MARYLAND COURT OF APPEALS SPOTLIGHT: High Court to Consider Whether an Employment Contract can Establish a Right to Lifetime Employment.

Can an employment contract establish a right to employment for life? The Maryland Court of Appeals will take up this question in the case of Spacesaver Systems, Inc. v. Adam.

Under Maryland law, the majority of employees are “at will” employees, meaning they can be terminated at any time and for any reason—other than discrimination on the basis of race, national origin, sex, religion, another legally-protected class, or for a reason that violates Maryland public policy (a very narrow exception)—or no reason at all.

There are some exceptions to the law of at-will employment. The most significant exception to at-will employment is in the case of an employment contract. An employer and employee can contractually agree to terms of employment. For example, the contract can set out a specific length of time that the employment will last, or that the employee may be terminated only for just cause. A contract with these terms gives the employee some legal rights to employment, such that he or she cannot be terminated at the sole discretion of the employer.

The Maryland Court of Appeals has established several principles regarding employment contracts and at-will employment. The Court has said that an employment contract will overcome the presumption of at-will employment if it contains a term establishing the duration of employment.[1] Similarly, if a contract provides that that the employee may be terminated only for just cause, the employee is not “at will.”[2] On the other hand, the Court has suggested that if an employment contract contains no term limiting the duration of employment, it may be terminated at any time and it effectively establishes at-will employment.[3]

The Court will revisit these issues in 2014—and may also consider whether an employment contract can establish a right to lifetime employment—in the case of Spacesaver v. Adam.

The Spacesaver case involves an employment contract between Carla Adam and Spacesaver Systems, Inc. The contract contained no limit on the duration of Adam’s employment, which suggested that she was an at-will employee. The contract also provided, however, that Adam could be terminated only for just cause, and so suggested that she was not an at-will employee. Spacesaver terminated Adam and she sued for breach of contract in the Circuit Court for Montgomery County. Adam asserted that because the contract contained no term limiting the duration of her employment, it amounted to a lifetime employment contract. She argued that—absent just cause for termination—Spacesaver was contractually bound to employ her for life.  The Circuit Court ruled for Adam, finding that there was a lifetime employment contract and that Spacesaver breached the contract by terminating Adam without cause.

On appeal, the Maryland Court of Special Appeals reflected on the unique nature of Adam’s claim to have a lifetime employment contract, stating, “lifetime employment contracts are like exotic, rare birds that have been identified and described in their occasional flights into Maryland, although they have rarely nested in our appellate jurisprudence.”[4]

The Court recognized that an employment contract can, in fact, establish a right to lifetime employment, but “only in very rare circumstances.”[5] In short, for a lifetime employment contract to be enforceable, it must be unmistakably clear from the terms of the contract that the parties intended it to establish employment for life. Although a contract for lifetime employment might at first appear to be a boon for any employee lucky enough to have one, the Court noted that it could be a double-edged sword, preventing the employee from leaving to seek other employment:

Judicial reluctance to find and enforce lifetime contracts stems from the serious consequences of such agreements. Lifetime employment, if binding the employee, may impact his chances of improving his condition, and prevent him from quit[ing] at any time without being liable for breach of contract damages[.][6]

The Court indicated that—because of these serious policy considerations—to be enforceable, a contract for lifetime employment would likely require some “special” consideration in addition to the services of the employee. This could take the form of a substantial benefit to the employer beyond the employee’s services or a substantial hardship to the employee as a result of accepting the employment position.

Ultimately, the Court of Special Appeals concluded that it did not have to decide whether and under what circumstances lifetime employment contracts are enforceable under Maryland law. The Court determined that Adam’s contract with Spacesaver was not a contract for lifetime employment. Instead, it characterized it as a “continuous contract terminable for-cause, rather than a lifetime contract.”[7] The Court explained that, although such a contract does not ensure lifetime employment, it is “continuous” and will remain in effect indefinitely unless the employee is terminated for cause or incompetence.[8] The Court reversed the Circuit Court’s finding of a lifetime contract, but affirmed the Circuit Court’s ruling that Spacesaver breached the contract by terminating Adam without cause.

On October 31, 2013, the Court of Appeals granted certiorari to review the Court of Special Appeals’ decision. Among other things, the Court of Appeals will consider whether there is a distinction between a lifetime employment contract and a “continuous for-cause contract,” and whether a contract of unlimited duration—even one that provides for termination only for cause—nevertheless amounts to an agreement for at-will employment.

The Court of Appeals will likely hear arguments in this case in June 2014, and may issue its ruling before the end of the current term in August 2014.

 

[1] Towson Univ. v. Conte, 384 Md. 68, 80, 862 A.2d 941, 947 (2004).

[2] Id.

[3] Suburban Hosp., Inc. v. Dwiggins, 324 Md. 294, 303, 596 A.2d 1069, 1073 (1991).

[4] Spacesaver Sys. v. Adam, 212 Md. App. 422, 427, 69 A.3d 494, 497 (2013).

[5] Id. at 445, 69 A.3d at 508 (internal quotation marks omitted).

[6] Id. (internal quotation marks omitted).

[7] Id. at 447-48, 69 A.3d at 510.

[8] Id. at 441, 69 A.3d at 505-06.

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