An Employment Contract 'Instinct with an Obligation': Good Faith Costs and Context

Abstract

This article arises from a symposium sponsored by Pace University School of Law celebrating the ninetieth anniversary of the famous decision of Wood v. Lucy, Lady Duff-Gordon, 118 N.E. 214, 214 (N.Y. 1917). This case, amongst other advances, popularizes a particular notion of good faith in contracts as an "instinct with an obligation". This article examines the implications of the good faith doctrine as borne from the Wood decision in the employment context. Three challenges exist to the orderly development of the good faith doctrine in employment law. First, the meaning of good faith remains far from certain. Courts have intermingled good faith with other employment doctrines thereby hindering its widespread acceptance. Second, the good faith covenant in employment lacks mutuality. Usually bilateral in the contractual context, the covenant remains an obligation that usually runs only from the employer to the employee. The questions of whether the covenant should obligate employers and what the consequences of such an obligation could be remain unaddressed. Finally, and perhaps most interestingly, there is a limited understanding of the costs of the good faith duty. The emerging empirical work studying the effects of wrongful discharge law, of which the duty of good faith is a part, reveals potential economic costs of this important doctrine articulated by Judge Cardozo ninety years ago.