Under employment law, the Wisconsin covenant of good faith and fair dealing is a principle that implies that parties to a contract will act honestly and fairly, ensuring neither undermines the other’s ability to benefit from the agreement.
Wisconsin At-Will Employment
To understand the covenant’s role, it is important to understand that employment in Wisconsin is “at-will”, which means that absent a contract stating otherwise, employers can terminate employees for any reason, or no reason at all, as long as it’s not illegal (e.g., discrimination or retaliation). Employees, likewise, can quit at any time. This flexibility gives employers significant leeway, but it also raises questions about fairness when disputes arise.
Applying the Covenant of Good Faith and Fair Dealing to At-Will Employment
Wisconsin courts recognize the covenant of good faith and fair dealing as an implied term in contracts generally, rooted in the idea that parties should honor the spirit—not just the letter—of their agreements. However, an employer can fire an at-will employee for arbitrary or even unfair reasons without breaching this covenant, as long as the termination doesn’t violate other laws or specific contract terms.
When Does the Covenant Apply?
The covenant of good faith and fair dealing comes into play in Wisconsin employment contracts when an employer and employee have a written or oral agreement that goes beyond at-will status such as a contract for a fixed term of employment or one promising specific benefits. In these cases, the covenant ensures that neither party sabotages the other’s ability to reap the agreed-upon rewards.
For example, imagine an employee with a one-year contract that includes a year-end bonus for meeting sales targets. If the employer fires the employee without cause right before the bonus is due, a court might scrutinize whether the termination breached good faith by depriving the employee of a benefit earned. However, the employee would need to show that the contract itself – not just fairness -entitled them to the bonus. Without clear contractual language, Wisconsin courts are unlikely to step in.
The covenant also applies to how contract terms are carried out. If an employer has discretion under a contract – such as deciding whether an employee’s performance merits a raise – that discretion must be exercised honestly and reasonably, not in a way that deliberately undermines the employee’s rights. An example might include an employer sabotaging an employee by setting impossible expectations or denying resources needed to do a job as a pretext to termination or to avoid paying agreed upon benefits.
Limits and Exceptions to Good Faith and Fair Dealing
Even with an explicit contract, a covenant is not a catch-all for every grievance. Wisconsin courts have stressed that it doesn’t create new obligations beyond what’s agreed upon. Good faith doesn’t override an employer’s contractual right to terminate, nor does it impose a duty to be nice. This means an employer can act in ways that feel unfair – like firing someone abruptly – without legal consequences, as long as they stay within the contract’s terms and other laws.
**Exceptions to at-will discretion that fall outside the good-faith umbrella include public policy exceptions that protects employees from being fired or otherwise retaliated against for reasons that violate fundamental societal values such as refusing to break the law or reporting workplace safety issues as well as violations of law regarding discrimination. These carve-outs exist independent of the covenant and rely on specific statutes or judicial precedents, not an implied duty of fairness.
Contact an Experienced Employment Law Attorney
Working with an experienced employment law attorney is crucial whether you are considering new employment and want to make sure your contract is iron clad, or when you are terminated or denied benefits in breach of an existing contract. Contact the employment law offices of Alan C. Olson & Associates for immediate assistance at 262-785-9606.
