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An implied obligation of good faith is applicable to those aspects of the employer-employee relationship which are governed by some contractual terms, regardless whether the employment relationship is characterized generally as being "at will." As to such aspects of an employment relationship that are governed by contract, there can be no doubt that they are subject to the implied covenants of good faith and fair dealing extant in all contracts.
Charles Nolan, a salesman, sought damages from defendant employer, Control Data Corporation (CDC), a computer company, for alleged breach of contract and tortious conduct on the grounds CDC increased Nolan’s sales quota in bad faith to reduce Nolan’s income. CDC counterclaimed for an advance paid to Nolan against prospective sales commissions. The trial court dismissed the action and counterclaim finding that Nolan’s only recourse was resignation and subsequently amended the judgment to provide Nolan recovery of compensation and vacation pay retained by CDC as a set-off against their counterclaim. Nolan and CDC appealed.
Was CDC's retroactive manipulation of Nolan's 1983 and 1984 sales quotas required to be exercised in good faith?
The court remanded for the trial court to reconsider the issue of compensation. The court held that CDC’s absolute and unfettered power under the written agreement to alter sales quotas and thereby compensation rates was required to be exercised in good faith and for legitimate business reasons so as not to deprive Nolan of the fairly agreed benefits of his labors. The court reversed and remanded for entry of judgment in favor of CDC on its counterclaim in the amount advanced to Nolan against prospective sales commissions plus costs.