Vander Veur v. Groove Entertainment , 2019 UT 64 ( 2019 )

This opinion is subject to revision before final
publication in the Pacific Reporter
2019 UT 64IN THE
SUPREME COURT OF THE STATE OF UTAH
MIKE VANDER VEUR,
Respondent,
v.
GROOVE ENTERTAINMENT TECHNOLOGIES,
Petitioner.
No. 20180730
Heard May 13, 2019
Filed October 29, 2019
On Certiorari to the Utah Court of Appeals
Third District, Salt Lake
The Honorable Vernice S. Trease
No. 130908551
Attorneys:
Nan T. Bassett, Jurhee A. Rice, Salt Lake City, for respondent
David C. Reymann, Cheylynn Hayman, Salt Lake City, for petitioner
CHIEF JUSTICE DURRANT authored the opinion of the Court, in
which ASSOCIATE CHIEF JUSTICE LEE and JUSTICE PETERSEN joined.
JUSTICE PEARCE filed an opinion concurring in part and dissenting in
part, in which JUSTICE HIMONAS joined.
CHIEF JUSTICE DURRANT, opinion of the Court:
Introduction
¶1 Mike Vander Veur claims that his employer, Groove
Entertainment Technologies (Groove), fired him in an effort to avoid
payment of commissions. Mr. Vander Veur had secured six sales
contracts prior to his termination that later proceeded to installation.
Groove never compensated him for those contracts. He filed suit
claiming that, although he was an at-will employee, his termination
violated the implied covenant of good faith and fair dealing in his
VANDER VEUR v. GROOVE ENTM’T TECHS.
Opinion of the Court
compensation agreement with Groove. The district court dismissed
his claims, concluding that the covenant could not be applied in this
context. The court of appeals reversed, holding that the covenant
could be invoked to prevent employers from using at-will
termination to avoid obligations under a compensation agreement.
Because we find that this application of the covenant is improper, we
reverse.
Background
¶2 Groove Entertainment Technologies provides television
services to large-scale customers, like hotels. In September 2010,
Groove hired Mike Vander Veur as a sales representative for Groove,
and he was responsible for securing new contracts for television
services. In October 2012, Mr. Vander Veur and Groove entered into
a compensation agreement, which provided that it would “remain in
effect as long as [Mr. Vander Veur] is employed by Groove.” The
agreement stated that Groove would pay Mr. Vander Veur “a
commission for each Qualifying Sale deemed commissionable as
defined in this Agreement.” It defined “Qualifying Sale” as “a
commissionable sale where the minimum margin requirements are
met and the installation is complete.” The agreement also provided
that he would receive bi-weekly draws on his commissions and that
once commissions were earned, the draws would be deducted and
he would be “paid the balance of the commission.” Mr. Vander Veur
also signed an employee handbook in 2010, 2011, and 2013, in which
he acknowledged that he was an at-will employee who could be
terminated “with or without notice and with or without cause at any
time.”
¶3 Groove terminated Mr. Vander Veur in June 2013. Prior to
his termination, he claims he had obtained written or verbal
commitments for six commissionable sales. None of those six sales
had proceeded to installation of the product prior to his termination,
but all six installations were completed within three months of his
termination.
¶4 Also, in the spring of 2013, Mr. Vander Veur was working
with Groove’s president and a lead sales representative on a sales
contract with the Grand America, for which they expected to receive
a large bonus (Showtime bonus) in lieu of their typical fee.
Mr. Vander Veur claims that the three of them verbally agreed to
split the Showtime bonus, after paying out $1,000 to another
employee involved in the sale. This bonus was not contemplated in
the compensation agreement, but rather constitutes a separate
alleged oral contract. That job was installed before his June 2013
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Cite as: 2019 UT 64Opinion of the Court
termination, but Groove did not receive the Showtime bonus money
until July 2013. Groove did not pay him for this bonus either.
¶5 Mr. Vander Veur filed suit against Groove, alleging it had
breached the implied covenant of good faith and fair dealing by
terminating him to avoid paying the six commissions and the
Showtime bonus.1 The district court granted summary judgment to
Groove on all issues and dismissed Mr. Vander Veur’s claims with
prejudice. He appealed to the court of appeals, which held, as a
matter of first impression, that the implied covenant of good faith
and fair dealing “may be employed in limited circumstances to
protect an at-will employee’s right to receive compensation for work
performed pursuant to a compensation agreement attendant to the
at-will employment relationship.”2 Groove then petitioned this court
for certiorari, which we granted.
