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Veur v. Groove Entertainment Technologies

Supreme Court of Utah

October 29, 2019

Mike Vander Veur, Respondent,
v.
Groove Entertainment Technologies, Petitioner.

          Heard May 13, 2019

         On Certiorari to the Utah Court of Appeals

          Third District, Salt Lake The Honorable Vernice S. Trease No. 130908551

         Attorneys:

          Nan T. Bassett, Jurhee A. Rice, Salt Lake City, for respondent

          David C. Reymann, Cheylynn Hayman, Salt Lake City, for petitioner

          Chief Justice Durrant authored the opinion of the Court, in which Associate Chief Justice Lee and Justice Petersen joined.

          OPINION

          Durrant, Chief Justice

         Introduction

         ¶1 Mike Vander Veur claims that his employer, Groove Entertainment Technologies (Groove), fired him in an effort to avoid payment of commissions. Mr. Vander Veur had secured six sales contracts prior to his termination that later proceeded to installation. Groove never compensated him for those contracts. He filed suit claiming that, although he was an at-will employee, his termination violated the implied covenant of good faith and fair dealing in his compensation agreement with Groove. The district court dismissed his claims, concluding that the covenant could not be applied in this context. The court of appeals reversed, holding that the covenant could be invoked to prevent employers from using at-will termination to avoid obligations under a compensation agreement. Because we find that this application of the covenant is improper, we reverse.

         Background

         ¶2 Groove Entertainment Technologies provides television services to large-scale customers, like hotels. In September 2010, Groove hired Mike Vander Veur as a sales representative for Groove, and he was responsible for securing new contracts for television services. In October 2012, Mr. Vander Veur and Groove entered into a compensation agreement, which provided that it would "remain in effect as long as [Mr. Vander Veur] is employed by Groove." The agreement stated that Groove would pay Mr. Vander Veur "a commission for each Qualifying Sale deemed commissionable as defined in this Agreement." It defined "Qualifying Sale" as "a commissionable sale where the minimum margin requirements are met and the installation is complete." The agreement also provided that he would receive bi-weekly draws on his commissions and that once commissions were earned, the draws would be deducted and he would be "paid the balance of the commission." Mr. Vander Veur also signed an employee handbook in 2010, 2011, and 2013, in which he acknowledged that he was an at-will employee who could be terminated "with or without notice and with or without cause at any time."

         ¶3 Groove terminated Mr. Vander Veur in June 2013. Prior to his termination, he claims he had obtained written or verbal commitments for six commissionable sales. None of those six sales had proceeded to installation of the product prior to his termination, but all six installations were completed within three months of his termination.

         ¶4 Also, in the spring of 2013, Mr. Vander Veur was working with Groove's president and a lead sales representative on a sales contract with the Grand America, for which they expected to receive a large bonus (Showtime bonus) in lieu of their typical fee. Mr. Vander Veur claims that the three of them verbally agreed to split the Showtime bonus, after paying out $1, 000 to another employee involved in the sale. This bonus was not contemplated in the compensation agreement, but rather constitutes a separate alleged oral contract. That job was installed before his June 2013 termination, but Groove did not receive the Showtime bonus money until July 2013. Groove did not pay him for this bonus either.

         ¶5 Mr. Vander Veur filed suit against Groove, alleging it had breached the implied covenant of good faith and fair dealing by terminating him to avoid paying the six commissions and the Showtime bonus.[1] The district court granted summary judgment to Groove on all issues and dismissed Mr. Vander Veur's claims with prejudice. He appealed to the court of appeals, which held, as a matter of first impression, that the implied covenant of good faith and fair dealing "may be employed in limited circumstances to protect an at-will employee's right to receive compensation for work performed pursuant to a compensation agreement attendant to the at-will employment relationship."[2] Groove then petitioned this court for certiorari, which we granted.

         ¶6 We have jurisdiction pursuant to Utah Code section 78A-3-102(3)(a).

         Issue and Standard of Review

         ¶7 We must determine whether the implied covenant of good faith and fair dealing prohibits an employer from terminating an employee for the purpose of avoiding payment of commissions. On certiorari, we review "the court of appeals' decision for correctness, without according any deference to its analysis."[3] We review a district court's "grant or denial of summary judgment for correctness and view[] the facts and all reasonable inferences drawn therefrom in the light most favorable to the nonmoving party."[4]

         Analysis

         ¶8 Mr. Vander Veur claims that Groove terminated him to avoid payment of commissions under his compensation agreement and a bonus, which he alleges violates the implied covenant of good faith and fair dealing. Groove argues that application of the covenant of good faith in this case contradicts the express contractual language of the compensation agreement and that the parties would not have agreed to the terms Mr. Vander Veur seeks. We agree that the covenant contradicts the language of the compensation agreement. Accordingly, we reverse on that issue. But we conclude that the district court's dismissal of Mr. Vander Veur's Showtime bonus claim was not supported by a sufficient legal or factual basis. So we affirm the court of appeals on that issue, and remand for additional proceedings.

