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Holland v. Union Oil Company of California (12/23/99) sp-5223
Holland v. Union Oil Company of California (12/23/99) sp-5223
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of the
Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone (907)
264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
MICHAEL HOLLAND, )
) Supreme Court No. S-8273
Appellant, )
) Superior Court No.
v. ) 3KN-96-565 CI
)
UNION OIL COMPANY OF )
CALIFORNIA, INC., ) O P I N I O N
)
Appellee. ) [No. 5223 - December 23, 1999]
)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Kenai,
Harold M. Brown, Judge.
Appearances: Jeffrey A. Friedman, Friedman,
Rubin & White, and Terry A. Venneberg, Anchorage, for Appellant.
William F. Mede and Gregory S. Fisher, Owens & Turner, P.C.,
Anchorage, for Appellee.
Before: Matthews, Chief Justice, Compton,
Eastaugh, Fabe, and Bryner, Justices.
COMPTON, Justice.
I. INTRODUCTION
Union Oil Company of Alaska (Unocal) demoted Michael
Holland for committing a significant error in judgment involving an
ethical issue. Holland allegedly asked a subordinate contractor to
work on a personal project during work hours and instructed him to
use plant materials. Unocal based its decision to demote Holland
on information that it gathered during interviews with Holland and
four other individuals. Holland sued Unocal for, among other
things, breach of contract and breach of the implied covenant of
good faith and fair dealing. The superior court granted Unocal
summary judgment on all grounds, concluding that Holland was an
"at-will"employee and that Unocal did not breach the implied
covenant of good faith and fair dealing. We affirm.
II. FACTS AND PROCEEDINGS
Michael Holland began working as a Utilityman for Unocal
in February 1980. He was promoted to the position of "A"Mechanic,
and then to the position of Field Foreman.
On May 22, 1995, Charles H. Ross, Holland's supervisor,
called Holland into his office to discuss reports of Holland's
alleged misconduct. Larry Woods, Unocal's Loss Control Manager,
was present at the meeting. [Fn. 1] Ross and Woods asked Holland
about his plans to make boat pads for Mark Epperheimer. Boat pads
are "devices lining a boat's engine compartment for the purpose of
muffling noise and filtering smoke and debris." Epperheimer's
company did contract work for Unocal, though Epperheimer was not a
Unocal employee. Holland stated that Epperheimer had approached
him and asked him "to make some stuff . . . [but Holland stated
that] we were going to charge him . . . he was going to buy the
material." According to Holland, he spoke to Richard Rogers,
another subordinate contractor, about making the pads for
Epperheimer. But Holland stated that he had never told Rogers to
go out to Epperheimer's boat and was not aware that Rogers had done
so during work hours. Rogers testified in an affidavit however,
that Holland had told him that "[Epperheimer] had a project for us
to do at his shop. Go down there, and take care of whatever he
needed done." Further, Holland told Ross and Woods that the boat
pads were never made.
Ross called Holland back into his office the next morning
to further discuss the allegations. Holland maintained that Rogers
was going to make the boat pads on his own time and that
Epperheimer was going to pay for the materials used. Holland
reiterated, and Ross and Woods accepted, that Holland and Rogers
had not made the pads for Epperheimer. Holland did admit, however,
that his actions "come[] under poor judgment, I guess, because I
didn't shine [Epperheimer] on, . . . I should have [written] a
proposal and gone that route, and we could've traded [Epperheimer]
for it, you know, labor on things that we've done on other things.
There was no gain on my part from [Epperheimer], you know."
On May 24, 1995, Ross issued a memorandum to Holland
stating that "[d]ue to a significant error in judgment involving an
ethics issue while dealing with a Contractor, effective May 25,
1995[,] Mike Holland will be an A mechanic in Group III." The
demotion reduced Holland's salary by approximately $20,000.
In October 1995 Holland filed a complaint with the Alaska
State Commission for Human Rights (Commission). Holland alleged
that, by demoting him, Unocal had discriminated against him "on the
basis of [his] disability, Dyslexia." After an investigation, the
Commission concluded that Holland's allegations were not supported
by substantial evidence. Holland did not appeal.
