Gates v. Life of Montana Insurance

No. 82-468

I N THE SUPREME COURT O THE STATE O M N A A
F F O T N

1983

MARLENE S. GATES,

P l a i n t i f f and A p p e l l a n t ,

-vs-

LIFE O MONTANA INSURANCE COMPANY,
F

Defendant and Respondent.

Appeal from: District Court of t h e Eighteenth J u d i c i a l District,
I n and f o r t h e County o f G a l l a t i n ,
The H o n o r a b l e J a c k D. S h a n s t r o m , J u d g e p r e s i d i n g .

C o u n s e l o f Record:

For Appellant:

Wellcome & F r o s t ; Page Wellcome a r g u e d , Rozeman,
Montana

For Respondent:

Landoe, Brown, P l a n a l p , Komrners & L i n e b e r g e r ;
Gene I . Brown a r g u e d , Bozeman, Montana

Submitted: J u n e 6 , 1983

Decided: August 5 , 1983

Abr"G 5 1983
Filed:

-
Clerk
 Mr. Justice Frank B. Morrison, Jr. delivered the Opinion
of the Court.
Plaintiff brought this action to recover damages for
breach of the covenant of good faith and fair dealing
implicit in an at-will, employment contract. Summary
judgment for defendant was reversed in Gates v. Life of
Montana (1982), Mont . , 638 P.2d 1063, 39 St.Rep.
16. The case was remanded for trial and resulted in a jury
verdict in favor of plaintiff for $1,891 in compensatory
damages and $50,000 in punitive damages. The trial court
entered judgment for plaintiff on compensatory damages but
entered judgment notwithstanding the verdict in favor of
defendant on punitive damages. Plaintiff appeals from the

granting of the judgment n.0.v.
Appellant commenced employment as a cashier with
respondent on July 29, 1976, under an oral contract of
indefinite duration. On October 19, 1979, she was called to
meet with her supervisor, Roger Syverson, and without prior
warning she was given the option of resigning or being fired.
She testified that while in a distraught condition and under
duress she signed a letter of resignation which was handed to
her by Syverson. Appellant stated that she signed the letter
of resignation because she thought it would be better for her
record and because Syverson told her he would give her a
letter of recommendation so that she could be reemployed.
Appellant went home and discussed the situation with her
husband who advised her to retrieve the letter of resignation
and inform her supervisor that she was not resigning.
Appellant stated that she immediately called Syverson and
demanded the letter be returned and that he promised to do
so. Syverson testified that she only requested a photocopy
of the letter.
 Respondent's witnesses testified appellant was
discharged for carelessness, incompetency and
insubordination. In the first appeal we held there was a
submissible jury issue on breach of the implied covenant of
fair dealing in that appellant was discharged without warning
and an opportunity for hearing. The jury here found that
this covenant was indeed breached and awarded damages.
On appeal, we are concerned with two issues. First, can
punitive damages be awarded for breach of the covenant to
deal fairly? Secondly, does the evidence here create a jury
issue on punitive damages?
In ~ipinski v. Title Insurance Co. (19821, Mont .
, 655 P.2d 970, 39 St.Rep. 2283, this Court held that
punitive damages could be assessed for bad faith insurance
practices in absence of a statutory violation. We said in
Lipinski:
"Should there be any doubt, we now expressly hold
that insurance companies have a duty to act in good
faith with their insureds, and that this duty
exists independent of the insurance contract and
independent of statute. Any statements in our
cases, to the extent they may be or appear to be in
conflict with this holding, are expressly
overruled."
Likewise, punitive damages may be assessed for breach of
the obligation owed to deal fairly with an employee, if the
provisions of section 27-1-221, MCA, are satisfied. That
section provides:
"In anv action for a breach of an obliaation - not
arisini from contract where the defendant has been
guilty of oppression, fraud, or malice, actual or
presumed, the jury, in addition to the actual
damages, may give damages for the sake of example
and by way of punishing the defendant." (emphasis
added)
An action for breach of an implied covenant of fair
dealing, at first blush, may sound both in contract and tort.
The duty arises out of the employment relationship yet the
duty exists apart from, and in addition to, any terms agreed
to by the parties. In this respect, the duty is much like
the duty to act in good faith in discharging insurance
contractual obligations. See Lipinski v. Title Ins. Co.,
supra. The duty is imposed by operation of law and therefore
its breach should find a remedy in tort. Flint and Walling
Mfg. C0.v. Beckette (1906), 167 Ind. 491, 498, 79 N.E. 503,
505. Also see W. Prosser, Law of Torts (4th ed. 1971), 592
at 617-618.
We hold that section 27-1-221, MCA, only exempts breach
of contract actions from its provisions. Breach of the duty
owed to deal fairly and in good faith in the employment
relationship is a tort for which punitive damages can be
recovered if defendant's conduct is sufficiently culpable.
We must examine the record in this case to determine
whether there is evidence which would permit a jury to find
malice, oppression or fraud attributable to the defendant.
Motions for judgment notwithstanding the verdict are only to
be granted when there is a complete absence of any credible
evidence to support the verdict. All evidence and all
inferences drawn therefrom must be considered in the light
most favorable to this appellant. Barmeyer v. Montana Power
Company (1983), Mont . , 657 P.2d 594, 40 St-Rep.
23. "The courts will exercise the greatest self-restraint in
interfering with the constitutionally mandated processes of
jury decision." Barmeyer at 40 St.Rep. 25; Jacques vs.
Montana National Guard (1982), Mont . , 649 P.2d
1319, 1325-26, 39 St.Rep. 1565, 1573-74.
With these rules in mind we review the testimony upon
which appellant must necessarily rely in her contention that
a jury issue was created on the matter of punitive damages.
We have divided the testimony which was offered to show that
a letter of resignation was coerced by misrepresentation.
Secondly, we refer to that testimony bearing upon the issue
of whether appellant's supervisor agreed to return the
resignation letter and then subsequently failed to do so.
With resepect to the conversation surrounding
appellant's tendering a resignation letter, appellant
testified as follows:
"Q. And did he point out to you that he would give
you this letter of recommendation?
"A. Yes, he did, and he even stated that I was a
good worker, he had nothing against me and that he
would give me a letter of recommendation.
"Q. And did you understand by that that he would
give you a positive letter of recommendation?
"A. Yes.
"Q. Not merely as he has said a statement that you
had worked for two or three years?
"A. That's right."
Syverson, appellant's supervisor, testified that he
offered to give appellant a letter of recommendation if she
resigned. However, he testified that he only planned to give
her a letter which would state that appellant was employed by
Life of Montana Insurance Company; he never intended to
provide appellant with a favorable letter of recommendation.
There was evidence from which the jury might infer that
appellant understood she was to receive a favorable letter of
recommendation and that Syverson allowed her to resign on
this basis. By way of deposition, Syverson testified:
"Q. And then I asked you finally, "Question:
Don't you think she understood when you said, 'We
will give you a letter of recommendation,' that you
would give her a favorable letter or recommendation
to a subsequent employer?
And your answer to that was what?
"A. At line 15, Answer: I believe so."

