## Facts

- Catherine Sue Wagenseller worked as an at-will registered nurse in Scottsdale Memorial Hospital’s emergency department under supervisor Kay Smith.
- Over roughly four years, Wagenseller received promotions and favorable evaluations.
- In May 1979, Wagenseller attended a multi-day Colorado River trip with Smith and other hospital personnel where some participants allegedly engaged in heavy drinking and lewd conduct, including indecent exposure.
- Wagenseller alleged she refused to participate because she considered the behavior improper and potentially unlawful.
- After the trip, Wagenseller alleged her relationship with Smith deteriorated, her evaluations worsened, and she was terminated on November 1, 1979.
- Wagenseller claimed the stated performance reasons were pretextual and that she was fired in retaliation for refusing to engage in conduct that violated public policy.
- Wagenseller also relied on the hospital’s personnel policies as limiting termination and asserted claims against Smith for interfering with her employment relationship.

## Issues

1. Whether an employer may terminate an at-will employee for reasons that violate Arizona public policy.
2. How courts determine the relevant “public policy” for a wrongful-discharge claim.
3. Whether the hospital’s personnel manual could be an implied-in-fact part of the employment contract limiting termination.
4. Whether employment contracts include an implied covenant of good faith and fair dealing, and whether that covenant supports a wrongful-termination claim in an at-will relationship.
5. Whether a supervisor is privileged to influence an employee’s termination, and when that privilege is lost for purposes of an interference claim.

## Decision

- The Arizona Supreme Court adopted a public-policy exception to at-will employment: an at-will employee may be terminated for good cause or no cause, but not for a reason that violates public policy.
- The court held that public policy must be grounded in clear legal sources, principally statutes and the constitution, rather than generalized moral views.
- The court ruled that an employer’s personnel manual may become part of the employment contract as implied-in-fact terms if it reasonably creates contractual expectations; summary judgment was improper on that question.
- The court recognized an implied covenant of good faith and fair dealing in employment contracts but rejected using it to convert at-will employment into a for-cause regime or to create a broad, free-standing wrongful-termination theory.
- The court held that supervisors generally have a conditional privilege to act for the employer’s interests, but that privilege may be lost if the supervisor acts with improper motives or in a manner contrary to public policy; the case was remanded for further proceedings consistent with these standards.
- Disposition: reversed in part and remanded on the public-policy wrongful-discharge and contract/manual-related claims; affirmed rejection of an expansive good-faith wrongful-termination claim.

## Legal Principles

- At-will employment permits termination for good cause or no cause, but not for “bad cause” that contravenes clearly expressed public policy.
- A wrongful-discharge claim based on public policy sounds in tort when the discharge is for refusing to engage in conduct prohibited by law or for other terminations contrary to clearly manifested legal policy.
- Public policy is determined primarily from constitutions, statutes, and authoritative judicial decisions interpreting them; it must be clearly manifested.
- Personnel manuals and policies can create implied-in-fact contractual terms limiting termination if the employer’s statements and practices reasonably create employee expectations; whether such expectations exist is typically a fact question.
- The implied covenant of good faith and fair dealing exists in employment contracts but protects only the benefits actually agreed upon; it does not supply job tenure or a general tort remedy for at-will discharge.
- A supervisor’s interference with an employee’s relationship with the employer may be conditionally privileged when undertaken within authority to serve the employer’s interests; the privilege can be forfeited by improper purpose, malice, or conduct contrary to public policy.

## Conclusion

The court limited at-will termination by recognizing a tort claim when an employee is fired for reasons violating clearly expressed Arizona public policy, permitted personnel manuals to operate as implied contractual limits when they create reasonable expectations, constrained the good-faith covenant from becoming a general wrongful-discharge theory, and clarified that supervisory privilege to influence termination is conditional and may be lost upon improper motives or public-policy-violating conduct.


Wagenseller v. Scottsdale Mem’l Hosp., 147 Ariz. 370, 710 P.2d 1025 (Ariz. 1985) (en banc)