In August 1996 Holland sued Unocal and Ross for breach of
contract, breach of the implied covenant of good faith and fair
dealing, and intentional infliction of emotional distress. Holland
sought at least $100,000 in compensatory and punitive damages. In
November Holland amended his complaint to allege defamation. In
January 1997 Holland stipulated to a dismissal of his claims of
intentional infliction of emotional distress and defamation. This
stipulation "had the consequence of dismissing Ross from the
litigation." Holland amended his complaint for a second time to
allege a second breach-of-contract claim based on Unocal's alleged
failure "to adhere to provisions set out in its Human Resources
Policies and Procedures Manual concerning employee discipline."
Holland moved for partial summary judgment on his claim
that "Unocal breached its contract of employment with [him] by
demoting him without just cause." Holland alleged that he had
relied on a March 9, 1995, memorandum from Unocal to all employees
saying that "dealing with substandard conduct will be through a
system of progressive discipline." The superior court concluded
that this phrase did not convert Holland's "at-will"employment
relationship to one requiring Unocal to have "just cause"to demote
him. Further, the court concluded that even if the memo had
created a "just cause"employment relationship, Unocal had had
"just cause"to demote Holland. The court stated:
The establishment of a policy, process or
general guideline when no real limit is placed upon the employer's
discretion to administer discipline for substandard conduct does
not convert an "at will"relationship to a "just cause"
relationship. Further, the court notes that there is no
representation in the March memo that an employee could only be
demoted or disciplined for "just cause." Even if the relationship
between Unocal and Holland could be described as one requiring
"just cause"before demotion, there are no material issues of fact
advanced by Holland which could militate against summary judgment
in favor of Unocal. Based on Holland's own admissions, the
demotion was justified.
Unocal moved for summary judgment on Holland's breach of implied
covenant of good faith and fair dealing claim. "Absent evidence
that Holland could be demoted only for just cause,"the court said,
"the inquiry is whether Unocal acted illegally or in bad faith or
whether the decision it made was arbitrary or capricious." The
court found "no basis for the court or a jury to substitute its
judgment for that of Unocal." It dismissed as "parsimonious at
best . . . almost nonexistent"the evidence that Holland had
submitted that he had been treated differently than other Unocal
employees. The court granted Unocal summary judgment on all of
Holland's remaining claims. Holland appeals.
Holland has briefed three points on appeal: (1) whether
the March 9, 1995, memo created a for-cause employment
relationship; (2) whether Unocal had cause to demote Holland; and
(3) whether Unocal breached the implied covenant of good faith and
fair dealing. While Holland does not appear to argue that Unocal
breached the implied covenant of good faith and fair dealing as an
alternative to this claim that he was a "for-cause"employee, his
claim must be treated as such. [Fn. 2]
III. DISCUSSION
A. Standard of Review
We review the superior court's grant of summary judgment
de novo. [Fn. 3] We will affirm summary judgment if there are no
genuine issues of material fact and if the moving party is entitled
to judgment as a matter of law. [Fn. 4] The non-moving party is
entitled to have the record reviewed in the light most favorable to
it and to have all reasonable inferences drawn in its favor. [Fn.
5]
B. Unocal Did Not Create and Then Breach a "For-Cause"
Employment Relationship.
On March 9, 1995, Unocal circulated and posted a
memorandum to "All Employees"regarding "Kenai Plant Work Rules
Policy." The memorandum stated in part:
Certain conduct cannot be permitted to occur
and can result in disciplinary action. In most instances dealing
with substandard conduct will be through a system of progressive
discipline up to and including termination. The merits of the
violation will be investigated and a decision regarding appropriate
disciplinary action will be based on the facts. In some instances,
depending on the rule violated, certain steps in the progressive
discipline system may be bypassed. Examples of such conduct
include, but are not limited to, the following:
Theft, or unauthorized use or possession
of Company property.
Falsification of Company records, the
making of false statements to supervision or other dishonesty.
. . . .
Conducting personal business on Company
property.
Holland argues that the March memo changed his "at-will"
employment relationship to one requiring Unocal to have "just
cause"to demote him. He states that "[t]his memo tells Unocal
employees . . . that discipline would be imposed only after an
investigation establishes a factual basis for the disciplinary
action. It also indicates [that] there must be some sort of
'violation' before discipline is imposed. In other words, [Unocal
employees] will only be disciplined 'for cause.'" Holland cites
Jones v. Central Peninsula General Hospital [Fn. 6] and Parker v.
