There has been considerable research interest in the nature of service failure and recovery over the past few decades. In this context, the role of frontline service employees has emerged as a crucial factor in successful service recovery. Interestingly, while management and organizational behaviour literatures have looked at the favorable influence positive psychological capacities (optimism, hope, self-efficacy, and resilience) have on employee performance, this literature has not yet been used to shed light on how such capacities in frontline service employees might impact service recovery. By bringing this literature into the service recovery context, this research aims to examine how, and to what extent, these internal positive psychological capacities in frontline employees affect service recovery and complaint handling. Using emotion contagion theory, the broaden-and-build theory of positive emotions, the theory of cognitive appraisal, and justice theory, the study develops a number of hypothesized relationships, centered on the proposition that employee positive psychological capacities influence service recovery and complaint handling through both an emotional and a behavioral path. Specifically, it is posited that frontline employee positive emotions influence customer perceived interactional justice through the emotional path, while the behavioral path influences frontline employee problem solving, thus influencing customer perceived distributive and procedural justice. Data to examine these questions was collected using two studies. The first, based on a survey of service providers, investigates the influence of positive psychological capacities on positive emotions and problem solving competencies of frontline employees. The second uses an experimental design with service customers as subjects, investigating the influence of employee problem solving levels and positive emotions on customer perceptions of justice. Data analysis supports both paths with a stronger influence for the behavioural paths. The study brings new insight to service managers and service recovery.