$500,000 Bonus Not Obtainable Via Implied Covenant of Good Faith & Fair Dealing

In Woodard v. Reliance Worldwide Corp. (2d Cir. Sept. 3, 2020) (Summary Order), the court affirmed the dismissal of plaintiff’s claim for breach of an employment contract and the alleged entitlement to a $500,000 bonus.

Here are the facts, as summarized by the court:

Woodard’s employment with John Guest USA was governed by an executive agreement that guaranteed a $500,000 bonus if John Guest USA was acquired by another entity and Woodard was fired without cause within seven days after the acquisition’s closing. In June 2018, Reliance closed on its acquisition of John Guest USA and fired Woodard without cause twenty nine days later. Woodard alleges that Reliance breached the implied covenant of good faith and fair dealing because it had already decided to fire him before the expiration of the seven-day timeframe but ultimately delayed Woodard’s termination in order to avoid paying the bonus.

In rejecting plaintiff’s argument, the court explained the implied covenant of good faith and fair dealing in New York contract law, and applied it to the facts:

“Implicit in every contract” under New York law “is a covenant of good faith and fair dealing.” See Spinelli v. Nat’l Football League, 903 F.3d 185, 205 (2d Cir. 2018). The implied covenant precludes one of the contracting parties from taking any action that will destroy the rights of the other party to receive the benefit of the bargain. Id. However, the covenant “only impose[s] an obligation consistent with other mutually agreed upon terms in the contract. It does not add [] to the contract a substantive provision not included by the parties.” Broder v. Cablevision Sys. Corp., 418 F.3d 187, 198-99 (2d Cir. 2005) (internal quotation marks and citations omitted).

We agree with the district court that Woodard has failed to assert a colorable claim. The provision at issue concerns the timing of Woodard’s termination in the event of an acquisition, not the timing of the decision to terminate him. Woodard, a sophisticated business executive, bargained for special financial protection for the seven-day window following an acquisition. But under Woodard’s theory, Reliance might be liable even if it waited years, rather than days or weeks, to fire him. Allowing Woodard’s implied covenant claim to go forward would undo the contract’s terms and create an independent contractual right that was never negotiated by the parties.

Furthermore, the implied covenant “does not extend so far as to undermine a party’s general right to act on its own interests in a way that may incidentally lessen the other party’s anticipated fruits from the contract.” M/A-COM Sec. Corp. v. Galesi, 904 F.2d 134, 136 (2d Cir. 1990) (internal quotation marks and citation omitted). Thus, even assuming that Reliance purposefully waited to avoid having to pay Woodard the bonus, that conduct alone does not constitute a breach of the implied covenant in these circumstances.

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