Mat-Su Council on Prevention of Alcoholism & Drug Abuse [Fn. 7] in
support of his argument. While Holland concedes that the memo does
not specifically state that employees are terminable only "for
cause,"he argues that the memo's language "limit[s] [Unocal] to
imposing discipline only when the established facts show
substandard conduct or show a rule violation." Holland argues
that, because the memo says that discipline will be imposed where
facts establish "substandard conduct"or a rule violation, Unocal
may impose discipline only if there has been substandard conduct,
and may not impose discipline "at will."
Unocal, however, argues that
[t]he March 9, 1995 memo did not create a
"just cause"relationship. It did not obligate Unocal to follow
any procedure. The memo did not promise that progressive
discipline would always be followed. Unocal expressly retained
discretion under the memo's terms to impose more or less severe
discipline depending upon the circumstances and to entirely bypass
progressive discipline if it deemed such action appropriate.
Unocal cites to many cases in other jurisdictions to support its
argument. Additionally, Unocal argues that Holland's claim that
the memo established a "just cause"employment relationship because
the memo mentioned an investigation should be rejected.
We find Holland's argument unpersuasive and conclude that
the memo did not modify Holland's "at-will"employment
relationship, changing it to one where Unocal could only demote him
"for cause." Our case law is in accord with this holding.
In Jones, Central Peninsula General Hospital (CPGH)
employed Jones as a registered nurse. [Fn. 8] Because she "had no
contract for a specific length of employment,"Lutheran Hospitals
and Homes Society (LHHS), which operated CPGH, "issued a personnel
policy manual which, among other things, provided for termination
for cause and a grievance procedure for all employees."[Fn. 9]
After Jones was promoted to nurse supervisor, LHHS issued a second
personnel policy manual that "exempted supervisory employees from
the grievance procedures, but provided that all non-probationary
employees would be terminable only for good cause."[Fn. 10] The
second policy manual consisted of "[eighty-five] pages of detailed
text covering polices, rules, regulations, and definitions."[Fn.
11] LHHS terminated Jones and did not let her file a grievance
because she, according to LHHS, was terminable at will. [Fn. 12]
Jones sued LHHS and CPGH, arguing that "the [first] personnel
policy manual . . . modified the terms of her at-will employment,
and bound [LHHS] to the policies and procedures in the manual,"and
that the second personnel policy manual provided that she could
only be terminated for cause. [Fn. 13]
We held that "employee policy manuals may modify at-will
employment agreements, and that whether a given manual has modified
an at-will employment agreement must be determined on the
particular facts of each case."[Fn. 14] We concluded that the
second policy manual superseded the first and "was incorporated
into Jones' at-will employment agreement."[Fn. 15] We stated
that, despite a disclaimer on the first page of the manual that
said that it was "not a contract of employment nor is it
incorporated in any contract of employment between [LHHS] and any
employee,"the manual was incorporated into Jones's employment
contract. [Fn. 16] The manual "create[d] the impression, contrary
to the 'disclaimer,' that employees are to be provided with certain
job protections."[Fn. 17] We stated that "[e]mployers should not
be allowed to 'instill . . . reasonable expectations of job
security' in employees, and then withdraw the basis for those
expectations when the employee's performance is no longer desired."
[Fn. 18]
In Parker, the Mat-Su Council on Prevention of Alcohol
and Drug Abuse (Mat-Su) employed Parker as a substance abuse
counselor. [Fn. 19] Parker and Mat-Su had no employment contract;
rather, Mat-Su gave her a personnel manual that "outline[d] various
disciplinary policies and procedures and provide[d] that
involuntary termination will occur only for cause."[Fn. 20] Mat-
Su terminated Parker after she had refused to resign or take sick
leave (and then return to work on probationary status) while she
had a contagious illness. [Fn. 21] Parker sued, claiming that "in
taking disciplinary action against her, Mat-Su did not comply with
its personnel manual. Consequently, . . . her termination
constituted a breach of her employment contract."[Fn. 22] Citing
Jones, we stated that "[w]hen the provisions of a personnel manual
create the reasonable expectation that employees have been granted
certain rights, the employer is bound by the representations
contained in those provisions."[Fn. 23] Because Mat-Su did not
seriously challenge Parker's assertion that the manual applied to
her, this court concluded that "the personnel manual did modify
Parker's employment agreement."[Fn. 24] We noted, however, that
"generally it is a question of fact whether the manual did modify
the employment agreement."[Fn. 25] Jones and Parker do
not control the instant case. In both Jones and Parker, the
personnel manuals specifically stated that an employee would only
be terminated for cause. [Fn. 26] Because the memo did not
specifically state that a Unocal employee can be terminated only
for good cause, Parker and Jones do not compel the conclusion that
the memo modified Holland's "at-will"employment contract.