¶6 We have jurisdiction pursuant to Utah Code
section 78A-3-102(3)(a).
Issue and Standard of Review
¶7 We must determine whether the implied covenant of good
faith and fair dealing prohibits an employer from terminating an
employee for the purpose of avoiding payment of commissions. On
certiorari, we review “the court of appeals’ decision for correctness,
without according any deference to its analysis.”3 We review a
district court’s “grant or denial of summary judgment for correctness
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1 Groove also counterclaimed for breach of contract and unjust
enrichment, arguing that Mr. Vander Veur had received more in
commission draws than he had made in commission. The district
court entered summary judgment in Groove’s favor on this claim,
and the court of appeals affirmed. That issue is not before us here.
The question on certiorari is limited to whether the court of appeals
“erred in concluding that [Mr. Vander Veur] could rely on
allegations that [Groove] had terminated his at-will employment for
the purpose of avoiding payment of commissions to support his
claim that [Groove] violated the implied covenant of good faith and
fair dealing.”
2 Vander Veur v. Groove Entm’t Techs., 2018 UT App 148, ¶ 18, 436
P.3d 109.
3 State v. Ainsworth, 2017 UT 60, ¶ 13, 423 P.3d 1229.
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Opinion of the Court
and view[] the facts and all reasonable inferences drawn therefrom
in the light most favorable to the nonmoving party.”4
Analysis
¶8 Mr. Vander Veur claims that Groove terminated him to
avoid payment of commissions under his compensation agreement
and a bonus, which he alleges violates the implied covenant of good
faith and fair dealing. Groove argues that application of the covenant
of good faith in this case contradicts the express contractual
language of the compensation agreement and that the parties would
not have agreed to the terms Mr. Vander Veur seeks. We agree that
the covenant contradicts the language of the compensation
agreement. Accordingly, we reverse on that issue. But we conclude
that the district court’s dismissal of Mr. Vander Veur’s Showtime
bonus claim was not supported by a sufficient legal or factual basis.
So we affirm the court of appeals on that issue, and remand for
additional proceedings.
I. Mr. Vander Veur Is Not Entitled to Post-Termination Commissions
¶9 Mr. Vander Veur was an at-will employee, meaning that
“either the employer or the employee may terminate the
employment for any reason (or no reason) except where prohibited
by law.”5 But he and Groove had also entered into a compensation
agreement contract. And all contracts contain a covenant of good
faith and fair dealing, including employment contracts.6 The
covenant operates by “inferring as a term of every contract a duty to
perform in the good faith manner that the parties surely would have
agreed to if they had foreseen and addressed the circumstance
giving rise to their dispute.”7 In other words, “each party impliedly
promises that he will not intentionally or purposely do anything
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4 ZB, N.A. v. Crapo, 2017 UT 12, ¶ 11, 394 P.3d 338.
5Cabaness v. Thomas, 2010 UT 23, ¶ 78, 232 P.3d 486 (internal
quotation marks omitted).
6 Brehany v. Nordstrom, Inc., 812 P.2d 49, 55 (Utah 1991)
(explaining that “every contract is subject to an implied covenant of
good faith”).
7 Young Living Essential Oils, LC v. Marin, 2011 UT 64, ¶ 8, 266
P.3d 814.
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which will destroy or injure the other party’s right to receive the
fruits of the contract.”8
¶10 Although “a covenant of good faith and fair dealing inheres
in almost every contract, some general principles limit the scope of
the covenant.”9 The covenant “cannot be read to establish new,
independent rights or duties to which the parties did not agree” at
the outset.10 It “cannot create rights and duties inconsistent with
express contractual terms”11 or “compel a contractual party to
exercise a contractual right ‘to its own detriment for the purpose of
benefitting another party to the contract.’”12 It “cannot be construed
to change an indefinite-term, at-will employment contract into a
contract that requires an employer to have good cause to justify a
discharge.”13 And we “will not use this covenant to achieve an
outcome in harmony with the court’s sense of justice but inconsistent
with the express terms of the applicable contract.”14 Applying these
principles in this case, we conclude that the court of appeals erred
for three reasons.
A. Application of the covenant of good faith and fair dealing here would
contradict the express terms of the compensation agreement
¶11 First, we conclude that the court of appeals erred because its
decision contradicted an express term of the compensation
agreement. The covenant of good faith and fair dealing provides that
all parties to a contract will perform their obligations “in the good
faith manner that the parties surely would have agreed to if they had
foreseen and addressed the circumstance giving rise to their
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8St. Benedict’s Dev. Co. v. St. Benedict’s Hosp., 811 P.2d 194, 199
(Utah 1991).
