How have courts interpreted the implied covenant of good faith and fair dealing in the context of termination rights?

MultiRegion, United States of America

The following excerpt is from Erhart v. Bofi Holding, Inc., 269 F.Supp.3d 1059 (S.D. Cal. 2017):

In the employment context, these limitations on the implied covenant of good faith and fair dealing mean that the covenant "cannot supply limitations on termination rights to which the parties have not actually agreed." Guz v. Bechtel Nat'l, Inc. , 24 Cal.4th 317, 342, 100 Cal.Rptr.2d 352, 8 P.3d 1089 (2000). "[California] Labor Code section 2922 establishes the presumption that an employer may terminate its employees at will, for any or no reason. A fortiori, the employer may act peremptorily, arbitrarily, or inconsistently, without providing specific protections such as prior warning, fair procedures, objective evaluation, or preferential reassignment." Id. at 350, 100 Cal.Rptr.2d 352, 8 P.3d 1089. "Precisely because employment at will allows the employer freedom to terminate the relationship as it chooses, the employer does not frustrate the employee's contractual rights [in violation of the covenant of good faith and fair dealing] merely by doing so." See id. (emphasis omitted).

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