From the foregoing the jury could have found that (1)
Syverson acting for defendant told appellant if she resigned
she would receive a favorable letter of recommendation in
order to obtain subsequent employment; (2) appellant
reasonably expected to receive a favorable letter of
recommendation to assist her in gaining reemployment; (3)
appellant relied upon this representation and tendered her
resignation; (4) Syverson never intended to give a favorable
letter of recommendation to appellant. This evidence was
sufficient for the jury to find fraud, oppression or malice.
Additional evidence supports appellant's position.
After appellant returned home her husband advised her to
demand return of the resignation letter. Appellant testified
she immediately called Syverson and discussed the resignation
letter. Her testimony follows:
"Q. And what did you say?
"A. I told him that I had discussed this with my
husband and that it was my prerogative that I could
ask for my letter of resignation back because I had
no intentions of resigning.
"Q. And what did Mr. Syverson say to you?
"A. He indicated to me that he wanted to keep the
letter over the weekend and that on Monday he would
mail it to me.
"Q. He would mail you the letter of resignation?
"A. He would mail me the original copy of the
letter of resignation.
"Q. Now, when we are talking here, are the
original and copy two different things?
"A. On the original letter?
"Q. The original letter that you had signed?
"A. Yes.
"Q. Did you make clear to%him that that's what you
wanted back?
"A. Yes, I did.
"Q. Because you said you didn't intend to resign?
That's right."
 Appellant testified that Syverson promised to send her
the letter of resignation. Appellant's testimony was
corroborated by her husband who testified that he heard
appellant, in a telephone conversation with Syverson, demand
return of the resignation letter. The letter was never
returned. Syverson's position at trial was that he only
agreed to give appellant a copy of the letter.
From this evidence the jury could infer that (1)
appellant demanded return of the resignation letter; (2)
Syverson acting on behalf of respondent said that the letter
would be returned; (3) Syverson never intended to return the
resignation letter to appellant. This evidence, when
considered with the testimony surrounding the giving of the
resignation letter, supports an award of punitive damages.
Respondent argues that it should not be liable for
punitive damages for terminating appellant without warning
because at the time of appellant's termination there was an
absolute right to fire without any type of process.
Respondent asserts that new legal rights were given to
appellant in the first appeal of this case and that
respondent could not have known of the duty it owed appellant
at the time of her termination.
Respondent is not being assessed punitive damages for
failing to provide a warning prior to the firing. Rather
respondent's conduct in obtaining the letter of resignation
and refusing appellant's demand for return forms the basis
for a jury finding of fraud, oppression or malice.
An employer stands to gain by an employee's resignation
and such gain may be at the employee's expense. Resignation,
rather than discharge, may protect an employer from
immediately becoming liable for unemployment compensation
benefits. Furthermore, the employer may, by obtaining a
letter of resignation, be insulating itself from a claim of
wrongful discharge.
The courts must vigilantly assure that employers, as
well as employees, are treated fairly. The sting of punitive
damages will only be sanctioned where there is evidence that
the tort feasor's conduct rose to a level of oppression,
fraud or malice. Here we have a close case. However, when
the evidence is viewed in a light most favorable to the
employee, there is sufficient evidence for a jury to find
that employer's conduct rose to the requisite level of
culpability.
We reverse the granting of judgment notwithstanding the
verdict and remand to the trial court with directions to
reinstate the award of punitive damages.

We concur: !

2*&$#(&/q,&gq
Chief Jus ice

Justices
Mr. J u s t i c e L . C. G u l b r a n d s o n d i s s e n t i n g :

I respectfully dissent.

I would a f f i r m t h e D i s t r i c t C o u r t s e t t i n g a s i d e t h e award of

p u n i t i v e damages.

