N.J. Model Civil Jury Charge 2.15

2.15

GOOD FAITH AND FAIR DEALING 1 (9/09)

The plaintiff in this case contends th at he/she had an employment contract

with the defendant and that the defendant breached what is known as the implied

covenant of good faith and fair dealing.

In addition to the express terms of a contract, the law provides that every

contract contains an implied covenant of good faith and fair dealing. This means

that, even though not specifically stated in the contract, it is implied or understood

that each party to the contract must act in good faith and deal fa irly with the other

party in performing or enforcing the terms of the contract.2

To act in good faith and deal fairly, a party must act in a way that is honest

and faithful to the agreed purposes of the contract and consistent with the

1 The model civil charge for the Covenant of G ood Faith and Fair Dealing in bilateral contracts

outside the employment context is located at 4.10J. It is somewhat unusual in the employment

context to encounter a breach of implied covenant of good faith and fair dealing because, as

discussed infra, the claim requires proof that a contract existed betwee n the parties. However,

exceptions do of course exist and even an at-w ill employee may have a viable breach of implied

covenant claim if he or she can prove the existence of some form of contr act with the employer.

Examples include a commission agreement or a contract arising out of an employee handbook.

See, e.g. , Wade v. Kessler Institute , 172 N.J. 327, 345 (2002). The judge should carefully

consider whether there is a genuine issue of fact regarding the existence of a contract between

the parties before charging the jury on such a claim.

2 Wade v. Kessler Institute, supra, at 345; Palisades Properties, Inc. v. Brunetti, 44 N.J. 117

(1965) (quoting 5 Williston on Contracts , Sec. 670, pp. 159-160 (3d ed. 1961)). See also

Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Center Assoc. , 182 N.J. at 210 (2005);

Wilson v. Amerada Hess Corp., 168 N.J. at 236 (2001).

reasonable expectations of the parties. 3 A party must not act in bad faith,

dishonestly, or with improper motive to de stroy or injure the right of the other

party to receive the benefits of the contract.4

Thus, if there is a contract betwee n an employee and employer, and the

[employee] [employer] acts in bad faith or with improper motive to destroy or

injure the right of the [employee] [employe r] to receive the benefits or reasonable

expectations of the contract, the [empl oyee] [employer] has breached the implied

covenant of good faith and fair dealing.5

3 The implied covenant of good faith and fair dea ling generally arises in three contexts. The

covenant applies where terms a nd conditions not expressly include d in the contract are included

because the parties must have intended these term s as necessary to give business efficacy to the

contract. N.J. Bank v. Pallidino, 77 N.J. 33, 46 (1978). The covenant is also a form of redress of

bad faith performance of an ag reement although the defendant has not breached the express

terms of any agreement. Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. at 396 (1997). The

covenant permits inquiry into a party’s exercise of discretion expressly granted by a contract’s

terms. Wilson v. Amerada Hess Corp ., supra, at 270; see also Seidenberg v. Summit Bank , 348

N.J. Super. 243 (App. Div. 2002).

4 Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Center Assoc. , supra, at 230-231;

Wilson v. Amerada Hess Corp ., supra, at 251 (citations omitted); Sons of Thunder, Inc. v.

Borden, Inc ., supra, at 420. See also Wade v. Kessler Institute, supra, at 327; Palisades

Properties, Inc. v. Brunetti, supra.

5 The implied covenant of good faith and fair dea ling generally arises in three contexts. The

covenant applies where terms a nd conditions not expressly include d in the contract are included

because the parties must have intended these term s as necessary to give business efficacy to the

contract. N.J. Bank v. Pallidino, supra, at 46. The covenant is also a form of redress of bad faith

performance of an agreement although the defend ant has not breached the express terms of any

agreement. Sons of Thunder, Inc. v. Borden, Inc., supra. The covenant permits inquiry into a

party’s exercise of discretion expressly granted by a contract’s terms. Wilson v. Amerada Hess

Corp., supra, at 270; see also Seidenberg v. Summit Bank, supra.

The plaintiff in this case claims th at the defendant breached the implied

covenant of good faith and fair dealing by [give brief statement of plaintiff’s claim

of breach]. To prevail on this claim, the plai ntiff must prove each of the following

three elements by a preponderance of the evidence:

First, the plaintiff must prove that so me type of contract existed between the

parties.6 There can be no breach of the c ovenant of good faith and fair dealing

unless the parties have a contract.

Second, the plaintiff must prove that the defendant acted in bad faith with

the purpose of depriving the plaintiff of rights or benefits under the contract.

Third, the plaintiff must prove th at the defendant’s conduct caused the

plaintiff to suffer injury, damage, loss or harm. I will now discuss each of these

elements separately.

Was there a contract between the parties?

You must first determine whether some type of contract existed between the

plaintiff and the defendant.7

6 For example, the contract could involve the employer’s obligation to pay commissions, fringe

benefits, bonuses, or other compensation. It could also be a contract to employ the individual for

a certain period or a contract arising out of an employee handbook.

7 If the parties agree that a contract existed, the jury should be so instructed.

1 . Express or Implied Contract

[Instruct the jury on the legal princi ples that apply to the particular

contract. See Model Civil Jury Charge 4.10E.]

2. Implied Contract (e.g., arising from Employee Handbook)

[If the plaintiff alleges that an imp lied contract was created based on

language in an employee manual that the employee reasonably

understood created binding duties and obligations between employer

and employee, Model Civil Jury Charge 2.12 (personnel manual

creating contract) should be charged.]

If you find that an employment contr act existed between the parties, you

must then determine whether the defendant violated the implied covenant of good

faith and fair dealing.

Did the defendant act in bad faith with the intent to deprive the plaintiff of right s or

benefits under the contract?

As to this element, you must decide whether the defenda nt acted with bad

faith to interfere with the plaintiff’s right to receive the benefits of the employment

contract. Proof of bad motive or intention is essential to a claim that the defendant

has violated the covenant of good faith and fair dealing.

In considering what constitutes bad faith, you should consider a number of

factors, including the expectations of th e parties and the purposes for which the

contract was made. You s hould also consider the level of sophistication between

the parties, whether the parties had equal or unequal bargaining power, and

whether the defendant’s action involved the exercise of discretion.

Keep in mind, however, that bad faith is not established by simply showing

that the defendant’s motive for his/her actions did not consider the best interests of

the plaintiff. Contract law does not require parties to behave thoughtfully,

charitably or unselfishly toward each other.8

In order for the plaintiff to prevail on his/her claim, you must specifically

find that bad faith motivated the defenda nt’s actions. A defendant who acts in

good faith on an honest, but mi staken, belief that his/her actions were justified has

not breached the covenant of good faith and fair dealing.9

Whether the defendant’s conduct cause d the plaintiff to suffer injury,

damage, loss or harm

The plaintiff must also prove that because of the defendant’s actions, the

plaintiff was unable to realize the benefits of the contract [describe the specific

losses alleged by the plaintiff].

In summary, if you find that the plaintiff has proven by a preponderance of

the evidence: (1) the existence of some t ype of employment contract; (2) that the

defendant, although acti ng consistent with the contract ’s terms, acted in bad faith

8 Wilson v. Amerada Hess Corp., supra, at 251.

9 Silvestri v. Optus Software, Inc., 175 N.J. 113 (2003).

with the intent to deprive the plaintiff of his/her reasonable expectations under the

contract; and (3) the plaintiff sustained injury or loss as a result of such action, then

you must find for the plaintiff.

If you find that the plaintiff has faile d to prove any of these elements by the

preponderance of the evidence, you must find for the defendant.