On August 3, 1998, the Maine Law Court decided the case of Niedojadlo v. Central Main Moving & Storage Co., 1998 ME 199, and reaffirmed that there is no "implied covenant of objective good faith" in an ordinary employment contract governed by Maine law.

     In the Niedojadlo case an employee was employed as a transport driver and paid commissions on completed transport hauls for the company's customers. The company maintained a "running account" showing commissions earned by and compensation paid to the employee. After the company changed the employee's account, a dispute arose between the company and the employee concerning the balance in the employee's account. The employee sued the company for breach of contract and fraud. The employee claimed that the company had intentionally and fraudulently understated the balance in the employee's account in order to underpay the employee. The case was tried to a jury, which found in favor of the employee and awarded both compensatory and punitive damages against the company.

     The issue on appeal to the Law Court concerned the trial judge's instruction to the jury about an implied duty of objective good faith in the parties' employment contract. The Law Court held that although under Maine law such an implied duty of good faith was found in commercial contracts governed by the Uniform Commercial Code and in insurance contracts, such an implied duty of good faith was not and is not part of ordinary employment contracts. In other words, under Maine law, an employee may not sue an employer for a breach of the implied duty of good faith.

     Of course, an employee and an employer may agree to a good faith clause in an employment agreement. They may agree to define good faith in a manner similar to the UCC definition, such as "objective good faith requiring honesty in fact and the observance of reasonable commercial standards of fair dealing." However, any such "good faith" term would be an express term of the employment contract, not an implied term.

COMMENT: This case breaks no new ground, but it shows (1) that Maine continues to be a strong employment-at-will state which does not imply restrictive terms into employment contracts, and (2) that commission arrangements, which frequently are the basis of employer-employee litigation, must be clearly documented and fairly administered by employers.

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Dated: February, 2000
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