I n t h e f i r s t a p p e a l of t h i s c a s e , G a t e s v. L i f e of Montana,
( 1 9 8 2 ) , 638 P.2d 1 0 6 3 , 39 S t . R e p . 16, t h i s Court s t a t e d :

"The c i r c u m s t a n c e s of t h i s c a s e a r e t h a t t h e
e m p l o y e e e n t e r e d i n t o a n employment c o n t r a c t
t e r m i n a b l e a t t h e w i l l of e i t h e r p a r t y a t any
time. The e m p l o y e r l a t e r p r o m u l g a t e d a hand-
book of p e r s o n n e l p o l i c i e s e s t a b l i s h i n g cer-
t a i n procedures with regard t o terminations.
The e m p l o y e r need n o t h a v e d o n e s o , b u t p r e -
sumably sought t o s e c u r e an o r d e r l y , coopera-
t i v e and l o y a l work f o r c e by e s t a b l i s h i n g
uniform p o l i c i e s . The employee h a v i n g f a i t h
t h a t s h e would be t r e a t e d f a i r l y , t h e n deve-
l o p e d t h e p e a c e of mind a s s o c i a t e d w i t h j o b
security. I f t h e employer h a s f a i l e d t o
f o l l o w i t s own p o l i c i e s , t h e p e a c e of mind of
i t s e m p l o y e e s i s s h a t t e r e d and a n i n j u s t i c e i s
done.
"We h o l d t h a t a c o v e n a n t of good f a i t h and
f a i r d e a l i n g was i m p l i e d i n t h e employment
c o n t r a c t of t h e a p p e l l a n t . There remains a
g e n u i n e i s s u e of m a t e r i a l f a c t which p r e c l u d e s
a summary j u d g m e n t , i . e . w h e t h e r t h e r e s p o n -
dent failed t o afford appellant the process
r e q u i r e d and i f s o , w h e t h e r t h e r e s p o n d e n t
t h e r e b y b r e a c h e d t h e c o v e n a n t of good f a i t h
and f a i r d e a l i n g .
"As t o a l l o t h e r c l a i m s a g a i n s t t h e r e s p o n -
d e n t , h o w e v e r , summary judgment was p r o p e r l y
entered. The District Court correctly
concluded t h a t a p p e l l a n t ' s claim i n t o r t f o r
wrongful discharge i s u n s u p p o r t e d by any
s h o w i n g of a v i o l a t i o n of p u b l i c p o l i c y a s
r e q u i r e d u n d e r K e n e a l l y v. O r g a i n , s u p r a .
" G a t e s ' c l a i m f o r i n t e n t i o n a l i n £ l i c t i o n of
emotional d i s t r e s s must a l s o f a i l . The
u n c o n t r a d i c t e d f a c t s show t h a t s h e was ' r a t h e r
d i s t u r b e d ' and ' k i n d of i n s h o c k . ' Under any
known s t a n d a r d t h e s e a l l e g a t i o n s a r e i n s u f -
f i c i e n t t o e n t i t l e her t o recover. K e l l y v.
Lowney & W i l l i a m s , I n c . ( 1 9 4 2 ) , 1 1 3 Mont. 3 8 5 ,
1 2 6 P.2d 486; H e l t o n v. R e s e r v e L i f e I n s u r a n c e
Co. (D.Mont., 1 9 7 5 ) , 399 F.Supp. 1 3 2 2 . " 638
P.2d a t 1 0 6 7 , 39 S t . R e p . a t 20-21.
The majority, in its valiant and successful effort to

c l a s s i f y t h e c o n d u c t of t h e d e f e n d a n t a s t o r t u o u s , states:

"Respondent is n o t b e i n g a s s e s s e d p u n i t i v e
damages f o r f a i l i n g t o p r o v i d e a w a r n i n g p r i o r
t o the firing. R a t h e r , r e s p o n d e n t ' s conduct
i n o b t a i n i n g t h e l e t t e r of r e s i g n a t i o n and
r e f u s i n g a p p e l l a n t ' s demand f o r r e t u r n , f o r m s
 the basis for a jury finding of fraud,
oppression, or malice."
I n o t e t h a t jury i n s t r u c t i o n twenty-three reads:
"You are instructed that the letter of
r e s i g n a t i o n d a t e d O c t o b e r 1 9 , 1 9 7 9 , became t h e
p r o p e r t y of d e f e n d a n t L i f e of Montana, and
d e f e n d a n t L i f e of Montana was u n d e r no l e g a l
o b l i g a t i o n t o r e t u r n t h e l e t t e r of r e s i g n a t i o n
t o the plaintiff. "
T h a t was t h e o n l y i n s t r u c t i o n g i v e n t h e j u r y where t h e l e t t e r of
r e s i g n a t i o n was m e n t i o n e d .

