On certification to the Superior Court, Appellate Division, whose opinion is reported at 343 N.J. Super. 338 (2001). Emmanuel Needle argued the cause for appellant (Kohn & Needle, attorneys).
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
VERNIERO, J., writing for a unanimous Court.
In this wrongful discharge case, the Court considers the jury's seemingly inconsistent verdicts on the employee's claims of breach of the company's employment manual and breach of the covenant of fair dealing, as well as the propriety of the trial court's instructions on those claims.
Sheila Wade worked at the Kessler Institute from 1982 to 1996, ostensibly as an at-will employee. In 1991, when she was transferred to a secretarial position, Wade agreed to a supervisor's request that she collect money from co-workers to be distributed to those employees who experienced a birth of a child, a wedding, the loss of a loved one, or other similar events.
In 1992, Wade's supervisors questioned her level of tardiness and her attendance. Wade was placed on probation for three months, and her attendance improved. Wade was placed on probation on subsequent occasions during 1993 and 1994 because of unsatisfactory attendance and tardiness. In November 1994, a memorandum was placed in Wade's personnel file stating that she still had excessive absences and warning that future incidents would result in further disciplinary action up to and including termination. A supervisor testified that she met with Wade in March 1996 and spoke to her about her decline in her job performance.
Around the same time in early 1996, Wade began collecting money for three co-workers. Wade kept the money in three separate envelopes, each bearing the name of the beneficiary. In April 1996, a supervisor informed Wade that some workers had expressed concern that their donations had not been distributed. The supervisor suspended Wade for three days pending an investigation.
On April 5, 1996, when Wade returned to work, she met with her supervisor and gave her the three envelopes containing the donations and a handwritten memorandum for each. After counting the money, the supervisor informed Wade that she was five dollars short in one of the envelopes. The supervisor testified that Wade responded she had borrowed the five dollars. Wade denied making that statement, claiming that as far as she knew, the amounts in the envelopes were correct. According to the Kessler Institute, Wade was informed at the meeting on April 5, 1996, that she was being terminated for misallocating funds and also for prior tardiness and absenteeism.
Wade wrote a handwritten, seven-page letter requesting that Kessler provide her with a fair hearing. The letter, dated April 6, 1996, presumably refers to the procedures set forth in an employment manual furnished to Wade. In a section entitled "Resolving Work Problems," the manual states that employee complaints or grievances are to be presented within five days of the event of problem, and provides for three levels of presentation and review of the grievance. However, in a separate section entitled "Discharge," the manual provides that Kessler reserved the right to dismiss an employee with or without notice when deemed necessary in the interest of Kessler.
Wade testified that Kessler did not respond to her letter or return telephone calls that she had placed pertaining to the letter. Kessler responded that it had never received the letter or any telephone messages from Wade. Wade filed a complaint alleging various causes of action, including that Kessler breached an implied covenant of good faith and fair dealing and the express terms of the employment manual when it terminated her without just cause and without providing her access to the grievance procedure.
The trial court instructed the jury that Wade was alleging she did not receive a fair hearing or grievance procedure, contrary to the terms of the employee manual, and that this was a violation of the covenant of good faith
and fair dealing. Additionally, the trial court instructed the jury on the breach of contract claim, explaining that the jury must first determine whether or not the manual created a contract, and, if a contract did exist, whether Kessler breached that contract. Kessler's counsel objected to that portion of the charge relating to the covenant of good faith and fair dealing, arguing that the jury should be told that plaintiff also was required to prove that Kessler was not acting with an honest or good faith belief that it was justified in terminating Wade. The trial court refused to make any revisions to the charge.
The verdict sheet submitted to the jury by the trial court asked first, whether Kessler breached its covenant of good faith and fair dealing when it terminated Wade and failed to give her a hearing under the grievance procedures. The second question asked whether Kessler terminated Wade in violation of the personnel manual outlining the terms of her employment. The jury answered yes to the first question, but no to the second question, and awarded Wade $65,000 in damages for lost wages.
Kessler moved for judgment notwithstanding the verdict, arguing that before an employer can be found to have violated a covenant of good faith, the jury must determine that the employer acted in bad faith or unconscionably. The trial court denied the motion.
In a reported decision, the Appellate Division reversed. Wade v. Kessler Inst., 343 N.J. Super. 338 (2001). That court found as a matter of law that the jury could not find Kessler liable for breaching an implied covenant of good faith without first finding that an implied contract of employment existed. This Court granted Wade's petition for certification.
HELD: The trial court committed plain error when it instructed the jury to determine the existence of an implied contract, because the parties did not contest that issue. It also erred by submitting the issue of the implied covenant of good faith to the jury.