9Oakwood Vill. LLC v. Albertsons, Inc., 2004 UT 101, ¶ 45, 104 P.3d
1226.
10 Id.11 Id.12 Id. (citation omitted).
13 Brehany, 812 P.2d at 55.
14 Oakwood Vill., 2004 UT 101, ¶ 45; see also Malibu Inv. Co. v.
Sparks, 2000 UT 30, ¶ 19, 996 P.2d 1043 (“[W]e will not interpret the
implied covenant of good faith and fair dealing to make a better
contract for the parties than they made for themselves.” (internal
quotation marks omitted)).
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VANDER VEUR v. GROOVE ENTM’T TECHS.
Opinion of the Court
dispute.”15 But where, as here, the “parties themselves have agreed
to terms that address the circumstance that gave rise to their dispute,
by contrast, the court has no business injecting its own sense of what
amounts to ‘fair dealing.’”16 Mr. Vander Veur and Groove entered
into an express contract—the compensation agreement. That
agreement stated that it would “remain in effect as long as
[Mr. Vander Veur] [wa]s employed by Groove.” It provided that
Groove would pay Mr. Vander Veur “a commission for each
Qualifying Sale deemed commissionable as defined in this
Agreement.” And it defined “Qualifying Sale” as “a commissionable
sale where the minimum margin requirements are met and the
installation is complete.”
¶12 By the express language of the compensation agreement,
Mr. Vander Veur could only be paid for contracts that had been
installed, and he was only entitled to compensation while he
remained employed. He could not, therefore, have been entitled to
compensation for contracts that proceeded to installation after his
termination, because after termination, the compensation agreement
was no longer in effect. In fact, Mr. Vander Veur concedes that,
under the language of the contract, he “had to be employed at the
time of installation to receive commissions.” So the parties did
“foresee[] the circumstance giving rise to their dispute” and agreed
that commissions would only be paid post-installation and only
while the employee remained employed.17 Applying the covenant of
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15 Young Living, 2011 UT 64, ¶ 8.
16 Id. ¶ 10.
17 The dissent attempts to frame this as a distinction between
contractual obligations and remedies. Infra ¶ 40 (Pearce, J.,
concurring in part and dissenting in part). It is true that the remedy
Mr. Vander Veur seeks is to be paid commissions he claims he had
earned. But his claim, and the availability of a remedy, hinges on a
finding that Groove was otherwise obligated to pay those
commissions. And, as discussed, Mr. Vander Veur was not entitled
to those commissions unless and until the contracts proceeded to
installation. At the time of his termination, none of the relevant
contracts had been installed. Under the compensation agreement, if
those contracts had fallen through, Mr. Vander Veur would not have
been compensated for the time he had spent securing them. So
unless and until the contracts were installed, Groove had no
(Continued)
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good faith and fair dealing to require Groove to pay Mr. Vander
Veur post-termination commissions is “inconsistent with the express
terms of the [compensation agreement].”18
B. The parties’ course of dealings and conduct demonstrate that they would
not have agreed to payment of post-termination commissions
¶13 Second, we conclude the court of appeals erred because,
even were we to assume that the compensation agreement does not
expressly address the situation presented in this case, we cannot say
that the parties would have agreed to the contractual term
Mr. Vander Veur would have us read into the agreement. Under the
covenant of good faith and fair dealing, we look to the “parties’
course of dealings or conduct” to determine a party’s legal duty.19
And we may only impose such duties when, based on that course of
conduct, it is clear that they “undoubtedly would have agreed to the
[duty] if they had considered and addressed it.”20
¶14 Groove’s course of dealings demonstrates that it never pays
out post-termination commissions. Rather, it has a different sales
representative take over the contract for the terminated employee,
and that replacement representative generally receives the
commission for the sale. So based on the parties’ course of dealings,
it is clear that they would not have agreed to pay for
post-termination commissions.
obligation to pay commissions that Mr. Vander Veur had not yet
earned.
18 Oakwood Vill., 2004 UT 101, ¶ 45. Importantly, this does not
mean, as the dissent suggests, that Groove does not have to exercise
its obligations in good faith. At-will employers have the authority to
terminate employees at any time—for any reason or no reason at
all—and still be acting in good faith. And Groove had no obligation
to retain Mr. Vander Veur as an employee until all of his pending
contracts proceeded to installation. Rather, they had the express and
virtually unlimited authority to terminate him whenever they so
chose.