As we stated in Jones, we must look at the particular
facts of each case to determine whether the memo gave Holland a
reasonable expectation that he would only be demoted or terminated
"for cause."[Fn. 27] Because it is "generally . . . a question
of fact whether the manual did modify the employment agreement,"
this court should only conclude, as a matter of law, that the memo
did not create a "just cause"employment relationship, if no
reasonable juror could conclude that it did. [Fn. 28]
The memo was one page. The memo, read in its entirety,
says: that Unocal will not permit certain conduct at the plant; if
such conduct takes place, Unocal will likely deal with the employee
through a system of progressive discipline; that Unocal will
investigate the allegations; that Unocal will base any disciplinary
action on the facts; and that Unocal has discretion to skip any
steps in the progressive disciplinary system. In a non-exclusive
list, Unocal gives twenty-four examples of conduct not permitted at
the Kenai plant. The memo merely addresses some potential behavior
problems, notifies the employees that such conduct is not
permitted, and tells them what may, or may not, happen if such
conduct takes place. The memo contains the following hedging
terms: "can result,""[i]n most instances,""[i]n some instances,"
"steps in the progressive discipline system may be bypassed." This
language does not bind Unocal to any disciplinary procedure, nor
does the non-exclusive list of prohibited conduct limit what an
employee could be disciplined for. Holland argues that the memo's
sentence -- "In most instances dealing with substandard conduct
will be through a system of progressive discipline up to and
including termination"-- implies that only substandard conduct
will be disciplined. That, however, is not what the memo states.
Rather, the memo simply tells Unocal employees what may happen if
substandard conduct does occur.
The memo presents a non-exclusive overview of its subject
and creates no binding obligations on Unocal. We conclude that, as
a matter of law, the memo could not "create [a] reasonable
expectation that employees have been granted certain rights."[Fn.
29] Such a conclusion is consistent with holdings by other courts.
[Fn. 30]
C. Unocal Did Not Breach the Covenant of Good Faith and Fair
Dealing When It Demoted Holland.
This court has "recognized a covenant of good faith and
fair dealing in all at-will employment contracts."[Fn. 31] "This
covenant does not lend itself to precise definition, but it
requires at a minimum that an employer not impair the right of an
employee to receive the benefits of the employment agreement."[Fn.
32] We have also stated that "[t]his covenant . . . requires that
an employer treat like employees alike."[Fn. 33] "The covenant of
good faith and fair dealing . . . includes an objective standard,
under which the employer must 'act in a manner which a reasonable
person would regard as fair.'"[Fn. 34] The covenant also includes
a subjective element. "An employer engages in subjective bad faith
when it discharges an employee for the purpose of depriving him or
her of one of the benefits of the contract."[Fn. 35]
We have held that whether an employer breached the
covenant of good faith and fair dealing is usually a question for
the trier of fact. [Fn. 36] We have not held, however, that we
could never conclude that as a matter of law an employer did not
breach the implied covenant of good faith and fair dealing when it
demoted an employee.
Holland argues that Unocal breached its covenant of good
faith and fair dealing because it punished him for merely thinking
about doing something that other employees actually did without
being punished. He appears to be basing his argument on two
different theories: (1) by demoting him for thinking about making
the boat pads, while others at the plant actually engaged in
similar projects without being disciplined, Unocal treated him
differently than "like"employees; and (2) demoting him for merely
thinking about making the boat pads is objectively unfair because
he planned to ask the supervisor for permission, but never had the
chance. We address each of Holland's arguments in turn.
1. Unocal did not breach the covenant of good faith
and fair dealing, because it did not treat Holland differently than
"like"Unocal employees.
