An employer did not breach the implied covenant of good faith and fair dealing under Alaska law for terminating an employee for allegedly falsifying prescription drug records, the Alaska Supreme Court has ruled. Beach v. Handforth-Kome, No. 6845 (Alaska Nov. 29, 2013). Although the employee argued that the employer’s investigation was unfair, the Court found the implied covenant of good faith and fair dealing did not require the employer to provide her with additional protections, beyond that in the employee handbook. The Court also rejected the employee’s claim for retaliatory discharge.
Michele Beach began working as a medical assistant at Iliuliuk Family and Health Services, a family health clinic, in July 2008. During her employment, Beach identified what she considered to be serious issues with the clinic’s handling of prescription drugs, staffing, and necessary medical equipment. She suggested improvements in some of these areas to her supervisors.
In December 2008, a patient told the clinic’s Medical Director, a physician, that she had bought Vicodin, a prescription narcotic, from a woman who claimed to have obtained the pills from a clinic employee. The physician relayed this to the clinic’s Executive Director. They decided to review the clinic’s prescription drug records.
In their review of records for the drug Vicodin, the Executive Director and the Medical Director found a pattern of discrepancies, beginning in September 2008 and increasing in frequency into December 2008. They found that although the daily pill counts matched the logs, the number of pills being dispensed for some patients was far in excess of those being prescribed for and billed to those patients; in other cases, there were records of pills being dispensed to patients who had not been seen on the date of the entry or patients who did not even exist. On every entry for which the discrepancy could not be explained by a cross-check of other records, the person who had initialed it was Beach. The Executive Director could think of no valid explanation for the discrepancies except that Beach had falsified the records. Consequently, she terminated Beach’s employment for falsification of these records. Criminal charges were brought against Beach, but were dismissed.
Beach sued the clinic for breach of the covenant of good faith and fair dealing and retaliatory discharge. She alleged the clinic failed to conduct a fair investigation and terminated her in retaliation for raising concerns about the clinic’s prescription drugs security procedures. The clinic moved for summary judgment. The trial court granted the motion. Beach appealed.
Alaska law recognizes an implied covenant of good faith and fair dealing in all employment contracts, including at-will employment arrangements. The implied covenant requires that the employer act in a manner that a reasonable person would regard as fair. Where an employer’s policies require an investigation into misconduct, the employer must conduct that investigation fairly. On the other hand, an employer is not required to provide an employee with procedural protections different than what is set out in its policies.
Relying on several Alaska cases with similar facts, Beach argued that the clinic breached the implied covenant of good faith and fair dealing by failing to interview her or other witnesses before terminating her. The Alaska high court disagreed. It noted the investigation in this case was prompted by the physician’s receiving what she considered to be a credible report that a clinic employee was distributing Vicodin illegally, not just because the clinic has a subjective suspicion of Beach’s wrongdoing. Further, the clinic’s Executive Director waited to make a termination decision until after she thoroughly and methodically reviewed the suspect records and after reaching a “reasonable conclusion” that Beach had altered them.
In addition, the Court noted, the employee handbook expressly permitted immediate termination for falsifying clinic records — it made no promises of any pre-termination investigation or other discipline short of termination. Immediate dismissal without a prior warning was one of the clinic’s stated options for willful falsification or unauthorized alternation of clinic records. The Court explained that, once the clinic discovered it had these grounds for Beach’s immediate dismissal, “the implied covenant of good faith and fair dealing did not require them to give [Beach] additional procedural protections.” Accordingly, the Court affirmed summary judgment in favor of the employer on Beach’s implied covenant claim.
The Court also rejected Beach’s retaliation claim. It found Beach’s concerns about the clinic’s handling of prescription drugs did not rise to the level of protected activity. Even if they did, the Court said, Beach’s concerns were admittedly well received by the clinic, thus “refuting any causal connection between her proffered protected activity and her termination.” The Court concluded that, in any event, the clinic offered a legitimate reason for her termination (falsification of drug records) and Beach failed to prove this reason was pretextual. Thus, the Court affirmed summary judgment in favor of the employer on Beach’s retaliation claim.
This case reminds employers of the importance of thoroughly investigating employee misconduct in accordance with its policies. Employers should consider if an outsider would view its actions in deciding to terminate an employee as fundamentally fair and take steps to ensure the investigation is thorough and impartial. This case also underscores the importance of ensuring that if a specific discipline, investigation, or termination procedure is spelled out in the employee handbook, it is followed. Employers should consider reviewing their employee policies and practices to ensure that they address the realities of how the organization handles disciplinary decisions or investigations and set out a fair procedure.