19 Id. ¶ 43.
20 Young Living, 2011 UT 64, ¶ 10.
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Opinion of the Court
C. Mr. Vander Veur could not have had a justified expectation in receiving
commissions for post-termination commissions
¶15 Finally, we conclude the court of appeals erred because
Mr. Vander Veur could not have had a justified expectation in
receiving payment for post-termination commissions. The covenant
of good faith and fair dealing is also informed by “the agreed
common purpose and the justified expectations of the other party.”21
¶16 Mr. Vander Veur argues that he had a “justified
expectation” in receiving the commissions for the six contracts
installed after his termination. But he could not have had a justified
expectation that he would receive commissions for the sales that had
not yet been installed. As discussed, the plain text of the
compensation agreement states that the commissions are only paid
once installation is complete. Until then, he had no justified
expectation of receiving a commission for those sales. And as an
at-will employee, he and Groove both had “the right to terminate the
employment relationship with or without notice and with or without
cause at any time.” So upon termination, he had a justified
expectation only in unpaid commissions for sales that had already
been installed.
II. The Covenant of Good Faith and Fair Dealing May Have
Application to the Showtime Bonus Agreement, if an
Enforceable Contract Exists
¶17 Mr. Vander Veur also argues he had a justified expectation
in receiving the Showtime bonus. This product was installed prior to
Mr. Vander Veur’s termination, but Groove did not receive the
money until after he was terminated. This bonus was based on an
alleged oral contract, separate from the compensation agreement.
The district court dismissed this claim on summary judgment,
concluding that the parties would not have agreed to award the
bonus after termination, and alternatively, that there was no
enforceable contract. The court of appeals reversed and remanded
for additional proceedings, vacating the district court’s dismissal on
both grounds. We affirm that decision.
¶18 The district court concluded that the parties would not have
agreed to pay Mr. Vander Veur a bonus after he was terminated, and
that an application of the covenant of good faith and fair dealing
here amounted to a “new affirmative obligation on Groove.” In the
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21 St. Benedict’s, 811 P.2d at 200.
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alternative, the district court concluded that “there was no
enforceable contract as to the Showtime bonus” because “there was
never a meeting of the minds regarding a material contract term.”
The court of appeals reversed, concluding that this did not create a
“new affirmative obligation” because Mr. Vander Veur was only
seeking “entitlement to the bonus money based upon purported
rights and obligations created by the bonus agreement itself.”22
Additionally, it vacated the district court’s dismissal on the
alternative ground that there was no enforceable contract.
¶19 It did so because, in the district court’s summary judgment
order, the court “did not discuss the relevant facts and articulate its
reasoning or explain its determination in light of contract law
principles.”23 Because the court of appeals concluded that it was
“unable to discern the legal or the factual basis for the district court’s
dismissal,” it vacated the dismissal on that ground and remanded
for further proceedings.24 We likewise find ourselves unable to
sustain the district court’s dismissal on the basis that there was no
enforceable contract, and so we remand for additional proceedings.
¶20 If, after additional findings, the district court ultimately
concludes that there is no enforceable contract, Mr. Vander Veur’s
claims should be dismissed. We have “consistently rejected the
notion of a free-standing implied covenant of good faith and fair
dealing in the absence of a contract.”25 So if Mr. Vander Veur
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22Vander Veur v. Groove Entm’t Techs., 2018 UT App 148, ¶ 35, 436
P.3d 109.
23Id. ¶ 36. Additionally, this was not Groove’s main argument for
dismissal on summary judgment. It was merely “an aside in its
summary judgment reply memorandum, underdeveloped and
without any meaningful analysis of the relevant facts, pertinent
contract principles, and whether the term at issue—agreement
regarding post-termination payment—was, in fact, a material term
whose absence would be sufficient to render the entire agreement
unenforceable.” Id.24 Id. ¶ 37.
25 Tomlinson v. NCR Corp., 2014 UT 55, ¶ 32, 345 P.3d 523.
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VANDER VEUR v. GROOVE ENTM’T TECH.