The c a s e was o b v i o u s l y s u b m i t t e d and a r g u e d by p l a i n t i f f t o

the jury on the basis that liability also resulted from ter-
mination without notice. ( S e e i n s t r u c t i o n s no. 1 7 , 1 9 , and 2 1 ,

w h i c h g e n e r a l l y s t a t e t h a t l i a b i l i t y c a n a r i s e from f a i l u r e t o
f o l l o w e s t a b l i s h e d company p o l i c y . )
I f t h e j u r y f o l l o w e d i n s t r u c t i o n no. 2 3 ( n o d u t y of d e f e n d a n t

t o r e t u r n t h e l e t t e r of r e s i g n a t i o n ) and i f , a s t h e m a j o r i t y s t a -
tes, t h e respondent is n o t b e i n g a s s e s s e d p u n i t i v e damages f o r
f a i l i n g t o p r o v i d e a w a r n i n g p r i o r t o t h e f i r i n g , t h e n t h e award

m u s t be b a s e d on t h e d e f e n d a n t ' s c o n d u c t i n o b t a i n i n g t h e l e t t e r
of r e s i g n a t i o n .
In that regard the plaintiff Marlene Gates testified as

follows:

"Q. Have you e v e r c o n s i d e r e d why you would be
g i v e n t h a t o p t i o n , t h e r e s i g n i n g o r being
fired?
A. No.
"Q. Well, i f he wanted t o g e t r i d of you, i t
would have b e e n s i m p l e enough t o s a y , ' Y o u ' r e
f i r e d , ' wouldn't i t ?
A. Yes.

"Q. B u t he a l l o w e d you t o r e s i g n .
A. Yes.

"Q. And d i d you t h i n k t h a t o v e r ? Did you
t h i n k o v e r t h a t d e c i s i o n of w h e t h e r you s h o u l d
r e s i g n o r be f i r e d ?
A. Yes.
"Q. How l o n g d i d you t h i n k i t o v e r ?
A. Well, I s a t t h e r e I s u p p o s e i t was minu-
t e s , you know. I t was a f t e r f i v e o ' c l o c k . I
was w a n t i n g t o g e t home and I ' m s u r e he was
w a n t i n g t o g e t o u t of t h e o f f i c e , and s e v e r a l
t h i n g s went t h r o u g h my mind, and I had t o make
a d e c i s i o n one way o r t h e o t h e r .
"n. You d e c i d e d t o r e s i g n .
A. That's right.
"Q. Why was t h a t ?
A. B e c a u s e I t h o u g h t it would l o o k b e t t e r f o r
my r e c o r d , and I ' m s u r e i t w o u l d n ' t be v e r y
good f o r t h e i r r e c o r d t o be known t o be f i r i n g
people.
"Q. You were concerned about how it would
l o o k f o r you?
A. Yes.
"Q. I f you s i g n e d t h e l e t t e r of r e s i g n a t i o n ,
you c o u l d t e l l p e o p l e , ' I r e s i g n e d ,' and you
w o u l d n ' t h a v e t o s a y , ' I was f i r e d , ' r i g h t ?
A. Right.
"Q. And a l s o , when you went o u t t o seek
a n o t h e r j o b , you w o u l d n ' t have t o s a y you w e r e
f i r e d from y o u r l a s t o n e . You c o u l d s a y you
resigned .
A. That's right.
"Q. So t h a t was done a s a b e n e f i t t o you, is
that right?
A. Right.

"Q. Now, when you went i n t o t h i s m e e t i n g w i t h
Roger S y v e r s o n when you w e r e t e r m i n a t e d , was
t h e r e any l o u d t a l k o r l o u d l a n g u a g e ?
A. No, t h e r e was n o t .
"Q. Was the conversation calm a nd
businesslike?
A. Yes.

"Q. Were you n e r v o u s ?
A. Yes.

"Q. Was Roger n e r v o u s ?
A. H a p p e a r e d t o be v e r y n e r v o u s , y e s .
e
"Q. Would you t e l l u s which of you w e r e t h e
most nervous?
A. I d i d n ' t weigh i t o u t , no.

"Q. A t l e a s t you could t e l l obviously t h a t
Mr. S y v e r s o n was n e r v o u s a b o u t t h i s whole
situation?
A. Yes.
"Q. Did he i n t i m i d a t e you?
A. No.
"Q. Did you i n t i m i d a t e him?
A. I don't believe I did.

"Q. Now, when you were a s k e d t o make a d e c i -
s i o n w h e t h e r you wanted t o r e s i g n o r be f i r e d ,
you t h o u g h t t h a t o v e r p r e t t y c l o s e l y ?
A. Yes, I d i d .
"Q. And y o u r d e c i s i o n was t h a t you p r e f e r r e d
t o resign?
A. Yes.
 "Q. And you h a v e , a t t h a t t i m e you f e l t t h a t
was a good d e c i s i o n ?
A. W e l l , it was t h e b e t t e r d e c i s i o n , y e s .
"Q. And i t was b a s e d on y o u r d e t e r m i n a t i o n
t h a t w i t h t h e l e t t e r of r e s i g n a t i o n , you would
b e b e t t e r a b l e t o g e t a j o b , p l u s i t would be
e a s i e r t o h a n d l e q u e s t i o n s of f e l l o w e m p l o y e e s
and f r i e n d s ?
A. Yes.
"Q. T h o s e w e r e y o u r r e a s o n s for signing the
l e t t e r of r e s i g n a t i o n ?
A. Yes.
"Q. And when you l e f t t h e o f f i c e t h a t a f t e r -
n o o n , O c t o b e r 1 9 , 1 9 7 9 , you had c o n c l u d e d t h a t
t h a t was t h e b e s t t h i n g t o do.
A. Yes. "

