Utah is an at-will employment state, meaning that “either the employer or the employee may terminate the employment for any reason (or no reason) except where prohibited by law.” This termination right, however, is not without limitation and could be modified either by written or verbal agreement. So, as with most legal rules, there are exceptions. Let’s take a look at a recent Utah Supreme Court case, Vander Veur v. Groove Entertainment Technologies to see how this plays out in real life:
Vander Veur and Groove
Groove employed Vander Veur to sell essentially cable television packages to hotels and others and paid him a commission for each sale that met certain requirements and when “the installation was complete.” Groove terminated Vander Veur while he had six sales that he had signed up but which had not yet been installed. Groove refused to pay him for the six sales even though they had been installed within three months of his termination. In a separate claim, Vander Veur claimed he and Groove’s president verbally agreed to split a large “Showtime bonus” in lieu of his typical commission fee. Groove also refused to pay Vander Veur his portion of this fee.
Utah Implied Covenant of Good Faith and Fair Dealing
Now, you are probably saying to yourself that Groove’s termination of Vander Veur to save itself commissions is unfair. It certainly sounds unfair. The legal maxim that would tend to support this kind of ‘fairness’ claim is the implied covenant of good faith and fair dealing that exists in every contract– including employment contracts like Vander Veur’s employment contract. This implied 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.” 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.”
If we apply this covenant of good faith to Vander Veur, it looks like Groove breached that covenant because it fired Vander Veur when he had deals in the works that would pay him commissions once they were installed. It certainly looks like Vander Veur should get paid for these deals and Groove’s termination of him was in bad faith because it did so to avoid paying him commissions. Not so fast.
The covenant of good faith has a few limitations:
- It “cannot create rights and duties inconsistent with express contractual terms”
- It cannot “compel a contractual party to exercise a contractual right to its own detriment for the purpose of benefitting another party to the contract”
- 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” and
- The courts 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”
What do these limitations mean? They mean, essentially, that you need to read your written contract very carefully because you will be held to its terms– even if they seem a bit harsh.
These limitations essentially gut Vander Veur’s fairness argument. Vander Veur agreed in his written commission agreement that he would only get paid for sales that had been fully installed. He was terminated before the installations and, therefore, the Utah Supreme Court held that he would not be entitled to commissions on sales that were not completed at the time of his termination. This means that regardless of when he was terminated, whether three weeks, three months, or three days before the sales had been installed, he would not be entitled to commissions on them.
Vander Veur even conceded 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 Vander Veur remained employed.
Utah Verbal Contracts
Now, let’s look at Vander Veur’s other claim: that he had a verbal agreement for the Showtime Bonus that was not governed by the written employment agreement. Although the trial court had dismissed this claim, the Utah Supreme Court agreed with the intermediate court of appeals that reinstated it because it was not bound by the written contract, there were no adequate findings to support dismissal, and the bonus had actually been earned before Vander Veur was terminated.
In Utah (and in Vander Veur’s case), verbal agreements are enforceable. Take care, however, because you still need to prove all of the elements of a written contract including offer, acceptance, and consideration. The big exception to verbal agreements is the Utah statute of frauds which requires any contract that concerns the following to be in writing: real property (leases longer than one year, options, broker/agency, contracts for sale, etc.), any agreement lasting longer than one year, guarantee, marriage, etc. See Utah Code. Ann. 25-5-3 and 25-5-4.
For Vander Veur, the trial court did not find that he had presented enough evidence to support a verbal contract. The Utah Supreme Court reversed solely because the trial court did not support its decision well enough. It gave Vander Veur an opportunity to go back to the trial court and potentially put on enough evidence to support his claim but it is not a slam-dunk. Vander Veur has the burden to put on evidence of a verbal agreement. However, since it is his testimony, presumably it should not be a difficult task.
The Take-Away For Utah Employers and Employees
There are a number of tidy lessons for both employers and employees:
- Be careful what is in your Utah employer/employee contract– the Utah courts will apply the terms as written.
- Just because a term appears to be unfair does not mean that it will not be specifically enforced. You’re not in California. The courts won’t take the employee’s side or make excuses to recreate the agreement the employee wished s/he had made.
- Even if it appears on first blush that the employment agreement seems unfair or the circumstances unfair to the employer or employee, courts are loath to change what’s in writing.
- If you have questions about what you are signing, get legal help. Spend a few bucks to get it right. This goes for both employers and employees.
Call Me. The above discussion probably raises as many questions as it answers. You likely have more questions than this post or the other information on this website can provide. I regularly represent Utah employees and employers in a variety of contexts. You cannot make a good decision if you do not get competent advice from a qualified, experienced attorney. You need to protect yourself and your interests. You do this by pursuing what you are entitled to and getting competent legal advice. Call me or contact me directly. Using my many years of experience and backed by a firm of legal specialists in many legal fields, I can help you evaluate your case and help you make smart decisions.