Pearce, J., concurring in part and dissenting in part
cannot prove the existence of a contract, “he cannot establish a
violation of the covenant of good faith and fair dealing” regardless
of any expectation he may have had in receiving the bonus.26
¶21 On the other hand, if the district court determines that there
was an enforceable contract, the covenant of good faith and fair
dealing may well have application here. Unlike the commissions
based on the compensation agreement, there is no express
contractual language governing the Showtime bonus. The parties
dispute when payment of that bonus would have been due. And
although the bonus was not governed by the compensation
agreement, that agreement would likely have informed Mr. Vander
Veur’s justified expectations under the covenant of good faith and
fair dealing. Both the commissions and the other bonuses
contemplated by the compensation agreement are payable once
installation occurs. And unlike the commissions contracts, the
Showtime job was installed before Mr. Vander Veur’s termination.
So he may have had a justified expectation that he had already
earned that bonus prior to termination.
Conclusion
¶22 The covenant of good faith and fair dealing may not be
applied to contradict express contractual terms. Here, the court of
appeals’ application is inconsistent with the express terms of the
compensation agreement and with the parties’ course of dealings,
and Mr. Vander Veur had no justified expectation in receiving
post-termination commissions. So we reverse the court of appeals on
that issue. But we affirm the court of appeals’ determination to
vacate the district court’s dismissal of the Showtime bonus claim,
and we remand for additional proceedings on that claim.
JUSTICE PEARCE, concurring in part and dissenting in part:
¶23 All contracts contain an implied covenant of good faith and
fair dealing. The intersection of the implied covenant and the at-will
employment doctrine can be a tricky corner to navigate when it
comes to commission-based compensation agreements. The majority
applies the implied covenant in a manner that, I fear, will practically
eliminate it in that context. Our court of appeals, on the other hand,
crafted a test that appropriately balanced the interests those
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26 Id.10
Cite as: 2019 UT 64Pearce, J., concurring in part and dissenting in part
doctrines were designed to protect. For this reason, I would uphold
the court of appeals’ decision.
¶24 This causes me to concur in part and dissent in part from the
majority opinion. I concur with the majority’s conclusion that the
court of appeals correctly remanded the claim surrounding the
Showtime bonus to the district court for further proceedings. But I
dissent from the decision to reverse the court of appeals and
reinstate the grant of summary judgment on the implied covenant of
good faith and fair dealing claims.
¶25 As the court of appeals noted, “[T]he implied covenant of
good faith and fair dealing inheres in every contract,” including
those “associated with employment.” Vander Veur v. Groove Entm’t
Techs., 2018 UT App 148, ¶ 20, 436 P.3d 109. “Its ‘core function’ is to
impose on parties the duty to perform” their contractual obligations
in good faith, id. ¶ 21, and to “refrain from actions that will
intentionally destroy or injure the other party’s right to receive the
fruits of the contract.” Id. (quoting Young Living Essential Oils v.
Marin, 2011 UT 64, ¶ 9, 266 P.3d 814).
¶26 We have stated that “the parties to a contract are deemed to
intend that the [contract] terms . . . be construed in a manner which
assumes the parties intended that the duties and rights created by
the contract should be performed and exercised in good faith.”
Brehany v. Nordstrom, Inc., 812 P.2d 49, 55 (Utah 1991). In such
agreements, the covenant protects the parties’ expectations, “as no
one would reasonably accede to a contract that left him vulnerable to
another’s opportunistic interference with the contract’s fulfillment.”
See Young Living, 2011 UT 64, ¶ 9. The covenant thus protects parties’
expectations and their “reliance interests.” See id.¶27 The implied covenant of good faith and fair dealing is not,
however, a basis for rewriting contract terms. It is not a tool of
“judicial inference,” id. ¶ 8, a basis for overriding express contractual
provisions, id. ¶ 10, or a source of “new, independent rights or
duties,” Brehany, 812 P.2d at 55. In other words, the covenant cannot
be invoked “on the mere basis of a judge’s subjective sense of
justice.” Young Living, 2011 UT 64, ¶ 9 (citation omitted) (internal
quotation marks omitted). And consistent with that role, the
covenant “cannot be construed to change an indefinite-term, at-will
employment contract into a contract that requires an employer to
have good cause to justify a discharge.” Brehany, 812 P.2d at 55.
¶28 These standards and limitations align our inquiry with its
overarching purpose—to protect the parties’ expectations based on
the provisions to which they agreed, without interjecting “a code of
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VANDER VEUR v. GROOVE ENTM’T TECHS.