Holland's argument can be summed up as follows: "Holland
was punished for thinking about doing what others actually did
without being punished. Reasonable jurors could conclude that this
is not treating like employees alike." Unocal, however, argues
that "Holland never adduced any evidence that the other
[employees'] conduct was 'the same or nearly the same' as his boat
pad project." Further, Unocal argues, Holland conceded that the
other projects discussed during his deposition were not "like his
boat pad project, [and thus he] may not now claim anything to the
contrary." Holland's project also differed from other personal
projects because "there was no accountability or supervisory
oversight for Holland's boat pad project." Additionally, Unocal
asserts that for Holland to prevail "on his breach of covenant
claim that Unocal did not treat like employees alike, Holland must
also establish that at the time Unocal made the demotion decision
Unocal knew of other similarly situated employees who had committed
similar misconduct yet were not disciplined." Holland, Unocal
claims, "has not established [that] Unocal management knew of any
other similar misconduct when it demoted him in May 1995."
It is undisputed that Unocal permits small personal
projects to be done at the plant. These projects are called G-
jobs, short for government jobs. Rogers characterized a G-job as
one that "doesn't have a Work Order affiliated to it, and a charge
number affiliated to it." It is also undisputed that other Unocal
employees, and contractors working for Unocal, had made personal
items without being investigated and/or disciplined. Holland
asserts that the fact that other Unocal employees made personal
items during working hours, and used Unocal materials, but were not
disciplined, is proof that he was treated unlike like employees.
Holland lists two specific incidents to support his argument:
(1) Rogers made a boat tarp for Fred Werth, Holland's direct
supervisor; and (2) "Plant Manager Bill White used company time and
materials to have some duct work done for [Rogers's] house." It is
undisputed that Unocal employees or contractors made these two
items at the plant.
In 1993 Werth asked Rogers if he was interested in making
a cover for his boat. Rogers stated that he agreed to come in on
his own time and make the tarp. He spent eight to ten hours making
the boat tarp for Werth. Werth paid him $150 for the work. Rogers
used scrap material to make the boat tarp. Two people from the
Unocal home office investigated the boat tarp project. They asked
Werth questions about what material was used to make the tarp, the
size of it, and the time expended in making it. Werth was never
disciplined for asking Rogers to make the tarp.
Regarding the duct work done for Rogers, Bill White
stated that he
was helping [Rogers] install a furnace and we
. . . found that we didn't have a transitional piece called the
plenum . . . where the furnace hooks to the ducting, and needed one
. . . so I did a sketch and asked the shop to make us one, and so
they made a piece of sheet metal called a plenum from my sketch.
White stated that the project cost less than $100 and took about an
hour or two to complete. This project was never investigated and
no one was ever disciplined for making the duct work for Rogers.
Rogers stated that the boat pad project would take
"probably 80 hours . . . 8, 10-hour days of cutting and sewing, to
finish the project." Rogers also estimated that $8,000-$10,000
worth of material would be used to make the boat pads. While
Holland stated that he believed the boat pad project to be
"something . . . small,"he agreed that, because the project
involved doing work for an outside contractor, he needed to get
Unocal's permission to make the boat pads.
The record supports the conclusion that, as a matter of
law, Holland was not treated differently from like Unocal
employees, and, therefore, Unocal did not breach the covenant of
good faith and fair dealing based on this argument. Holland's
project was simply not like the other apparently insignificant
projects done at the plant. The boat pad project would have
required significantly more time and more materials than the other
projects. Holland's boat pad project, therefore, would have cost
Unocal significantly more money. While Holland claims to have
been unaware of the amount of time and money it would cost to make
the boat pads, that does not negate actual expenses that Unocal
avoided incurring by investigating the reports that preparations
were being made to make the boat pads.
2. Unocal did not act objectively unfairly by demoting
Holland for merely thinking about making the boat
pads.
Holland argues that "[his] inten[t] to obtain approval if
he had decided to allow the boat pad project to go forward is
uncontradicted." Holland also claims that he did not tell Rogers
to measure Epperheimer's boat; rather, Rogers went out on his own
and did so. Further, Holland argues that he had not yet decided
whether he was going to do the boat pad project. Holland argues
that, if the jury decides that he did not authorize any work on the
project, "it could reasonably conclude he was treated unfairly when
he was disciplined for merely considering the project." Thus,
Holland argues that, because a reasonable jury could conclude that
it was objectively unfair to demote him for something he only
thought about doing, Unocal is not entitled to summary judgment on
this issue.
While there is limited precedent to help us decide
whether Unocal is entitled to a judgment as a matter of law that it
did not breach the covenant of good faith and fair dealing, a brief
overview of decisions offers some guidance.
In Luedtke II [Fn. 37] and in Alaska Marine Pilots v.
