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What Is the Implied Covenant of Good Faith and Fair Dealing?

Under New Jersey law, every employment contract contains an implied covenant of good faith and fair dealing. Even if it is not written into the contract itself, both parties are understood to have agreed to act honestly and faithfully in performing and enforcing the agreement. This means neither the employer nor the employee can act dishonestly or knowingly deviate from the terms of the contract to deprive the other party of the benefit they bargained for.

This covenant is not a standalone right. It applies only where a contract exists between the employer and employee, whether that contract is an express written agreement, an implied contract created by a handbook or offer letter, or another enforceable employment agreement. It does not apply to at-will employment relationships where no such contract exists.

The implied covenant fills a specific gap. It addresses situations where an employer technically complied with the contract's terms but acted in a way that was designed to cheat the employee out of what the contract was meant to provide. The promise of good faith does not create new obligations that were not already in the agreement; it prevents a party from using bad faith to avoid the obligations that were.

New Jersey common law — implied covenant of good faith and fair dealing

Every employment contract in New Jersey includes an implied obligation of good faith and fair dealing. A party that acts dishonestly or in bad faith to deprive the other of a contractual benefit may be liable for breach of this covenant.

The Legal Standard That Applies to Your Situation

In New Jersey, a breach of the implied covenant of good faith and fair dealing is determined by a two-part inquiry. Here is how it works and what it means for your situation. If the facts satisfy this standard, you may have a claim even if your employer told you otherwise.

You must show that an express or implied employment contract governed your relationship. A formal written employment agreement, an offer letter with specific terms, or a handbook that creates enforceable obligations can all satisfy this element. A purely at-will employment relationship without any contractual terms does not.

Your employer acted dishonestly or in a way that knowingly deviated from the terms of the contract, and the result was that you were deprived of something the contract entitled you to. There is no strict legal test that defines exactly when bad faith has occurred. Courts look at the employer's conduct in context and ask whether a reasonable person would consider it dishonest or unfair given what the contract promised.

Signs You May Have a Good Faith and Fair Dealing Claim

Scenario 01

You performed work under a contract and your employer refused to pay what you were owed

Scenario 02

Your employer changed the commission or bonus terms after you had already earned the payout

Scenario 03

Your employer changed your role specifically to prevent you from meeting a contractual threshold

Scenario 04

Your employer terminated you just before a significant commission, bonus, or vesting date

Scenario 05

Your employer's conduct was clearly designed to undermine what your employment agreement promised

Scenario 06

Your employer made representations to keep you in the job and then acted contrary to them

If any of these sound familiar, you may have a legal claim, even if you're not certain. A case evaluation is the fastest way to find out.
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What You Need to Prove in a Good Faith and Fair Dealing Case

To bring a successful good faith and fair dealing claim, you generally need to establish the following, but you don't need to have this all figured out before you call:

report

A contract existed

An express or implied employment contract governed your relationship with your employer at the time of the bad faith conduct. The covenant does not apply where no contract exists.

report

Your employer acted in bad faith

Your employer acted dishonestly or knowingly deviated from the terms of the contract in a way that deprived you of a benefit the contract entitled you to receive.

report

You suffered harm as a result

The bad faith conduct caused you a concrete loss: unpaid wages, a withheld commission or bonus, loss of a benefit, or another deprivation of what the contract promised.

How Good Faith and Fair Dealing Cases Work in New Jersey

If your employer used bad faith to deprive you of something your contract promised, here is what the process looks like from the first conversation forward.

1
Case Evaluation

An attorney reviews your contract, the circumstances of the employer's conduct, and what you were deprived of, and tells you whether you have a viable claim, what it might be worth, and what your options are.

No commitment required
2
Investigation

The client provides all of their evidence: the contract or agreement, records of what you earned or were owed, communications reflecting the employer's conduct and intent, and documentation of the harm the bad faith caused.

3
Filing

Good faith and fair dealing claims are brought as breach of contract claims in New Jersey Superior Court, often alongside related wrongful termination or wage claims where applicable.

4
Negotiation or Trial

Mark & Kleinfeldt negotiates from a position of strength, prepared and willing to go to trial when the situation calls for it. That posture changes what employers offer at the negotiating table.

5
Resolution

Successful claims can result in recovery of the withheld benefit, back pay and lost wages, compensatory damages, and attorney's fees where applicable.

Related Claims to Consider

Good faith and fair dealing claims often overlap with other employment claims. If any of the following also describe your situation, you may have more than one claim worth pursuing.

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Wrongful Termination

If your employer terminated you in bad faith to deprive you of a contractual benefit, your good faith and fair dealing claim and a wrongful termination claim may run together.

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Wage and Hour Claims

If the benefit you were deprived of was compensation you had already earned, a wage claim under the NJ Wage Payment Law may apply alongside your contract claim.

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Frequently Asked Questions

More FAQs

No. The implied covenant of good faith and fair dealing applies only where an employment contract exists. It does not apply to purely at-will employment relationships where no contract governs the terms of employment. If your situation involves a written employment agreement, an offer letter with specific terms, or a handbook that creates enforceable obligations, the covenant likely applies.

There is no strict legal definition, but courts look at whether the employer's conduct was dishonest or designed to deprive the employee of a right or benefit under contract. Examples include refusing to pay earned commissions without justification, terminating an employee just before a significant vesting or bonus date to avoid paying it, or changing the terms of a benefit structure after the employee has already met the threshold to earn it.

Yes, if your employment was governed by a contract. If your employer terminated you in bad faith to avoid paying a commission, accelerating a vesting schedule, or honoring another contractual obligation, you may have a good faith and fair dealing claim alongside a wrongful termination claim.

A breach of contract claim addresses a direct violation of a specific contract term. A good faith and fair dealing claim, sometimes referred to as a quasi contract claim, addresses conduct that technically may not violate a specific term but that was designed to undermine the purpose or benefit of the contract. In practice, the two claims often arise together and are pursued simultaneously.

The statute of limitations is six years.

Ready to Find Out If Your Employer Violated Its Obligation to Deal Fairly With You?

You've learned what the implied covenant of good faith and fair dealing covers in New Jersey and what you would need to show. The next step is a free conversation with a Certified Civil Trial Attorney who can tell you specifically whether what happened to you is legally actionable.