Pearce, J., concurring in part and dissenting in part
commercial morality” that reflects nothing more than “judicial
sensibilities.” Young Living, 2011 UT 64, ¶ 10. Accordingly, Utah law
carves out a “limited” but “significant” role for the implied
covenant. Id. ¶¶ 8, 9. Used profligately, it can create commercial
uncertainty and breed costly litigation. See id. ¶ 8. Without it, as
noted above, reasonable expectations may be undercut by
opportunistic activities denying a party the “right to receive the
fruits of the contract.” Id. ¶ 9 (citation omitted) (internal quotation
marks omitted).
¶29 For guidance in the covenant’s application, as with any
other question of contract interpretation, we look to the terms of the
contract to gauge the parties’ intent. What might appear to be a bad
faith attempt to deny the fruits of a contract in one context may be an
anticipated and authorized course of conduct in another. To
determine whether the implied covenant would uphold, rather than
destroy, the parties’ expectations, we examine how closely the
parties’ contract speaks to the issue. The greater the parties’
specificity, the less space there is for the implied covenant to fill.
“[T]he degree to which a party to a contract may invoke the
protections of the covenant turns on the extent to which the
contracting parties have defined their expectations and imposed
limitations on contract terms.” Eggett v. Wasatch Energy Corp.,
2004 UT 28, ¶ 16, 94 P.3d 193 (citation omitted).
¶30 Thus, “[b]roadly speaking, the more leeway a party has
under the terms of the contract, the more contracting parties may
invoke the protections of the covenant of good faith and fair dealing
in the exercise of that discretion.” Id. If contract language leaves
enough discretion to permit opportunistic dismantling of the other
party’s ability to receive the benefit of its bargain, the implied
covenant may step in to protect that party’s reasonable expectations.
See id. ¶ 17 (concluding that the jury could find a breach of contract if
a party calculated “book value in accordance with GAAP,” as the
agreement required, but employed its discretion in that regard in a
manner inconsistent with its good-faith obligation under the implied
covenant).
¶31 Reciting many of these principles, the court of appeals
considered the role of the implied covenant with respect to the
commission-based compensation agreement in the context of Vander
Veur’s at-will employment. The court of appeals correctly concluded
that, under Utah law, breach of the implied covenant is an available
“cause of action to protect justified expectations arising from
agreements attendant to an at-will employment relationship.”
Vander Veur, 2018 UT App 148, ¶ 23. And while the implied
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Cite as: 2019 UT 64Pearce, J., concurring in part and dissenting in part
covenant gives an employee “no right to continued tenure under an
at-will employment relationship,” it may protect an at-will
employee’s contractual interests with respect to benefits promised
“under an attendant compensation agreement.” Id. ¶ 25.
¶32 The court of appeals also concluded that to prevail on such a
claim, an at-will employee would have to demonstrate that “(1) his
or her employment was terminated in bad faith to deprive him or
her of benefits under a compensation agreement and (2) he or she
does, in fact, have a justified expectation for receiving the benefits to
which entitlement is claimed.” Id. ¶ 26. “Thus, while an employer
may terminate the at-will employment relationship at any time and
for any reason, the employer may not deprive an employee of
commissions” she otherwise “would have received under the terms
of the compensation agreement for work already performed by
terminating the employee in bad faith to avoid paying those
commissions or benefits.” Id. ¶ 29. On that basis, the court of appeals
vacated the grant of summary judgment on Vander Veur’s implied
covenant claims and remanded for further proceedings. Id. ¶ 33. I
agree with the court of appeals.
¶33 The parties’ compensation agreement speaks only loosely to
the relevant question: how Vander Veur’s compensation agreement
interacts with his status as an at-will employee. The agreement does
not expressly indicate that Groove can exercise its discretion in a
fashion that would prevent Vander Veur from receiving
commissions. When parties have memorialized their expectations,
we are in no position to second-guess their arrangement and use the
implied covenant to recraft the bargain. But absent a contract term
indicating that an employee agreed to work under a compensation
agreement that allowed the employer to exercise its discretion and
terminate solely to prevent that employee from receiving
compensation, I would conclude that the implied covenant requires
Groove to exercise its contractual rights in good faith.
¶34 Vander Veur signed a number of “Employee Handbook
Acknowledgments” in which he affirmed that he was an at-will
employee. Vander Veur also signed a compensation agreement
providing that he would be paid commissions on “Qualifying
Sale[s]” and defining a “Qualifying Sale” as one where “the
installation is complete.” The compensation agreement also
provided that it would “remain in effect as long as [Vander Veur]
[was] employed by Groove.”
