Jettisoning the Normative Value of the Implied Duty of Good Faith

One of the Restatement (Second) of Contract’s most significant contributions to the area of contract law is its formulation of the implied duty of good faith and fair dealing. Under the Contract Restatement’s formulation of the implied duty, which is widely used by courts, parties must, as a normative matter, affirmatively perform a contract in a way that is faithful to the parties’ common purpose and in line with their respective justified expectations. That means each party must act honestly, reasonably, and fairly, though this normative standard of conduct is described quite capaciously in the Contract Restatement. The Contract Restatement also broadly describes how a contracting party acts in bad faith, thereby breaching the implied duty. It also includes many examples of bad faith conduct from cases. With this guidance, contracting parties can determine up front how to perform their contractual obligations in line with the implied duty’s normative standard of conduct and standard of liability. The American Law Institute’s most recent Restatement—the Restatement of Employment Law—also addresses the implied duty of good faith and fair dealing, though only with respect to employment contracts. However, it does so in a way that is at odds with the Contract Restatement. Importantly, the Employment Law Restatement does not describe any normative standard of conduct for employers and employees. This failure suggests there is no normative expectation that parties to an employment contract act honestly, reasonably, and fairly in performing their contractual obligations. Of course, given the power imbalance present in most employment relationships in favor of the employer, the absence of such a normative standard could harm employees. The Employment Law Restatement also presents the standard of liability for the implied duty in a way that suggests it only applies to limited contractual employment terms, and only captures a limited range of bad faith conduct. Such a narrowing of the standard of liability could also harm employees, who might not have a claim, or might not know they have a claim, for breach of the implied duty where they are treated dishonestly, unfairly, or unreasonably. To cure these defects, this article proposes changes to the Employment Law Restatement’s formulation of the implied duty to make it more closely track the approach taken in the Contract Restatement.