Generally, in the absence of an express provision on the subject, a contract contains an implied covenant of good faith and fair dealing between the parties. Watson Truck & Supply Co. v. Males, 111 N.M. 57, 60, 801 P.2d 639, 642 (1990); Spencer v. J.P. White Bldg., 92 N.M. 211, 214, 585 P.2d 1092, 1095 (1978).
Under the implied covenant of good faith and fair dealing, courts can award damages against a party to a contract whose actions undercut another party's rights or benefits under the contract. Watson Truck & Supply Co., 111 N.M. at 60, 801 P.2d at 642.
Our Supreme Court has nevertheless refused to apply this implied covenant to override an express at-will termination provision in an integrated, written contract. Melnick, 106 N.M. at 731, 749 P.2d at 1110; Bourgeous v. Horizon Healthcare Corp., 117 N.M. 434, 438, 872 P.2d 852, 856 (1994).
In Melnick, State Farm terminated Melnick's insurance agency contract. Melnick, 106 N.M. at 727, 749 P.2d at 1106. the district court directed a verdict for State Farm, concluding that the implied covenant was not violated because State Farm did not act in bad faith. Id.
The Supreme Court affirmed the district court without regard to the issue of bad faith, concluding solely that the cause of action for breach of the implied covenant did not lie because the employment contract contained an express at-will termination provision contained within a "fully integrated, clear, and unambiguous" contract. Id. at 731, 749 P.2d at 1110.
Refusing to vary from the parties' contract, the Supreme Court in Melnick reasoned that contractual provisions concerning termination which were not the basis of fraud or unconscionable conduct should be enforced as written and that it could not "change or modify the language of an otherwise legal contract for the benefit of one party and to the detriment of another." Id. at 731, 749 P.2d at 1110.
The Court noted that an at-will employment contract may be terminated by either an employee or an employer "at any time, for any reason, without liability" in New Mexico and that it was "not inclined to redefine the law of at-will employment contracts." Id. at 730, 749 P.2d at 1109.
At the writing of Melnick, the law of at-will employment contracts included Vigil v. Arzola, 102 N.M. 682, 699 P.2d 613 (Ct. App. 1983), reversed in part on other grounds by, 101 N.M. 687, 687 P.2d 1038 (1984), and overruled in part on other grounds by Chavez v. Manville Products Corp., 108 N.M. 643, 649, 777 P.2d 371, 377 (1989).
In that case, this Court recognized the cause of action of retaliatory discharge as a tort when an employer violates a clear mandate of public policy in the termination of an employee. Arzola, 102 N.M. at 688, 699 P.2d at 619.
This aspect of Arzola remains the law in New Mexico. See, e.g., Garrity v. Overland Sheepskin Co., 1996 NMSC 32, PP13-27,121 N.M. 710, 917 P.2d 1382; Michaels v. Anglo Am. Auto. Auctions, Inc., 117 N.M. 91, 92, 869 P.2d 279, 280 (1994); Chavez, 108 N.M. at 647-50, 777 P.2d at 375-78.