¶35 The majority stiches these provisions together to conclude
that Groove had the right to terminate Vander Veur for the sole
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VANDER VEUR v. GROOVE ENTM’T TECHS.
Pearce, J., concurring in part and dissenting in part
purpose of denying him commissions on sales he procured but for
which the installation had not been completed. To reach this
conclusion, the majority first holds that Vander Veur has no cause of
action because the implied covenant of good faith and fair dealing
would contradict the express terms of the compensation agreement.
Supra ¶ 12.
¶36 I don’t understand the amalgam of those provisions to be
the type of “express” provision to which the implied covenant of
good faith and fair dealing cannot adhere.
¶37 To be clear, I agree with the majority that the “Employee
Handbook Acknowledgments” address the at-will nature of Vander
Veur’s employment, supra ¶ 2; that “[b]y the express language of the
compensation agreement, . . . Vander Veur could only be paid for
contracts that had been installed,” supra ¶ 12; and that the
compensation agreement remained “in effect” as long as Vander
Veur was employed by Groove, supra ¶ 11. And I can understand
why the majority weaves those provisions together to conclude that
Vander Veur was “not . . . entitled to compensation for contracts that
proceeded to installation after his termination” because “the
compensation agreement [would] no longer [be] in effect.”
Supra ¶ 12.
¶38 But this conclusion simply defines the scope of the parties’
obligations. It does not speak to whether Groove could avoid its
obligations by terminating Vander Veur for the sole purpose of
preventing him from collecting commissions. In other words, the
provisions the majority relies upon neither authorize nor limit
Groove’s discretion to fire Vander Veur to deprive him of
compensation under the agreement.
¶39 Instead of asking whether these provisions speak to whether
Groove may terminate Vander Veur to avoid paying him
commissions, the majority asks a different question: whether the
compensation agreement requires Groove to pay post-termination
commissions. Supra ¶ 12. That, however, is not the relevant inquiry.
The space the implied covenant fills is on the issue of good faith—
that is, whether Groove must exercise its obligations in good faith.
¶40 This distinction matters because it speaks to the difference
between obligations under a contract, and the remedy for breach of a
contract. Vander Veur doesn’t allege that Groove violated the
implied covenant by failing to pay him post-termination
commissions. Vander Veur contends that Groove breached the
implied covenant by firing him so that it did not have to pay him
commissions on sales he procured. And he asks for an award of
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Cite as: 2019 UT 64Pearce, J., concurring in part and dissenting in part
damages flowing from that alleged breach in the form of the
commissions he would have received had Groove not terminated
him.
¶41 The majority sees this as contradicting the contract the
parties signed, but remedies may often appear to conflict with
express contractual terms. For example, if a contract requires the sale
of a piece of art, but the seller refuses to transfer the painting, the
seller may have to pay money damages to the buyer. And, of course,
that may be contrary to terms of the contract. After all, nothing in the
contract may have contemplated that the seller would pay anything
to the buyer. By ordering an award of money damages, a court is not
rewriting the parties’ contract; it is fashioning a remedy to
compensate the non-breaching party. By defining the question as it
does, the majority never engages with the court of appeals’ analysis
of the intersection between Vander Veur’s compensation agreement
and his status as an at-will employee. And the majority’s framing
guts the covenant’s application. The “fruits” of a commission
agreement are the employee’s commissions. If the contractual
provisions at issue here preclude an employee from arguing that the
implied covenant has no application when it acts to prevent the
employee from obtaining the fruits of his bargain, the implied
covenant of good faith and fair dealing becomes a hollow doctrine.27
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27 We have sometimes spoken in terms of the implied covenant as
imposing a term “to perform in the good faith manner that the
parties surely would have agreed to if they had foreseen and
addressed the circumstance giving rise to their dispute.” See, e.g.,
Young Living, 2011 UT 64, ¶ 8. This language functions better as a
rhetorical device than as a legal test. Here, for example, we don’t
have the evidence we would need to answer that question. That is,
we don’t know whether, had Groove asked, Vander Veur would
have agreed to a provision that stated Groove could terminate him
solely to avoid paying commissions on sales he had procured.
