Termination as a Result of Labor Agreement Upheld

An appeal alleging the government improperly terminated a postal unit contract was denied by the Postal Service Board of Contract Appeals because the government did not breach the covenant of good faith and fair dealing or act in bad faith. The government terminated the contract after entering a collective bargaining agreement that contained a memorandum of understanding requiring the government to close specified contract postal units, including the contractor’s, and bring the operations in-house. The government terminated the contract on 60 days’ written notice pursuant to the Contract Duration and Termination clause and the contractor appealed, challenging the propriety of the termination.

Good Faith

The covenant of good faith and fair dealing obligates parties not to interfere with each other’s contract performance so as to destroy the reasonable expectations of the other party. The contractor argued the government did not inform it promptly that its contract was in jeopardy once the CBA was executed, and withholding the information breached the contract. However, the contract expressly granted each party the right to terminate the contract with proper notice, and the implied duty of good faith and fair dealing cannot expand a party’s contractual duties beyond those expressly stated in the contract or create duties inconsistent with the contract’s provisions (see 58 CCF ¶80,329). Moreover, the implied duty only protects a party’s reasonable contract expectations. The contractor could not have had a reasonable expectation of continued performance beyond 60 days. Also, the termination notice, given eight months after the government was obligated to do so under the CBA, was not inappropriately hasty.

Bad Faith

The contractor also argued the government knew the union’s interests directly conflicted with the contractor’s interests and therefore the government’s agreement to terminate was an act of bad faith. However, it was clear the government’s motivation in entering into the CBA was not to injure the contractor, but to have a comprehensive agreement with a large union and resolve a union grievance. Also, the government’s efforts to persuade the union to substitute a different contract postal unit for closure did not suggest malice toward the contractor. The termination was an unavoidable, ancillary result of the CBA.


In dissent, Administrative Judge Pontzer agreed with the majority’s findings of fact but disagreed with the majority’s application of the law to the facts. The dissent concluded the government acted in bad faith by terminating the contract to acquire a better bargain with the union. Also, according to the dissent, the government violated its duty of good faith and fair dealing by not informing the contractor for many months that it had agreed to close the contractor’s CPU. The contractor incurred long-term financial obligations that it would not have incurred had the government informed it earlier. ( Temple Contract Station LC, PSBCA, ¶94,103)