Hendsch, [Fn. 38] we concluded that the employer had violated the
covenant of good faith and fair dealing. In Luedtke II, we
concluded that the employer acted objectively unfairly, and thus
breached the covenant of good faith and fair dealing, because
uncontradicted evidence showed that it tested Luedtke "for drug use
without prior notice, . . . no other employee was similarly tested,
and . . . [it] suspended Luedtke immediately upon learning of the
results of the test."[Fn. 39] We concluded that, because drug
testing added additional terms to an employment contract, an
employee must be given notice of that additional term so that he
may respond to it, and Nabors's failure to give such notice was
objectively unfair to Luedtke. [Fn. 40] In Hendsch, we stated that
a reasonable jury could conclude that Alaska Marine Pilots breached
the covenant of good faith and fair dealing by terminating
Hendsch's contract without thirty-days notice as called for by the
contract. [Fn. 41] Additionally, we concluded that, in view of
contractually provided procedural protections, a reasonable jury
could "have found that [the employer's] failure to consult other
pilots violated the implied covenant that such consultations would
occur prior to termination. [They] could have found these actions
to be unreasonable and unfair."[Fn. 42]
On the other hand, we denied the employees' breach claims
in Jones v. Central Peninsula General Hospital [Fn. 43] and in
Ramsey v. City of Sand Point. [Fn. 44] In Jones, we held that the
employer did not violate the implied covenant of good faith and
fair dealing because the policy manual clearly "exclude[d]
supervisory personnel from grievance procedures."[Fn. 45] Jones,
who was a nurse supervisor, had "not been denied any benefit of her
employment agreement."[Fn. 46] Therefore, we held that the
employer did not violate the implied covenant of good faith and
fair dealing. [Fn. 47] In Ramsey, Ramsey's contract "authorized
the City to terminate him for any reason whatsoever, so long as it
paid him an additional six months' salary as severance pay."[Fn.
48] Because the "covenant of good faith cannot be interpreted to
prohibit what is expressly permitted by Ramsey's contract with the
City,"this court concluded that, "as a matter of law, a jury could
not find the City's termination without an investigation violated
the implied covenant."[Fn. 49]
The instant case can be distinguished from all of the
above. Unlike the public policy context which highlighted
Luedtke II, there is no public policy reason for finding that
Unocal acted objectively unfairly when it demoted Holland, based on
reports that he had participated in an unauthorized project.
Furthermore, unlike the employer ignoring its own written contract
provision in Hendsch, Holland does not assert that Unocal acted
objectively unfairly by failing to follow its own procedures. This
case is not any more closely related to the cases where this court
found, as a matter of law, that the employer did not breach the
covenant of good faith and fair dealing. On the other hand, unlike
Ramsey and Jones, no provision in Holland's contract provides that
Unocal may not demote him because he contemplated making an
unauthorized project. Accordingly, we conclude that a reasonable
jury could not find that Unocal breached the covenant of good faith
and fair dealing when it demoted Holland.
Holland denies that he did anything wrong. Holland
asserts that he was merely thinking about making the boat pads and
was planning to ask permission, that he mentioned it to Rogers, and
that Rogers went off on his own to measure Epperheimer's boat
during work hours, without Holland's knowledge.
As discussed above, Ross and Woods investigated the
charges against Holland. They interviewed all of the parties
involved and concluded that Holland was not telling the truth and
thus demoted him for using poor judgment, a lapse Holland admits.
Therefore, Unocal's actions, as a matter of law, could not
reasonably be considered objectively unfair. The California Court
of Appeal addressed a similar issue in Burton v. Security Pacific
National Bank, stating:
[The employee] denied the charge, and
[employer] chose to believe other witnesses and to reject
[employee's] version. This raises no inference of bad faith on
[the employer's] part. This type of situation is very common; an
employee charged with misconduct denies committing the misconduct.
If the employer makes a determination in good faith that the
misconduct occurred, there is no breach of the implied covenant of
good faith and fair dealing, even if the employee could
subsequently prove that the factual finding of misconduct was a
mistake. If the law were otherwise, no employment contract could
be "at will". . . . If the employee were entitled to jury trial
for breach of the implied covenant of good faith and fair dealing
merely by asserting that the charged misconduct was not true, the
decision to terminate would be at the discretion of a jury, not the
employer. The law of employment contracts would be turned on its
head.[ [Fn. 50]]
We find this reasoning persuasive.
