varies, the most common form involves a situation where an employee’s justified expectations to pay or benefits are frustrated by an arbitrary employer action (like an out-of-the-blue firing).

Well, Wisconsin might be the tenth state to recognize such a GFFD in employment in the case of Phillips v. US Bank (Wisconsin Ct App 02/02/2010), though the Wisconsin Appellate Court was careful not to call it that.

From Ross Runkel’s Employment Law Memo:

Phillips sued the employer, alleging that the employer discharged her in order to avoid paying promised benefits.  Although the benefits were described as having accrued, receipt of the benefits was contingent on continued employment.  The trial court granted summary judgment in favor of the employer.  The court reversed.

The court noted that an employer is not obligated to act in “good faith” when exercising its right to discharge an at-will employee.  The court concluded, however, that “an at-will employee does not forfeit benefits that have accrued during his or her employment even though the agreement governing those benefits conditions their receipt on the employee’s continued employment[,] if the employer fires the employee solely to prevent the employee from getting the accrued benefits….”  The court observed that, although an employer need not comply with “good faith” in discharging an at-will employee, “an employer must comply in good faith with its ‘contractual obligations.'”  The court applied agency principles in arriving at its decision.

I’m not sure I understand the distinction the court makes between exercising good faith in discharging an employee versus discharging a contractual obligation, but for me if it walks, talks, and acts like a duck, it’s a duck. Welcome to the good faith in employment club, Wisconsin.