The m a j o r i t y o p i n i o n s t a t e s : " t h e s t i n g of p u n i t i v e damages

w i l l o n l y be s a n c t i o n e d w h e r e t h e r e is e v i d e n c e t h a t t h e t o r t -
feasor's conduct rose to a level of oppression, fraud, or

malice."
I do not f i n d t h a t o p p r e s s i v e l e v e l of c o n d u c t and n e i t h e r

did the trial judge when setting aside t h e award for punitive

damage. H i s memorandum of S e p t e m b e r 2 8 , 1 9 8 2 , s t a t e d : "in this
case, I find no e v i d e n c e t h a t t h e d e f e n d a n t k n o w i n g l y v i o l a t e d
any duty t o the p l a i n t i f f . T h e r e is no e v i d e n c e t h a t t h e d e f e n -

d a n t acted maliciously, intentionally, or willfully, and t h e r e -
f o r e t h e c l a i m f o r p u n i t i v e damages m u s t f a i l . "
This Court, i n the f i r s t Gates opinion, c o r r e c t l y identified

t h e t h r e s h o l d q u e s t i o n of w h e t h e r t h e e m p l o y e e ' s r e s i g n a t i o n was
voluntary. Unfortunately, t h e j u r y was n o t i n s t r u c t e d on t h i s
p o i n t and no s p e c i a l v e r d i c t was r e q u e s t e d .
In the f i r s t Gates decision, the Court cited Molinar v.
Western E l e c t r i c Company (1st C i r . 1 9 7 5 ) , 5 2 5 F.2d 521, cert.
den., ( 1 9 7 6 ) , 424 U.S. 9 7 8 , 96 S . C t . 1 4 8 5 , 47 L.Ed.2d 748, where

the court decided the applicable rule that "an employee who
v o l u n t a r i l y r e s i g n s c a n n o t m a i n t a i n a c a u s e of a c t i o n f o r wrong-
f u l discharge." The c o u r t t h e r e s t a t e d :

"A more d i f f i c u l t i s s u e is whether M o l i n a r ' s
l e t t e r of r e s i g n a t i o n r a i s e d a j u r y i s s u e of
voluntariness. M o l i n a r a r g u e s t h a t he was
i n d u c e d t o r e s i g n by t h e f r a u d u l e n t p r o m i s e
t h a t i f he d i d s o he would r e c e i v e good
recommendations.
 " [where] . . . [a] voluntary r e s i g n a t i o n bars
a s u i t f o r wrongful discharge, t h e following
s t a n d a r d h a s b e e n l a i d down:
" ' E v e n where t h e employee is t o l d t h a t he m u s t
c h o o s e b e t w e e n r e s i g n a t i o n and s e p a r a t i o n , t h e
subsequent choice of resignation is not
c o e r c e d u n l e s s t h e employee c a n show t h a t h i s
s u p e r i o r knew o r b e l i e v e d t h a t t h e r e a s o n s f o r
the proposed separation could not be
substantiated. ... 1 11

"Cosby v. U n i t e d S t a t e s , [ ( I 9 6 9 C t . C l . ) , 417
F.2d 13451 a t 1 3 5 5 . T h i s s t a n d a r d , which w e
t h i n k New York would a d o p t , l i m i t s a c l a i m of
d u r e s s t o r e s i g n a t i o n s e x t o r t e d a s a cover f o r
w r o n g d o i n g , and r e c o g n i z e s t h a t r e s i g n a t i o n s
i n l i e u of d i s c h a r g e may i n many o t h e r i n s t a n -
c e s r e f l e c t a m u t u a l l y b e n e f i c i a l , good f a i t h
c o m p o s i t i o n b e t w e e n a n employer and employee
h a v i n g d i f f e r e n t v i e w s a s t o what e a c h owes t o
t h e o t h e r . Thus, h e r e , f o r M o l i n a r ' s r e s i g n a -
t i o n t o be t r e a t e d a s c o e r c e d and l e g a l l y
i n e f f e c t i v e , i t m u s t be shown n o t o n l y t h a t
t h e p r o j e c t e d d i s c h a r g e would amount t o a
l e g a l b r e a c h of c o n t r a c t b u t t h a t t h e r e was
bad f a i t h , i n t h a t W e s t e r n E l e c t r i c knew o r
b e l i e v e d t h a t t h e d i s c h a r g e c o u l d n o t be
substantiated."
I n my v i e w , the majority, by e x t e n d i n g the original Gates

decision, has s e t t h e s t a g e f o r a " j u s t cause standard f o r at-

w i l l e m p l o y e e s , " which I b e l i e v e i s a l e g i s l a t i v e r a t h e r t h a n a

judicial function.
S e c t i o n 39-2-503, MCA, provides t h a t employment, having no

s p e c i f i e d t e r m , may be t e r m i n a t e d a t t h e w i l l of e i t h e r p a r t y on
notice to each other. This section codifies the long-

established, but recently questioned, "at-will" rule. Although

t h i s C o u r t h a s r e c o g n i z e d t h a t t h i s r u l e may be o u t d a t e d , w e have
a l s o r e c o g n i z e d t h a t " i t is u n i q u e l y a p r o v i n c e of the legisla-
t u r e t o change i t . " Reiter v. Y e l l o w s t o n e County (1981),
Mont. , 627 P.2d 8 4 5 , 8 4 9 , 38 S t . R e p . 6 8 6 , 690.
I n R e i t e r , w e n o t e d t h a t b e c a u s e of t h e o p e r a t i o n of s e c t i o n
39-2-503, MCA, the at-will employee was not employed on a
" d i s c h a r g e f o r cause only" b a s i s . W s t a t e d , "assuming arguendo
e

