Employers who enter into contracts with their workers have an obligation to abide by the terms of those contracts. These obligations exist independent of any federal or New Jersey employment laws. Contract law governs the enforcement of contractual terms. An employment action that does not violate an employment statute might still violate contract law. The New Jersey Supreme Court recently ruled in a case involving several contract law claims against a hospital. The plaintiffs alleged that the hospital breached the implied covenant of good faith and fair dealing. This is a legal principle that holds that every contract carries an implied agreement that the parties will deal fairly with one another and negotiate in good faith. The court’s ruling is complicated, going in the plaintiffs’ favor in some ways, but not in other ways. The ruling nevertheless provides a useful guide for how this implied covenant may arise in employment situations.
The implied covenant of good faith and fair dealing is almost impossible to define. It depends heavily on the circumstances of each case. Factors that may be important include the relative power and resources of each party to a contract, the history of negotiations and agreements between them, and the nature of a specific agreement. The implied covenant generally prohibits parties from acts like hiding or misrepresenting important information or taking steps to undermine the other party’s ability to perform their obligations or benefit from the contract. It may arise in claims like wrongful termination.
The plaintiffs in the case described above are a group of neurosurgeons. According to the court’s decision, they first obtained core privileges and admitting privileges at the defendant’s hospital in 2003. While this is not the same as most people’s employment arrangements, the same legal principles can apply to many employer-employee relationships. “Core privileges” means that the plaintiffs could use the hospital to perform neurosurgical procedures. “Admitting privileges” allow physicians to admit established patients to the hospital.
As the plaintiffs’ practice grew, they added more neurosurgeons. The practice had two neurosurgeons in 2003 and twelve in 2015, when the events that gave rise to the lawsuit occurred. The hospital signed a contract with a different neurosurgical practice that year that gave core and admitting privileges to them instead of the plaintiffs. The hospital stated that the other practice “outperformed” the plaintiffs based on metrics like patient volume, number of procedures performed, and quality of care.
The plaintiffs sued for breach of contract and breach of the implied covenant of good faith and fair dealing. Their arguments largely relied on the hospital’s bylaws, which stated that physicians may request a hearing to review decisions like the granting of hospital privileges. The defendant claimed that the plaintiffs did not follow the procedures outlined in the bylaws to request a hearing. The plaintiffs alleged that they followed the procedures but were denied a hearing and that this breached the implied covenant of good faith and fair dealing.
The trial judge denied the defendant’s summary judgment motion on the implied covenant claim. A jury found in the plaintiffs’ favor after a trial. The New Jersey Supreme Court affirmed the denial of summary judgment. Unfortunately, it vacated the jury verdict because of faulty jury instructions. The plaintiffs now have another chance to assert the implied covenant claim.
The skilled and knowledgeable employment attorneys at the Resnick Law Group advocate for the rights of New Jersey and New York employees who have endured unlawful workplace practices. Please contact us today at 973-781-1204, at 646-867-7997, or online to schedule a confidential consultation to see what we can do for you.