We have stated that "it is possible for an employer to
rightfully terminate an employee but to do so in a way that
violates the covenant of good faith and fair dealing."[Fn. 51] In
such a case, we stated, damages would be "limited to those that
flow from the breach of the covenant and cannot include the damages
an employee would be entitled to if the employee had been
wrongfully terminated."[Fn. 52] Hendsch permits the conclusion
that an employee's denial of wrongdoing does not, without more,
create a triable issue of fact in the context of a claim for breach
of the implied covenant of good faith and fair dealing.
In Hendsch the jury found that the employer (Boyd) had
rightfully terminated Hendsch for economic reasons, yet also found
that Boyd had breached the covenant of good faith and fair dealing.
[Fn. 53] We stated that
the jury could have reasonably concluded that
although it was proper for Boyd to terminate Hendsch, it was not
proper to do so without thirty days' notice. The jury could have
found that terminating the contract without notice constituted a
breach of the covenant of good faith and fair dealing. In
addition, the contract provided procedural protection for pilots if
they were suspended. The jury could have found that Boyd's failure
to consult other pilots violated the implied covenant that such
consultations would occur prior to termination. They jury could
have found these actions to be unreasonable and unfair.[ [Fn. 54]]
Implicit in our decision that the jury could find that
Boyd properly terminated Hendsch, but that Boyd breached the
covenant of good faith and fair dealing, was our conclusion that
the jury could have reasonably found that the employer had acted
unfairly in the process of terminating Hendsch, i.e., that Boyd did
not give Hendsch proper notice and did not consult other pilots
before terminating him. Both the duty to give notice and the duty
to consult were arguably required by specific provisions of the
employment contract.
In the instant case, Holland offers no evidence that
Unocal improperly investigated his alleged wrongdoing, or that
Unocal was unfair in reaching its conclusion. Rather, Holland
merely asserts that he did not engage in the alleged misconduct
and, therefore, demoting him was objectively unfair. For the
reasons given by the California Court of Appeal, we hold that, as
a matter of law, Holland's mere denial of wrongdoing is
insufficient to state a claim that Unocal breached the covenant of
good faith and fair dealing. While it may be "objectively unfair"
to demote employees for misconduct they did not in fact commit, the
covenant of good faith and fair dealing should not be extended to
grant a jury trial to all "at-will"employees who contend they did
nothing wrong. Furthermore, it is not unfair for an employer to
disbelieve, in good faith, an employee's version of events, or to
prevent proscribed conduct before it occurs.
Given Holland's failure to adduce facts reasonably
permitting an inference that Unocal acted in any objectively unfair
manner, we conclude that Holland's mere denial of any wrongdoing is
insufficient in and of itself to avoid summary judgment on his
claim that Unocal breached the implied covenant of good faith and
fair dealing.
IV. CONCLUSION
We conclude that the Unocal memo did not modify Holland's
"at-will"employment contract and, as a matter of law, Unocal did
not breach the implied covenant of good faith and fair dealing.
The judgment of the superior court is AFFIRMED.
FOOTNOTES
Footnote 1:
Also on May 22 Woods and Ross interviewed Jeff Laube, a Unocal
employee; Jay Weston, Laube's supervisor; Richard Rogers, a
subordinate contractor; and Mark Epperheimer. Epperheimer signed
a statement that says in its entirety:
In my interest, hours and perhaps materials
were expended by Unocal toward fixtures for my boat.
I agree to reimburse Unocal for sums felt
reasonable by Unocal management.
Footnote 2:
See Luedtke v. Nabors Alaska Drilling, Inc., 768 P.2d 1123,
1131 (Alaska 1989) ("Employees hired on an at-will basis can be
fired for any reason that does not violate the implied covenant of
good faith and fair dealing. However, employees hired for a
specific term may not be discharged before the expiration of the
term except for good cause.").
Footnote 3:
See Nielson v. Benton, 903 P.2d 1049, 1052 (Alaska 1995).
Footnote 4:
See In re Estate of Evans, 901 P.2d 1138, 1140 (Alaska 1995).
Footnote 5:
See Metcalfe Invs., Inc. v. Garrison, 919 P.2d 1356, 1360
(Alaska 1996) (citing Wilson v. Pollet, 416 P.2d 381, 381-84
(Alaska 1966)).