1. In New Jersey, an employment relationship remains terminable at the will of either en employer or employee, unless an agreement exists that provides otherwise. There are exceptions not relevant here - such as where the termination is contrary to public policy, or based on impermissible factors, like race. An employment manual may create an implied contract between an employer and employee. Where the manual promises job security, it may alter an employee's at-will status. (Pp. 14-17)
2. Every contract contains an implied covenant of good faith and fair dealing, meaning that neither party shall do anything that has the effect of destroying or injuring the right of the other party to receive the fruits of the contract. A party's performance may violate the implied covenant even though it does not violate an express term of the contract. (Pp. 17-18)
3. The trial court should not have instructed the jury to determine the existence of an implied contract based on the manual, because the parties did not contest that issue. Further, the first and second interrogatories overlapped in subject matter, resulting in an arguably inconsistent verdict. Both questions essentially asked whether Kessler had violated the grievance provisions, although the first mistakenly suggested this might be a breach of the covenant of good faith and fair dealing, while the second correctly focused on whether this constituted a simple breach of contract. Finally, the issue of the implied covenant should not have been included at all, and its inclusion had the capacity to confuse the jury. The trial court's instructions suggest that in breaching a literal term of the employment manual, Kessler could be found separately liable for a breach of the implied covenant of good faith and fair dealing. The jury should have been instructed to resolve the case within the framework of an alleged breach of a literal term, not as a violation of the implied covenant. (Pp. 18-26)
The judgment of the Appellate Division is AFFIRMED, and the matter is REMANDED to the Law Division for further proceedings consistent with this opinion.
CHIEF JUSTICE PORITZ and JUSTICES STEIN, COLEMAN, LONG, LaVECCHIA, and ZAZZALI join in JUSTICE VERNIERO's opinion.
The opinion of the court was delivered by: Verniero, J.
In this wrongful discharge case, a jury found that an employer breached its covenant of fair dealing when it terminated an employee without a hearing as allegedly required by the company's employment manual. The jury also found that the employer did not violate the terms of plaintiff's employment based on provisions in that same manual. The employer appealed that seemingly inconsistent verdict, and the Appellate Division reversed and remanded the matter for a new trial. We now affirm the Appellate Division's disposition, but for reasons other than those expressed by that court.
The facts are derived largely from testimony and other evidence adduced at trial. From 1982 until 1996, Sheila Wade (plaintiff) worked at Kessler Institute (defendant or employer) ostensibly as an at-will employee. In 1991, she transferred into a secretarial position. A supervisor asked plaintiff whether she would accept the task of collecting money from her co-workers to be distributed to those employees who experienced a birth of a child, a wedding, the loss of a loved one, or similar life events. Plaintiff agreed and collected monies in the ensuing years.
In 1992, plaintiff's supervisors questioned her level of tardiness and her attendance. In March of that year, plaintiff's performance evaluation indicated that she was not reporting to work in a "timely manner[.]" Plaintiff's supervisor noted that plaintiff was "somewhat resistive to constructive time management." The employer placed plaintiff on probation for three months, and her attendance improved. In 1993, the employer placed plaintiff on another three-month probationary period because she had reported late to work on numerous occasions. As a result, defendant deferred plaintiff's scheduled raise pending completion of her probationary period. Eventually, plaintiff's attendance did improve, and she collected her raise.
In spring 1994, plaintiff received another unfavorable evaluation showing that she was late twenty-nine times. The employer initially placed plaintiff on probation for three months, but extended that probationary period for an additional six months after plaintiff had failed to improve her attendance to a satisfactory level. In November 1994, a nurse prepared a memorandum for plaintiff's personnel file stating that plaintiff still had "excessive" absences and that "[a]ny future incidents will result in further disciplinary action up to and including termination." A supervisor testified that she met with plaintiff in March 1996 and spoke to her about "the decline in her job performance as a whole and her duties."
Around that same time in early 1996, plaintiff began collecting money for three co-workers.
Before she completed that task, plaintiff went on approved medical leave for approximately ten days. When she returned, she resumed collections. Plaintiff stated that because the amounts collected were not large she decided to wait until the next payday, when more people might donate funds, before distributing the money to the intended beneficiaries. Plaintiff kept the money in three separate envelopes, each bearing the name of the intended beneficiary.
In April 1996, a supervisor spoke to plaintiff about the collection effort. She informed plaintiff that some workers had expressed concern that their donations had not been distributed. Plaintiff explained the delay and offered to turn over the funds to the supervisor. Although the supervisor responded that it was not necessary for her to take possession of the funds, she suspended plaintiff for three days pending an investigation. During the course of plaintiff's suspension, the supervisor spoke with employees who questioned whether their donations had been properly credited or recorded by plaintiff.
On April 5, 1996, when she returned to work at the conclusion of her suspension, plaintiff met with her supervisor and gave her the three envelopes and a handwritten memorandum for each envelope. Plaintiff also gave the supervisor a separate memorandum stating that she was hurt and upset by the allegations, and that she would no longer collect money for her co-workers. According to the memoranda, one envelope contained forty dollars, and the other two envelopes each contained twenty-eight dollars.
After counting the money, the supervisor informed plaintiff that she was five dollars short in one of the envelopes. The supervisor testified that plaintiff stated that she had borrowed the five dollars. Plaintiff denied making that statement. Plaintiff claimed that, as far as she knew, the amounts in the envelopes were correct. The supervisor also testified that the envelopes contained a list of donors and that five employees, who had informed ...