Spacesaver Systems, Inc. v. Adam
440 Md. 1, 38 I.E.R. Cas. (BNA) 1796, 98 A.3d 264 (2014)
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Rule of Law:
An employment contract of indefinite duration that includes an express for-cause termination provision rebuts the presumption of at-will employment. Such a contract is a 'continuous for-cause' agreement, which is distinct from a lifetime employment contract and does not require the heightened proof standards, such as special consideration, applicable to lifetime contracts.
Facts:
- In the 1990s, Jack and Alyce Schmidt began transferring ownership of their company, SpaceSaver Systems, Inc. (SSI), to their three children: Carla Adam, Amy Hamilton, and David Craig.
- In 2006, due to concerns that Craig was stealing from the company, the corporate attorney revised the siblings' employment agreements.
- The new agreements, signed by all three siblings on October 19, 2006, included a specific provision listing nine grounds for termination 'for cause', but did not specify a duration or term of employment.
- The siblings also signed a Stock Purchase Agreement compelling a terminated employee to sell their stock, with termination triggers mirroring the 'for cause' provisions in the employment agreement.
- Shortly after the agreements were signed, Craig resigned, leaving Adam and Hamilton as equal 50% owners.
- Disputes subsequently arose between Adam and Hamilton regarding job performance and compensation.
- On May 28, 2009, Hamilton informed Adam of her intent to acquire Adam's stock and that her employment was terminated.
- On January 28, 2010, SSI sent Adam a formal letter terminating her employment.
Procedural Posture:
- Carla Adam filed a complaint against SSI and Amy Hamilton in the Circuit Court for Montgomery County, later filing an Amended Complaint alleging termination without cause in violation of her Employment Agreement.
- Adam filed a Motion for Partial Summary Judgment, and SSI filed a Cross-Motion for Summary Judgment; the motions court denied both, finding the contract ambiguous.
- After a bench trial, the trial court found in favor of Adam, ruling that the agreement was a 'lifetime contract' terminable only for cause and awarded her $255,868.20 in damages.
- SSI, as appellant, appealed to the Court of Special Appeals of Maryland, an intermediate appellate court.
- The Court of Special Appeals affirmed in part, holding the contract was not at-will but was a 'continuous contract terminable for-cause,' a distinct category from a lifetime contract.
- SSI, as petitioner, was granted a writ of certiorari by the Court of Appeals of Maryland, the state's highest court, to review the lower court's decision.
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Issue:
Does the inclusion of a for-cause termination provision in a written employment contract of indefinite duration rebut the presumption that the employment is at-will?
Opinions:
Majority - Adkins, J.
Yes, the inclusion of a for-cause termination provision rebuts the presumption of at-will employment. Although an employment contract of indefinite duration is presumptively at-will, this presumption is a rule of contract construction that can be overcome by an express agreement. A contract containing a clear for-cause termination provision, even without a specified duration, negates at-will status and creates a 'continuous for-cause' employment relationship. The court reasoned that to hold otherwise would render the negotiated for-cause provision superfluous and ignore the plain language of the contract, which a reasonable person would interpret as providing job security. This type of written, definite 'continuous for-cause' contract is distinct from disfavored oral and vague allegations of 'lifetime employment' and therefore does not require the heightened standards of proof, like special consideration, associated with such claims.
Analysis:
This decision carves out a new, distinct category of employment contract in Maryland law, the 'continuous for-cause' contract, which sits between traditional at-will employment and the difficult-to-prove lifetime contract. By holding that a for-cause provision alone is sufficient to rebut the at-will presumption, the court gives significant weight to such clauses even in contracts of indefinite duration. This ruling provides greater job security for employees with such contracts and serves as a crucial drafting lesson for employers: to ensure at-will status, the contract must state so explicitly and avoid including lists of reasons for termination.
