implied covenant of good faith and fair dealing

implied covenant of good faith and fair dealing n. a general assumption of the law of contracts, that people will act in good faith and deal fairly without breaking their word, using shifty means to avoid obligations, or denying what the other party obviously understood. A lawsuit (or one of the causes of action in a lawsuit) based on the breach of this covenant is often brought when the other party has been claiming technical excuses for breaching the contract or using the specific words of the contract to refuse to perform when the surrounding circumstances or apparent understanding of the parties were to the contrary. Example: an employer fires a long-time employee without cause and says it can fire at whim because the employment contract states the employment is "at will." However, the employee was encouraged to join the company on the basis of retirement plans and other conduct which led him/her to believe the job was permanent barring misconduct or financial downturn. Thus, there could be a breach of the implied covenant, since the surrounding circumstances implied that there would be career-long employment. (See: implied)