On August 9, 2018, the Utah Court of Appeals held in Vander Veur v. Groove Entertainment Technologies (2018 UT App 148) that “breach of the implied covenant of good faith and fair dealing may be asserted for the limited purpose of protecting from opportunistic interference an employee’s justified expectations in receiving the fruits of a compensation agreement attendant to the at-will employment relationship after that relationship has been terminated.” ¶ 26. Under this holding, employers need to be wary of how and when they terminate an employee – even an at-will employee – who has a compensation agreement.
Vander Veur was employed by Groove to sell television services to hotels and other large buyers on a commission basis. Under his compensation agreement, his entitlement to commissions accrued when the television services were installed at a customer’s location. In 2013, Vander Veur arranged for the sale of television services to six commercial customers. However, before any installations took place, Groove terminated Vander Veur and refused to provide any portion of the commissions to which he would have been entitled if he had been employed when the installations occurred.
Vander Veur sued Groove on several grounds, including for breach of the implied covenant of good faith and fair dealing. The district court granted summary judgment to Groove on this claim because Groove had specifically limited his compensation entitlement to accounts that were installed during his employment. The Court of Appeals reversed, reasoning that the implied covenant of good faith and fair dealing “protect[s] an employee’s justified expectations under attendant compensation agreements from an employer’s bad faith attempt – often through terminating the employment relationship – to avoid paying compensation to the employee for work performed.” ¶ 29.
The Court made clear that an employer may legally “terminate an employment relationship to relieve itself of the obligation to continue paying compensation and benefits to an employee for the employee’s continued [i.e. future] performance.” ¶ 22. The implied covenant of good faith and fair dealing protects employees only from forfeiting compensation for which they have already performed work. See ¶ 18 (referring to “protect[ing] an at-will employee’s right to receive compensation for work performed pursuant to a compensation agreement” (emphasis added)). An at-will employee does not have a reasonable expectation in compensation that has not yet been earned or a reasonable expectation in continued employment. An issue arises when the employee has performed services and the employer terminates the employee opportunistically, using the language of the compensation agreement, to prevent the employee from receiving compensation for the services already performed.
Given the Court’s ruling in Vander Veur, below are some practical tips for employers whose employees are compensated under a written compensation agreement:
1. Review existing compensation agreements in light of the Court’s Vander Veur ruling to determine whether amendments should be made to agreements.
2. Avoid terminating employees shortly before the employee would become entitled to compensation and/or benefits under a compensation agreement.
3. If you do terminate an employee shortly before the employee becomes entitled to a compensation and/or benefits, the basis for the termination should be well documented. Also, consider paying the employee some or all of the compensation or benefits, in exchange for a release of claims.
If you have questions about this Court of Appeals opinion or any other employment law matter, please contact Shaunda L. McNeill at slm@clydesnow.com or any of the attorneys in Clyde Snow’s Labor & Employment Group at 801.322.2516.