Footnote 6:
779 P.2d 783 (Alaska 1989).
Footnote 7:
813 P.2d 665 (Alaska 1991).
Footnote 8:
See Jones, 779 P.2d at 784.
Footnote 9:
Id. at 785.
Footnote 10:
Id.
Footnote 11:
Id. at 788.
Footnote 12:
See id. at 785.
Footnote 13:
Id.
Footnote 14:
Id. at 787.
Footnote 15:
Id.
Footnote 16:
Id.
Footnote 17:
Id. at 788.
Footnote 18:
Id. (quoting Leikvold v. Valley View Community Hosp., 688 P.2d
170, 174 (Ariz. 1984)) (alteration in original).
Footnote 19:
See Parker v. Mat-Su Council on Prevention of Alcoholism &
Drug Abuse, 813 P.2d 665, 665 (Alaska 1991).
Footnote 20:
Id. at 665-66.
Footnote 21:
See id. at 666.
Footnote 22:
Id.
Footnote 23:
Id.
Footnote 24:
Id. at 667.
Footnote 25:
Id. at 666-67.
Footnote 26:
See id. at 666 ("[The] personnel manual . . . outlines various
disciplinary policies and procedures and provides that involuntary
termination will occur only for cause."); Jones v. Central
Peninsula Gen. Hosp., 779 P.2d 783, 785 (Alaska 1989) ("The
[second] manual exempted supervisory employees from the grievance
procedures, but provided that all non-probationary employees would
be terminable only for good cause.").
Footnote 27:
Jones, 779 P.2d at 787.
Footnote 28:
Parker, 813 P.2d at 666 (citing Jones, 779 P.2d at 788). See
also Drobny v. Boeing Co., 907 P.2d 299, 302 (Wash. App. 1995)
("Whether or not an employer has made a promise specific enough to
create an obligation and justify an employee's reliance thereon is
a question of fact. Only if reasonable minds could not differ in
resolving this issue should a trial court decide it as a matter of
law.") (citations omitted).
Footnote 29:
Parker, 813 P.2d at 666.
Footnote 30:
See, e.g., Rood v. General Dynamics Corp., 507 N.W.2d 591,
607-08 (Mich. 1993) (holding that an employee handbook that
contained "no mandatory provisions or specific procedures[]
regarding employee discharge . . . [was] insufficient to permit a
reasonable inference that [the employer] intended to give up its
right to discharge employees at will"); Drobny, 907 P.2d at 304
(stating that "'[f]or cause' and 'just cause' remain terms of art
in the employment context . . . . [And the words] 'serious' or
'intentional' do not incorporate a promise of termination only 'for
cause' into an employment manual").
Footnote 31:
Luedtke v. Nabors Alaska Drilling, Inc., 834 P.2d 1220, 1223
(Alaska 1992) (Luedtke II); see also, e.g., Rutledge v. Alyeska
Pipeline Serv. Co., 727 P.2d 1050, 1056 (Alaska 1986); Mitford v.
de Lasala, 666 P.2d 1000, 1007 (Alaska 1983).
Footnote 32:
Jones, 779 P.2d at 789.
Footnote 33:
Id. at 789 n.6.
Footnote 34:
Ramsey v. City of Sand Point, 936 P.2d 126, 133 (Alaska 1997)
(quoting Luedtke II, 834 P.2d at 1224).
Footnote 35:
Id.
Footnote 36:
See Luedtke II, 834 P.2d at 1223.
Footnote 37:
Id.
Footnote 38:
950 P.2d 98 (Alaska 1997).
Footnote 39:
Luedtke II, 834 P.2d at 1225-26.
Footnote 40:
See id. at 1226.
Footnote 41:
See Hendsch, 950 P.2d at 101, 109.
Footnote 42:
Id.
Footnote 43:
779 P.2d 783 (Alaska 1989).
Footnote 44:
936 P.2d 126 (Alaska 1997).
Footnote 45:
Jones, 779 P.2d at 789.
Footnote 46:
Id.
Footnote 47:
See id.
Footnote 48:
Ramsey, 936 P.2d at 133.
Footnote 49:
Id.
Footnote 50:
243 Cal. Rptr. 277, 281 (Cal. App. 1988).
Footnote 51:
Hendsch, 950 P.2d at 109.
Footnote 52:
Id.
Footnote 53:
Id. at 103.
Footnote 54:
Id. at 109.