The answer to what the parties “surely” would have agreed to
might be found in information not before the district court, such as
the ease with which Groove could hire sales personnel, Vander
Veur’s perceived value to Groove, and the number of job offers, if
any, that Vander Veur had at the time. Without a sense of that, it
seems difficult to predict what the parties would have done. And a
legal test that requires proof of what would “surely” have happened
before we recognize a duty to act in good faith has the power to all
but eliminate the implied covenant from our jurisprudence. For this
(Continued)
15
VANDER VEUR v. GROOVE ENTM’T TECHS.
Pearce, J., concurring in part and dissenting in part
¶42 Indeed, it is not hard to imagine ways in which a bootless
implied covenant would permit an employer to engage in unchecked
mischief. For example, under the majority’s reasoning, a homeowner
could hire a neighborhood teen to mow his lawn. He could tell the
teen that he would pay her $30 for the job as long as she understood:
(1) she wouldn’t be paid until she mowed the entire lawn; and (2) he
could terminate her at any time. The homeowner could then stand
on the lawn to watch her work, wait until she pushed the mower
towards the grass on which he was standing, and then terminate her
just as she approached that final patch of grass. When she asked for
her $30, arguing that she should be paid since she had mowed the
entire lawn except for the ground under the homeowner’s feet, and
would have mowed that if he had not stopped her, the homeowner
could tell her that he didn’t have to pay her because he could
terminate her at any time and that her right to get paid was
conditioned on her mowing the entire lawn. And if he was feeling
generous, the homeowner might advise her that next time she
should bargain for better protections before agreeing to mow
someone’s lawn.28
¶43 Similarly, a summer sales employer could offer a longevity
bonus for any employee who works for the company through
August 31, and then terminate all employees at 11:59 p.m. on August
30 simply to avoid paying the bonus. Or a company could terminate
an employee the day before her stock options vest just to prevent her
from obtaining an ownership interest in the enterprise. The implied
covenant exists to provide a remedy for those who find themselves
improperly deprived of the benefits flowing from the contracts they
reason, I believe that language is best understood as an illustrative
principle of how we apply the implied covenant—we won’t infer a
term that the parties would never have agreed to—rather than a test
to determine whether the covenant should apply at all.
28 This highlights another important function of the implied
covenant of good faith and fair dealing—it promotes efficiency. If a
party cannot rely on the implied covenant to protect the justified
expectations about how the parties will perform their contractual
duties, parties will have to be more explicit in their contracts. In
negotiations, parties will have to try and anticipate and allocate risks
for the myriad ways in which a party might act in bad faith to deny
the other the benefit of the contract. This will lead to protracted
negotiations, more cumbersome contracts, and increased transaction
costs.
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Cite as: 2019 UT 64Pearce, J., concurring in part and dissenting in part
enter and perform in good faith. We should apply the doctrine in a
fashion that protects those justified expectations.
¶44 For similar reasons, I disagree with the majority’s alternative
conclusion that the parties’ course of dealings demonstrates that they
would not have agreed to payment of post-termination commissions.
Supra ¶ 14. The majority opines that “Groove’s course of dealings
demonstrates that it never pays out post-termination commissions.”
Supra ¶ 14. For the reasons just discussed, that is not the proper
question. The relevant inquiry centers on how the parties expected
Groove would use its unilateral power to terminate Vander Veur’s
employment.29 Nothing in the record before us suggests that the
parties’ course of dealing would answer that question.
¶45 Thus, unlike the majority, I would not conclude that the
parties defined their expectations of how Vander Veur’s at-will
employment would interact with the compensation agreement in a
way that would bar application of the implied covenant. I do not see
an express contractual provision that the implied covenant would
overwrite.
¶46 And in the absence of defined expectations, I would
conclude that the implied covenant gives Vander Veur the
opportunity to try and prove that Groove terminated him in bad
faith for the purpose of denying him commissions on sales he had
procured. Or, in other words, that Groove terminated him to destroy
his ability to enjoy the fruits of the compensation agreement.
¶47 The court of appeals designed a test that would have
permitted Vander Veur to attempt to show that genuine issues of
material fact existed with respect to that question. I would affirm
that holding and remand to permit the district court to assess
whether Vander Veur could point to evidence sufficient to meet his
summary judgment burden.
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29 This also disposes of the majority’s contention that Vander
Veur had no justified expectation of receiving post-termination
commissions. Vander Veur’s expectation was not that Groove would
pay him commissions after he was no longer employed. For
example, Vander Veur does not argue the contract entitled him to
commissions if he voluntarily left before the jobs were installed.
Vander Veur argues that he justifiably expected that Groove would
not terminate him simply to keep him from receiving commissions
on work in the pipeline.
17