James Willard v. Khotol Services Corporation

After being fired for alleged insubordination and violating workplace rules,
James Willard sued his former employer, Khotol Services Corporation, for wrongful
discharge, breach of employment contract, and breach of the implied covenant of good
faith and fair dealing. The superior court dismissed Willard's original claims for breach
of contract and implied-covenant claims on grounds of preemption by federal labor law.
Willard filed an amended complaint that restated these claims in an effort to avoid the
preemption problem; the amended complaint also added new claims based on
misrepresentation and false representation. The superior court then granted summary
judgment to Khotol on all of Willard's claims. Because Willard raised issues of material
fact in connection with his implied-covenant claim, we reverse the superior court's
dismissal of that claim. We also conclude that evidence tending to show that Khotol
harbored ill will toward Willard because he became involved in union organizing
activities may be admitted to support the implied-covenant claim he bases on theories
unrelated to his union activities, so long as the evidence is independently relevant to the
unrelated claim and creates no danger of being used to prove an essential element of the
claim.

* * *

Willard worked for Khotol Services Corporation as a heavy equipment
operator for approximately six weeks during the summer of 2003. He previously held
a similar position as a civil service employee in the Department of Public Works at Fort
Richardson. Willard applied for the job with Khotol after the Army decided to privatize
the maintenance unit in which he worked and Khotol obtained the contract for that work.
Before beginning work with Khotol, Willard was told that civil service employees losing
their jobs on base had a "right of first refusal" to jobs with private contractors.

Willard completed and signed an employment application on May 21, 2003
that included the following disclaimer:

I understand this application is not a contract and that
acceptance of employment is not a contract of employment
for a specified period of time. I understand and agree that I may resign my employment with Gana-A'Yoo, Ltd.[1] for any
reason and that my employment may be terminated at the will
of Gana-A'Yoo, Ltd. at any time and for any reason. I also
understand that any handbooks, manuals, policies and
procedures maintained by Gana-A'Yoo, Ltd. are not
contractual in nature and may be amended or abolished at the
sole discretion of Gana-A'Yoo, Ltd.

Khotol interviewed Willard after receiving his employment application and offered him
a position as a heavy equipment operator. Willard signed the written employment offer,
called a company official to verbally accept, and then on June 2, 2003 personally
returned the letter to the company's office.

On June 12, 2003, Willard attended a "pre-hire" meeting, where he was
given a copy of Khotol's thirty-four-page employee manual; Willard signed for the
manual but did not read it at that time. The manual included detailed policies and
procedures on a number of topics, including probation, disciplinary procedures,
misconduct, safety, and termination. The "Probation" section described a ninety-day
probation period beginning on the date of hire. The manual characterized the
probationary period as a "try-out time" for both employee and employer. It further stated
that Khotol would evaluate the employee's "suitability for employment" and warned that,
if the employee's "work habits, attitude, attendance or performance does not measure up
to [Khotol's] standards, [Khotol] may release [the employee]."

Under the "Disciplinary Procedures" section, the manual described a system
of progressive disciplinary measures and added that, "[e]xcept for extremely serious acts
(assault, theft, insubordination, etc.), employees are not discharged for the first offense." The manual further stated that, "[n]o employee will be dismissed without just cause and
all dismissals will be subject to the grievance procedures."

Finally, under the "Separation of Employment" section, the manual stated:

Termination

An employee may be terminated at any time for lack of job
performance, insubordination, repeated incidents of minor
violations of a similar nature and where there has not been an
effort to improve, excessive absences and excessive tardiness.

Willard began working for Khotol on June 30, 2003. He was directly
supervised by Rob Bellamy, but Steve Holtery served as acting supervisor in Bellamy's
absence. Although hired as a heavy equipment operator, Willard performed various tasks
for Khotol, including operating a refuse truck, teaching other employees truck routes,
performing road maintenance, and servicing oil-water separators. According to Willard,
Holtery began verbally harassing him and other former Department of Public Works
employees soon after he began working for Khotol. For example, Willard alleges that
Holtery told him that once other new employees had been trained, Khotol could "get rid
of" all the former Department of Public Works employees, which included Willard. In
response to Holtery's actions, Willard reviewed Khotol's policy on harassment, and then
complained to Bellamy about Holtery's alleged verbal abuse. Although the employee
manual directed employees to make all complaints of harassment in writing, Willard
made only verbal complaints. According to Willard, this had little effect and the verbal
harassment by Holtery continued even after he approached Bellamy.

During his brief tenure with Khotol, Willard also participated in an effort
to secure union representation for Khotol employees. On one occasion, he organized and
attended a meeting on union representation. Afterward, he spoke to several co-workers
about joining the union. Willard asserts that both Bellamy and Holtery knew of the
meeting and his interest in obtaining union representation.

