Have you ever negotiated with someone who seemed intent on sabotaging the negotiation or taking unfair advantage? If so, you would benefit from learning more about what it means to negotiate in good faith.
A Background on How to Negotiate in Good Faith
In U.S. contract law, the concept of good faith negotiation is rooted in the legal concept of “implied covenant of good faith and fair dealing,” which arose in the mid-19th century to protect parties from taking advantage of one another in contract negotiation. In 1933, the New York Court of Appeals ruled that every legal contract contains an “implied covenant that neither party shall do anything, which will have the effect of destroying or injuring the right of the other party, to receive the fruits of the contract.” The implied covenant of good faith and fair dealing was eventually incorporated into the Uniform Commercial Code and codified by the American Law Institute.
In current business negotiations, to negotiate in good faith means to deal honestly and fairly with one another so that each party will receive the benefits of your negotiated contract. When one party sues the other for breach of contract, they may argue that the other party did not negotiate in good faith.
In the context of collective bargaining, the U.S. National Labor Relations Act imposes on negotiators the duty to negotiate in “good faith.” The concept of “good faith” negotiation is not fully defined; rather, the courts assess parties’ behavior against a “totality of conduct” standard, write Russell Korobkin, Michael L. Moffitt, and Nancy A. Welsh in a chapter on “The Law of Bargaining” in The Negotiators’ Fieldbook. Generally, parties in labor-management negotiation are expected to agree on an effective bargaining process, consider and respond to one another’s offers, and not do anything to undermine the bargaining process or the authority of parties’ representatives.
How Good Faith Negotiation Is Governed
More broadly, the courts have ruled on what does and what does not constitute good faith negotiation, according to Korobkin and his coauthors. Outside of the collective bargaining context, for example, courts have determined that negotiators may make take-it-or-leave-it offers, can refuse to attend meetings (unless mandated to do so by a court), and they can withdraw their consent to provisions that they previously agreed to.
Beyond legal definitions of what it means to negotiate in good faith, negotiators sometimes are constrained by professional or organizational codes of conduct that define appropriate behavior, including good faith negotiation. For example, the American Bar Association’s Model Rules of Professional Conduct state that a lawyer representing a client may not knowingly make false statements “of material fact or law to a third person.”
Bargaining in Bad Faith
Why might someone choose not to negotiate in good faith? Often, they are seeking to take advantage of you by engaging in deception or hard-bargaining tactics.
At times, a party may also engage in a negotiation with no desire to reach an agreement or with no intention of implementing any agreement reached. In a 2015 article published in the Journal of Conflict Resolution, researchers Edy Glozman (Columbia Law School), Netta Barak-Corren (Harvard Law School), and Ilan Yaniv (Hebrew University of Jerusalem) examined the behavior of these “false negotiators.”
False negotiators tend to believe that their best alternative to a negotiated agreement, or BATNA, is preferable to any deal you might be able to offer them. At the same time, they also believe that to sustain or improve their BATNA, they would benefit from going through the motions of negotiating with you.
Someone might engage you in a false negotiation for the following reasons:
- They hope to use an offer from you as leverage in another negotiation, as in the job seeker who wants to negotiate a higher salary from another employer.
- They hope to gain information from you to use to their advantage (and perhaps at your expense). For example, a competitor might try to gain privileged information about your company in negotiations with you—with no intention of signing an agreement.
- They face pressure from another party or parties to negotiate with you under false pretenses. A government might engage in a multilateral agreement just for show, for example.
Identifying False Negotiators
False negotiators can be difficult to identify, note Glozman and colleagues, but can impose significant negotiation costs on you, wasting your time and money. The researchers identified a few clues to identifying false negotiators. Specifically, they:
- tend to respond slowly, dragging out the negotiation process;
- sometimes ramble about unrelated issues; and
- are more likely to mention constraints that, they claim, limit their ability to do a deal.
By asking lots of questions, the best negotiators in business identify those who do not negotiate in good faith.
What steps have you taken to ensure that counterparts negotiate in good faith? Share your experiences in the comments.
This is one of the simplest explanations I have seen on Good faith. I think the discussion can be improved by also comparing Good Faith with Utmost Good Faith as found in Insurance Contracts. This may be so, especially when the question of Moral Turpitude arises about an individual and when the standard of proof required is that of “Beyond Reasonable Doubt” so as to protect the Individual against the “might” of an entire Corporation..