t h a t a p p e l l a n t had a n i m p l i e d c o n t r a c t w i t h a n i m p l i e d c o v e n a n t
o f good f a i t h , t h e e m p l o y e r d i d n o t a c t i n bad f a i t h b e c a u s e i t s
c o n d u c t was s t a t u t o r i l y p e r m i s s i b l e . " 627 P.2d a t 849-850, 38
St.Rep. a t 690.
I n o t h e r words, u n d e r s e c t i o n 39-2-503, MCA, an employer o r

e m p l o y e e c o u l d t e r m i n a t e employment f o r any o r a l l r e a s o n s , pro-

v i d e d t h e r e a s o n s o r manner of t e r m i n a t i o n d i d n o t v i o l a t e p u b l i c
policy. See K e n e a l l y v. Orgain ( 1 9 8 0 ) , Mont. , 6 0 6 P.2d
1 2 7 , 37 S t . R e p . 154.

I n t h e p r i o r d i s c u s s i o n of t h i s c a s e , t h i s Court determined
t h a t a c o v e n a n t of good f a i t h and f a i r d e a l i n g was i m p l i e d i n t h e
parties' oral, at-will, employment c o n t r a c t . The b a s i s f o r t h i s

h o l d i n g was t h e e m p l o y e r ' s p r o m u l g a t i o n of an employees' hand-
book, two y e a r s a f t e r G a t e s b e g a n employment. The handbook p r o -
v i d e d c e r t a i n g u i d e l i n e s f o r t e r m i n a t i o n of e m p l o y e e s . W stated
e

t h a t G a t e s had a c a u s e of a c t i o n b e c a u s e " i f t h e e m p l o y e r f a i l e d
t o f o l l o w i t s own p o l i c i e s , t h e p e a c e of mind of i t s e m p l o y e e s is
shattered and an injustice is done." 638 P.2d a t 1067, 39

St.Rep. a t 20. We t h e n found two g e n u i n e i s s u e s of material
fact: (1) w h e t h e r respondent f a i l e d t o afford appellant Gates
the process required; and ( 2 ) whether the respondent thereby

b r e a c h e d t h e c o v e n a n t of good f a i t h and f a i r d e a l i n g .
The C o u r t had a l s o decided in the prior decision t h a t the
guidelines in the employer handbook regarding notice prior to

t e r m i n a t i o n , were n o t e n f o r c e a b l e a s c o n t r a c t r i g h t s . W further
e
determined t h a t a p p e l l a n t ' s claim i n t o r t f o r wrongful d i s c h a r g e
was p r o p e r l y d i s m i s s e d b e c a u s e i t was n o t s u p p o r t e d by any show-

i n g of a v i o l a t i o n of p u b l i c p o l i c y .
The m a j o r i t y c i t e s Lipinski v. T i t l e I n s u r a n c e Co. (1982),

---- Monte ---- , 655 P.2d 970, 39 St.Rep. 2283, for the
a s s e s s m e n t of p u n i t i v e damages i n bad f a i t h c a s e s .
I n s u r a n c e c a s e s u p h o l d i n g a b r e a c h of t h e i m p l i e d c o v e n a n t of
good f a i t h and f a i r d e a l i n g d i d n o t e v o l v e u n d e r t h e same con-

s i d e r a t i o n s a s c a s e s d i s c u s s i n g a b r e a c h of t h e i m p l i e d c o v e n a n t

i n employment c o n t r a c t s . I n t h e i n s u r a n c e c a s e s , t h e c o u r t s look
to whether the insurance company, with malice, fraud or

oppression, abused its duty to act i n good faith. The "bad
f a i t h " employment c a s e s m a i n t a i n a h i g h e r standard in that the
c o u r t s g e n e r a l l y look for a v i o l a t i o n of p u b l i c p o l i c y on t h e

part of the employer. See discussion in Pierce v. Orth

P h a r m a c e u t i c a l Corp. ( 1 9 8 0 ) , 84 N . J . 5 8 , 417 A.2d 5 0 5 , 1 2 ALR4th
5 2 0 , and A n n o t . 1 2 ALR4th 5 4 4 , ( 1 9 8 2 ) .
Most courts recognizing a cause of action based on a

d i s c h a r g e t h a t o f f e n d s p u b l i c p o l i c y have grounded t h a t a c t i o n i n
t o r t , w h i l e o n l y a few have r e l i e d on a n i m p l i e d c o n t r a c t t h e o r y

of recovery. Compare Tameny v . A t l a n t i c R i c h f i e l d Co. ( 1 9 8 0 ) , 27

C a l . 3 d 1 6 7 , 610 P.2d 1 3 3 0 , 1 6 4 C a l . R p t r . 839, ( r e c o g n i z i n g a t o r t
action for wrongful discharge when employee was terminated

because he refused to commit a criminal act); Nees v. Hooks
( 1 9 7 5 ) , 272 Or. 210, 536 P.2d 512 (recognizing a tort action
because a n employee was d i s m i s s e d for serving jury d u t y ) ; and

Kelsay v. Motorola (1978), 74 111.2d 172, 364 N.E.2d 353

( r e c o g n i z i n g a t o r t a c t i o n when employee was d i s m i s s e d f o r f i l i n g
a workers' compensation claim); with Fortune v. National Cash
R e g i s t e r Co. ( 1 9 7 7 ) , 3 7 3 Mass. 96, 3 6 4 N.E.2d 1251 ( r e c o g n i z i n g

a contract action when employee terminated in order not to
r e c e i v e e a r n e d b o n u s e s o r c o m m i s s i o n s ) ; and Monge v. Beebe Rubber
Co. (1974), 114 N.H. 130, 316 A.2d 549 (recognizing contract

a c t i o n and l i m i t i n g damages t o t h o s e f o r b r e a c h of c o n t r a c t when
employee t e r m i n a t e d for refusal to d a t e foreman). For a more
complete list, see S m i t h v. A t l a s Off-Shore Boat S e r v i c e (5th