On August 15, 2003, six weeks after his employment began, Bellamy and
Khotol controller Douglas Koprowski confronted Willard and handed him a letter
terminating his employment. The letter, signed by Bellamy, stated that the principal
reason for Willard's termination was: "insubordination to the established line of authority
of this company." The letter also stated that Willard had "refus[ed] to adapt to Company
policy regarding shop and operational procedure."

Willard asserts that before his termination he received no notices,
warnings, or counseling regarding his job performance; nor had he been disciplined for
any alleged misconduct. After receiving the termination letter, Willard attempted to
invoke the grievance process described in Khotol's employee manual, which directs
employees to discuss any work-related problem with their project manager first. But
Bellamy - Willard's project manager - refused to discuss the termination and directed
Willard to leave the premises. Although he was not represented by a union, Willard
attempted to file a written grievance with the help of a union official. Koprowski refused
to discuss the termination with the union official.

On August 22, 2003, Willard filed a complaint with the National Labor
Relations Board (NLRB), alleging that Khotol terminated him "because of his activities
in support of the International Union of Operating Engineers, Local 302." Because of
this, the complaint said, the dismissal violated Willard's rights under section 7 of the
National Labor Relations Act (NLRA). In response to an inquiry to Khotol from the
NLRB, Bellamy drafted - but did not send - a letter stating that Willard was
terminated for "insubordination and failure to follow established shop procedures." The
letter further stated that Willard had "refused to acknowledge or follow instructions"
from two supervisors, failed to follow procedures related to the "daily maintenance and
fueling of each operator's equipment," and had left equipment parked in an unsafe manner. Finally, the letter described a "situation" in which Willard raised a safety
concern that Bellamy concluded was unfounded. According to Bellamy, Willard's
complaint and the investigation it triggered "caused the Company a great deal [of] lost
time, backlog of work, and led to hard feelings with the contractor." Bellamy's draft
letter apparently served as the basis for Khotol's formal response to the NLRB, which
was sent by Koprowski. Koprowski's letter, dated September 29, 2003, provided greater
detail about Willard's alleged acts of insubordination and flatly denied that his
termination was related to - or in retaliation for - union-organizing activities. In
October 2003, the NLRB notified Khotol that Willard had withdrawn his unfair labor
practice charge against the company.

* * *

In December 2003 Willard sued Khotol in superior court in Anchorage,
asserting three causes of action: wrongful discharge, breach of the covenant of good faith
and fair dealing, and breach of employment contract. As part of the second and third
claims, Willard alleged that Khotol dismissed him because of his efforts to secure union
representation. Specifically, the implied-covenant claim asserted that "Defendant's
discharge of Plaintiff was a pretextual discharge for union organization." And the
breach-of-contract claim stated that the "termination . . . was done in retaliation for Mr.
Willard's efforts to secure union representation for his fellow co-workers."

In response, Khotol filed a motion to dismiss, arguing that all three of
Willard's claims were preempted by the NLRA. On April 2, 2004, after briefing and oral
arguments by both parties, the superior court dismissed the second and third claims -
the implied-covenant and breach-of-contract claims - with leave to amend. The court
ruled that both claims were preempted by federal law. The superior court left the wrongful discharge claim intact because, as pled, it did not refer to Willard's unionrelated
actions.

Three weeks later, on April 22, 2004, Willard filed an amended complaint
that omitted the references to Khotol's alleged anti-union bias and reasserted Willard's
first three claims, while adding two new claims: misrepresentation and false
misrepresentations to procure employment.

Khotol then filed a motion for summary judgment, arguing that all of
Willard's claims were without merit because he was an "at will" employee and could be
terminated without cause. On May 9, 2005, following oral arguments and supplemental
briefing, the court granted Willard's motion to compel discovery and gave both parties
permission to file supplemental briefing. Finally, on November 10, 2005, the court
granted summary judgment for Khotol on all claims, followed by a final judgment in
Khotol's favor on December 5, 2005.

* * *

Breach of the implied covenant may be either subjective or objective.6 To
prove breach on subjective grounds, an employee must show that the employer acted
with a bad-faith purpose.7 Apart from avoidance of bad faith, the covenant requires
parties to an employment contract to "act in a manner which a reasonable person would
regard as fair."8 While the determination of fairness is inherently fact specific, we have
held that the covenant "requires that an employer treat like employees alike" - and that
failure to do so can give rise to a claim for breach under the objective test.9 Similarly,
proof that an employer's actions violated public policy may qualify as a breach of the
objective prong of the implied covenant.10

* * *

For the full text of this opinion, go to: http://www.state.ak.us/courts/ops/sp-6190.pdf