Good Faith and Fair Dealing in Contracts

Good Faith and Fair Dealing in Contracts

By Charlie Carlin

The general rule in Colorado is that every contract contains an implied duty of good faith and fair dealing. See State Farm Mut. Auto. Ins. Co. v. Goddard, 2021 COA 15, ¶ 29, 484 P.3d 765, 772; Alpine Bank v. Hubbell, 555 F.3d 1097, 1104 (10th Cir. 2009). This means that if the contract confers discretion on how the parties must perform under that contract, there is an implied duty that the parties exercise their discretion in such a way that is honest and within the accepted commercial practices to provide the other party with the benefits of the contract.

A major exception to the rule described above is that there is no implied duty of good faith and fair dealing in employment contracts. See, e.g., Decker v. Browning-Ferris Indus. of Colorado, Inc., 931 P.2d 436, 442 (Colo. 1997). Thus, if the parties to an employment agreement desire a duty between them to exercise good faith and fair dealing with each other, the parties must expressly include such a provision in their contract. 

In the absence of an explicit provision in the employment contract, any claim for breach of the implied covenant of good faith and fair dealing in an employment contract should be dismissed at the motion to dismiss stage.

If you need clarification about a contract and whether or not you need this provision, please contact me or another member of our corporate law team for a consultation. We are happy to assist.

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