## Facts

- Paul M. Luedtke worked for Nabors Alaska Drilling, Inc. on the North Slope.
- Nabors implemented workplace drug testing based on safety and drug-use concerns.
- On November 5, 1982, Nabors required employees, including Luedtke, to submit to urinalysis; the trial court later found Luedtke lacked adequate notice of the drug-testing policy and/or the test.
- Luedtke tested positive for marijuana and was immediately suspended.
- On November 30, 1982, Nabors terminated Luedtke after he refused to take another drug test; the termination had been upheld as lawful in earlier proceedings.
- Earlier appellate proceedings remanded only the suspension question for a factual determination whether the suspension breached the implied covenant of good faith and fair dealing.
- On remand, the trial court (1) limited remedies to the suspension period (no reinstatement or wages after the lawful termination date), (2) decided the covenant issue largely on written submissions rather than a trial, (3) found no covenant breach, and (4) imposed sanctions on Luedtke and his counsel and awarded attorney’s fees.

## Issues

1. Whether Nabors breached the implied covenant of good faith and fair dealing by suspending Luedtke after a drug test administered without adequate notice and under allegedly unequal treatment compared to similarly situated employees.
2. Whether the trial court erred by resolving the remanded, fact-intensive covenant issue on written submissions rather than conducting the fact-finding contemplated by the remand.
3. Whether sanctions and attorney’s fees were improper where Luedtke’s remand positions were nonfrivolous and he prevailed on the central issue.

## Decision

- The Alaska Supreme Court reversed the judgment for Nabors on the covenant issue and held the suspension breached the implied covenant of good faith and fair dealing.
- The court held the trial court erred by converting the remanded factual question into a paper determination, contrary to the remand direction that the issue was for the trier of fact and that additional evidence should be taken if necessary.
- The court agreed that remedies for any wrongful suspension could not extend beyond November 30, 1982, because the termination on that date was lawful; damages were limited to losses caused by the suspension itself.
- The court reversed sanctions imposed under Alaska Civil Rules 11 and 95(a) and reversed the attorney’s fee award under Rule 82.

## Legal Principles

- Alaska employment relationships include an implied covenant of good faith and fair dealing with:
  - a subjective component (no improper motive or intent to harm), and
  - an objective component (conduct a reasonable person would regard as fair, including even-handed treatment of similarly situated employees).
- In the drug-testing context, lack of adequate notice of the employer’s testing policy and disparate treatment in applying discipline can establish an objective breach of the covenant even absent subjective bad faith.
- When an appellate court remands a question “for the trier of fact,” the trial court must conduct adequate fact-finding and may not foreclose evidentiary development where it is reasonably necessary to resolve disputed, fact-dependent fairness questions.
- Sanctions under Alaska Civil Rules 11 and 95(a) are inappropriate where a party advances colorable arguments grounded in existing law or a good-faith legal position; prevailing on the core issue strongly weighs against sanctionability.

## Conclusion

The Alaska Supreme Court held Nabors breached the implied covenant of good faith and fair dealing by suspending Luedtke after a drug test imposed without adequate notice and applied in a manner that treated him unequally, reversed the trial court’s paper-only approach to the remand, limited damages to the suspension period due to the lawful termination, and vacated sanctions and attorney’s fees.


Luedtke v. Nabors Alaska Drilling, Inc., 834 P.2d 1220 (Alaska 1992)