C i r . 1 9 8 1 ) , 6 5 3 F.2d 1 0 5 7 , 1 0 6 1 N.9.
I n t h e p r i o r d e c i s i o n , t h i s C o u r t r e l i e d on F o r t u n e and Monge
in recognizing that appellant has a cause of action under an
i m p l i e d c o v e n a n t of good f a i t h and f a i r d e a l i n g . Both Fortune
a n d Monqe grounded their decisions i n contract, not tort law.
Damages were limited to those allowed only for breach of

contract. Moreover, -
t h e d e c i s i o n i n Monqe was l a t e r l i m i t e d by
t h e New H a m p s h i r e Supreme Court to situations where the ter-

mination violated public policy. S e e Howard v. D o r r Woolen Co.

( 1 9 8 0 ) , 1 2 0 N.H. 2 9 5 , 414 A.2d 1 2 7 3 .
 By a l l o w i n g p u n i t i v e damages i n t h i s c a s e , t h e m a j o r i t y h a s
i d e n t i f i e d , and a p p r o v e d , an i n d e p e n d e n t t o r t of bad f a i t h i n a t -

w i l l employment c o n t r a c t s . All other jurisdictions do so o n l y
when t h e t e r m i n a t i o n v i o l a t e s p u b l i c p o l i c y .
I note further that the termination in question occurred

October 1 9 , 1979. The R e i t e r d e c i s i o n , s u p r a , a c k n o w l e d g i n g t h a t
" t h e e m p l o y e r d i d n o t a c t i n bad f a i t h b e c a u s e i t s c o n d u c t was
s t a t u t o r i l y permissible," was d a t e d May 4 , 1981. The K e n e a l l y

decision, supra, was dated January 30, 1980, and t h i s Court,
citing Percival v. General Motors Corp. (E.D. Mo. 1975), 400
F.Supp. 1322, s t a t e d :

"Thus, t h a t c o u r t n o t e d , c o r r e c t l y , t h a t a
d i s c h a r g e by an e m p l o y e r i n a c o n t r a c t t e r -
minable a t w i l l does not give rise t o a claim
f o r wrongful discharge i n t h e o r d i n a r y sense,
t h o u g h t h e f i r i n g o r t h e t e r m i n a t i o n may h a v e
been u n j u s t i f i e d . I t i s o n l y when a p u b l i c
p o l i c y has been v i o l a t e d i n c o n n e c t i o n w i t h
t h e w r o n g f u l d i s c h a r g e t h a t t h e c a u s e of
action arises." 6 0 6 P.2d a t 1 2 9 , 37 S t . R e p .
a t 157.
I n v i e w of t h e f a c t t h a t t h e t e r m i n a t i o n i n q u e s t i o n o c c u r r e d

l o n g b e f o r e t h e a b o v e two d e c i s i o n s of t h i s C o u r t , I would e x p e c t

t h i s C o u r t t o a p p l y t h e law a s s t a t e d i n t h o s e d e c i s i o n s t o t h i s
case. The G a t e s d e c i s i o n , s u p r a , w h e r e i n t h e d o c t r i n e of i m p l i e d
c o v e n a n t of good f a i t h was f i r s t a p p r o v e d , was d a t e d J a n u a r y 5 ,

1982. I do not object to the application of this doctrine
r e t r o a c t i v e l y f o r t h e d e t e r m i n a t i o n of c o m p e n s a t o r y damages, b u t

I d o n o t a g r e e t h a t it s h o u l d be t h e b a s i s of p u n i t i v e damages.

I note, with approval, t h e c i t a t i o n by t h e t r i a l judge in his
memorandum of September 28, 1 9 8 2 , of Nees v. Hooks, supra. In
t h a t c a s e a n employee was d i s c h a r g e d f o r m i s s i n g work t o a t t e n d
j u r y d u t y , a c l e a r v i o l a t i o n of p u b l i c p o l i c y . The O r e g o n c o u r t
a l l o w e d c o m p e n s a t o r y damages, b u t would n o t a l l o w t h e a w a r d i n g of
p u n i t i v e damages. The O r e g o n c o u r t s t a t e d a s f o l l o w s :