         I. Mr. Vander Veur Is Not Entitled to Post-Termination Commissions

         ¶9 Mr. Vander Veur was an at-will employee, meaning that "either the employer or the employee may terminate the employment for any reason (or no reason) except where prohibited by law."[5] But he and Groove had also entered into a compensation agreement contract. And all contracts contain a covenant of good faith and fair dealing, including employment contracts.[6] The covenant operates by "inferring as a term of every contract a duty to perform in the good faith manner that the parties surely would have agreed to if they had foreseen and addressed the circumstance giving rise to their dispute."[7] In other words, "each party impliedly promises that he will not intentionally or purposely do anything which will destroy or injure the other party's right to receive the fruits of the contract."[8]

         ¶10 Although "a covenant of good faith and fair dealing inheres in almost every contract, some general principles limit the scope of the covenant."[9] The covenant "cannot be read to establish new, independent rights or duties to which the parties did not agree" at the outset.[10] It "cannot create rights and duties inconsistent with express contractual terms"[11] or "compel a contractual party to exercise a contractual right 'to its own detriment for the purpose of benefitting another party to the contract.'"[12] It "cannot be construed to change an indefinite-term, at-will employment contract into a contract that requires an employer to have good cause to justify a discharge."[13] And we "will not use this covenant to achieve an outcome in harmony with the court's sense of justice but inconsistent with the express terms of the applicable contract."[14] Applying these principles in this case, we conclude that the court of appeals erred for three reasons.

         A. Application of the covenant of good faith and fair dealing here would contradict the express terms of the compensation agreement

         ¶11 First, we conclude that the court of appeals erred because its decision contradicted an express term of the compensation agreement. The covenant of good faith and fair dealing provides that all parties to a contract will perform their obligations "in the good faith manner that the parties surely would have agreed to if they had foreseen and addressed the circumstance giving rise to their dispute."[15] But where, as here, the "parties themselves have agreed to terms that address the circumstance that gave rise to their dispute, by contrast, the court has no business injecting its own sense of what amounts to 'fair dealing.'"[16] Mr. Vander Veur and Groove entered into an express contract-the compensation agreement. That agreement stated that it would "remain in effect as long as [Mr. Vander Veur] [wa]s employed by Groove." It provided that Groove would pay Mr. Vander Veur "a commission for each Qualifying Sale deemed commissionable as defined in this Agreement." And it defined "Qualifying Sale" as "a commissionable sale where the minimum margin requirements are met and the installation is complete."

         ¶12 By the express language of the compensation agreement, Mr. Vander Veur could only be paid for contracts that had been installed, and he was only entitled to compensation while he remained employed. He could not, therefore, have been entitled to compensation for contracts that proceeded to installation after his termination, because after termination, the compensation agreement was no longer in effect. In fact, Mr. Vander Veur concedes that, under the language of the contract, he "had to be employed at the time of installation to receive commissions." So the parties did "foresee[] the circumstance giving rise to their dispute" and agreed that commissions would only be paid post-installation and only while the employee remained employed.[17] Applying the covenant of good faith and fair dealing to require Groove to pay Mr. Vander Veur post-termination commissions is "inconsistent with the express terms of the [compensation agreement]."[18]

         B. The parties' course of dealings and conduct demonstrate that they would not have agreed to payment of post-termination commissions

         ¶13 Second, we conclude the court of appeals erred because, even were we to assume that the compensation agreement does not expressly address the situation presented in this case, we cannot say that the parties would have agreed to the contractual term Mr. Vander Veur would have us read into the agreement. Under the covenant of good faith and fair dealing, we look to the "parties' course of dealings or conduct" to determine a party's legal duty.[19] And we may only impose such duties when, based on that course of conduct, it is clear that they "undoubtedly would have agreed to the [duty] if they had considered and addressed it."[20]

         ¶14 Groove's course of dealings demonstrates that it never pays out post-termination commissions. Rather, it has a different sales representative take over the contract for the terminated employee, and that replacement representative generally receives the commission for the sale. So based on the parties' course of ...


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