"There is one f a c t o r , however, which is
p r e s e n t i n t h i s c a s e which h a s n o t b e e n
p r e s e n t i n p a s t c a s e s approving t h e submission
o f t h e p u n i t i v e damage i s s u e t o t h e j u r y . In
o u r p a s t c a s e s , t h e d e f e n d a n t knew h i s c o n d u c t
was r e g a r d e d a s c u l p a b l e and would g i v e r i s e
t o a c a u s e of a c t i o n b e c a u s e of p a s t j u d i c i a l
 decisions or legislation. For example: An
a u t o m o b i l e d e a l e r t u r n i n g back t h e odometer t o
d e c e i v e t h e p u r c h a s e r , L e w i s v . Worldwide
I m p o r t s , 238 O r . 5 8 0 , 395 P.2d 9 2 2 ( 1 9 6 4 ) ; a
f i n a n c e company c o n v e r t i n g a n a u t o m o b i l e by
w r o n g f u l r e p o s s e s s i o n , P e l t o n v. Gen. Motors
A c c e p t . C o r p . , 1 3 9 O r . 1 9 8 , 7 P.2d 2 6 3 , 9 P.2d
1 2 8 ( 1 9 3 2 ) ; and a d r u n k e n d r i v e r c o l l i d i n g
w i t h a n o t h e r c a r , H a r r e l l v . A m e s , 265 O r .
1 8 3 , 508 P.2d 2 1 1 ( 1 9 7 3 ) .
"Until the t r i a l c o u r t ' s ruling i n t h i s case
a n d o u r a f f i r m a n c e t h e r e was no j u d i c i a l d e c i -
s i o n t h a t a n e m p l o y e r was l i a b l e i f h e
d i s c h a r g e d a n employee because s h e s e r v e d j u r y
duty. A s we e a r l i e r s t a t e d , t h e g e n e r a l r u l e
known t o e m p l o y e r s and l a w y e r s a l i k e i s t h a t
a b s e n t c o n t r a c t o r s t a t u t e , an employer c a n
d i s c h a r g e a n e m p l o y e e f o r any r e a s o n w i t h o u t
incurring l i a b i l i t y .
" I f w e h e l d t h a t p u n i t i v e damages c o u l d be
a w a r d e d i n t h e p r e s e n t c a s e , w e would be p e r -
m i t t i n g t h e j u r y t o p u n i s h d e f e n d a n t s f o r con-
d u c t which t h e y c o u l d n o t h a v e d e t e r m i n e d
be£ orehand was even actionable. The
a s s e s s m e n t of p u n i t i v e damages h a s some of t h e
same f u n c t i o n s a s t h e s a n c t i o n s of c r i m i n a l
law. . . . The s a n c t i o n s of t h e c r i m i n a l law
c a n n o t c o n s t i t u t i o n a l l y be imposed when t h e
c r i m i n a l i t y of t h e c o n d u c t is n o t c a p a b l e of
b e i n g known b e f o r e h a n d . " 272 O r . 210, 536
P.2d a t 516-17.
I would h o l d t h a t p u n i t i v e damages a r e n o t a l l o w a b l e w h e r e

there has b e e n no showing that the termination of an a t - w i l l
employee v i o l a t e d p u b l i c p o l i c y , u n t i l such t i m e a s t h e l e g i s l a -

t u r e r e p e a l s o r amends s e c t i o n 39-2-503, MCA.

I c o n c u r i n t h e f o r e g o i n g d i s s e n t of M r . J u s t i c e G u l b r a n d s o n :
 Mr. Justice Fred J. Weber dissents as follows:
I join in the dissent of Justice Gulbrandson. In
addition I dissent as follows:
With regard to the covenant of good faith, the majority
opinion holds in part:
"Breach of the covenant to deal fairly is, simply
stated, breach of a legal duty to deal fairly.
Breach of the duty owed to deal fairly in the
employment relationship is a tort for which
punitive damages can be recovered if defendant's
conduct is sufficiently culpable."
I am unable to understand how the majority has arrived at
that conclusion.
The majority refers to section 27-1-221, MCA, which in
pertinent part states:
"In any action for a breach of an obligation - not
arising from contract ...
the jury may give ...
damages for the sake of example and by way of
punishing the defendant." (Emphasis added.)
The basic question here is whether there is a breach of an
obligation not arising from contract.
In our original opinion, Gates v. Life of Montana Ins.
Co. (1982), Mont . , 638 P.2d 1063 at 1067, we
stated the key holding:
"We hold that a covenant of good faith and fair
dealing was implied in the employment contract of
the appellant."
In reaching that conclusion, we pointed out that a general
principle of good faith and fair dealing has been recognized
under the Uniform Commercial Code and also has been
recognized in insurance contracts. We also pointed out that
recent decisions in other jurisdictions support the
proposition that a covenant of good faith and fair dealing is
implied in employment contracts. Since we then concluded
that in the Gates case a covenant of good faith and fair
dealing was implied in the employment contract, it seems
clear that such a covenant becomes a part of the employment
contract as if it were set forth in writing.
An implied covenant can be breached just as a covenant
expressly stated in the contract can be breached. The
present case is an action for breach of the covenant of good
faith and fair dealing, arising - - contract from which
from the
that covenant is implied. Comparing the contractual covenant
of good faith and fair dealing with the punitive damages
section, it seems clear that breach of such a contractual
obligation does not justify an award of punitive damages
under the express terms of the statute.
The majority holds that the code section exempts only
breach of contract actions from its provisions. Essentially,
that is the nature of the present claim for relief.
The present holding has little relationship to our
original holding in Gates. There we held that a covenant of
good faith and fair dealing was implied in the employment
contract. We remanded the cause to determine if the employee
had been given due process and, if so, whether a breach of
the covenant of good faith and fair dealing resulted. If I
understand the majority, we now disregard the contractual
relationship and its implied covenant, and hold that there is
a duty to deal fairly, which apparently - - arise from
does not
the contract itself, and the breach of such duty is a tort
for which punitive damages can be recovered.
While I agree that it may be reasonable to amend section
27-1-221, MCA, to allow punitive damages for breach of an
obligation arising from contract, we have traveled a long way
to arrive at a conclusion which should have been left to the
legislature.