When Yul Brenner banishes Charlton Heston from Egypt in the movie The Ten Commandments , he utters the words that are the title of this month’s article. The saying of these words makes a point. When you set something down in writing, it is plain and unambiguous, and meant to be followed to the letter: no hemming and hawing; no ifs, ands, or buts; it is to be as it is written.
Over the years, I have reviewed hundreds of written contracts for orthodontists; many of them were employment contracts. Employment contracts are usually between senior and junior, with junior working for a period of time, hoping that at the end of the road there is a partnership or a buyout. Seniors, on the other hand, are looking to lighten their load, or maybe they took over another practice or opened a satellite, and they need some help: whatever. Often they say that they will consider something such as a partnership sometime down the road but only after junior has been employed for a while, since senior wants to make sure that junior is a good fit for the practice and treats the patients and staff well, that junior knows what he or she is doing, and so on.
At any rate, there is almost always a section in the agreement that deals with the term of employment. These terms usually run for 1 or 2 years. There is generally some verbiage about the ability of the parties to seek renewals when notices are sent, as well as language dealing with termination. Almost always, there is a phrase that says something such as “this agreement states the full understanding of the parties and cannot be modified except in writing and signed by both parties.”
Goldman v White Plains Center for Nursing Care, LLC , is an interesting case because it deals with an occurrence that happens more often than it should and, when it does occur, often leads to litigation. The facts of this case show that the plaintiff was hired to be the administrative director for the defendant for a 2-year period. In addition, the employment contract specified that the parties would “enter into good faith negotiations with respect to renewal of the Agreement on mutually agreeable terms” and that these negotiations would occur “no less than nine months before the contract was to expire.” The agreement could be terminated on mutual consent of the parties or “by either party giving notice to the other at least six (6) months prior to the end of the Employment Period of its intention not to renew this Agreement.” At the expiration of the contract or the termination of employment, the employer would “be released of any responsibility or obligation hereunder, except for payment of salary and benefits accrued to the effective date of such expiration or termination.” Finally, the contract represented the “entire Agreement and understanding” of the parties and also that it “could not be changed, modified, or amended, except by a writing” signed by both parties.
As things would have it, the employer and the employee got along splendidly. As the 2-year period neared its end, neither side gave the other notice of intent whether to continue. After the initial 2-year period ended, the plaintiff continued to serve, and the employer continued to employ, with agreed-upon salary adjustments amenable to both parties, for the next 8 years. When things are good, they’re good.
About this time, the employer decided to sell the business. Part of the contract of sale was that the purchaser agreed to an assignment and assumption of all contracts. The plaintiff’s original contract was among the contracts presented to the purchaser. Want to guess what happened? Three months after taking over the business, the defendant terminated the plaintiff’s employment. The plaintiff sued, claiming that her continued employment after the expiration of the original 2-year contract gave rise to a presumption that the parties intended to renew their contract for successive 1-year terms. The trial court agreed with the plaintiff. The defendant appealed. The appellate court reversed the trial court’s ruling, stating that an implied contract for successive 1-year periods was inconsistent with the express language in the original employment contract. This appeal ensued. New York’s highest court upheld the appellate court’s ruling.
Common law creates a presumption that upon expiration of an employment contract, when the parties continue to operate as they did before but without the benefit of a written document, the relationship is deemed to continue for successive 1-year terms. It is a rebuttable presumption allowing either party to show that it did not intend to allow the original contract to renew automatically. It cannot be for a longer term, as might have been stated in the original contract, because of a potential problem with the statute of frauds (a legal doctrine outside the scope of this article). Regardless, a fundamental rule of contract law is that agreements are to be strictly construed as written, since the document is the best evidence of the parties’ actual intentions. The court noted: “Thus, a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms, without reference to extrinsic materials outside the four corners of the document.”
The court enumerated that (1) the original contract contained a provision requiring the parties to renew their intentions before the contract’s expiration; (2) the contract would end if either party gave notice of intent not to renew at least 6 months before the expiration of the term of employment; (3) if the contract was allowed to expire, the employer would have no obligations other than to pay accrued salary and benefits as specified; and (4) the parties agreed that the contract encompassed their entire understanding, and it could not be changed except in a writing signed by both parties. The court noted the well-established rule that holds “absent an agreement establishing a fixed duration, an employment relationship is presumed to be a hiring at will, terminable at any time by either party.”
In a footnote to the case, it was noted that notices of intent not to renew not only serve varying purposes, but also can actually benefit both parties. For instance, senior can serve notice on junior of his intent not to renew the employment relationship; conversely, junior could notify senior of his intent to move on. On the one hand, it is usually because senior just doesn’t see an extended relationship working out, but, on the other hand, maybe junior is thinking of going out on his own and doesn’t want to be bound by a specified time commitment. Often it is because either party or both parties have had their eyes opened to the realities of the relationship they thought they wanted only to discover that maybe the best course of action is employment at will. Addressing this in another footnote, the court stated how easy it could have been to circumvent the common-law rule by merely inserting a clause noting that in the event of contract expiration without subsequent renegotiation, the employment term reverts to either successive 1-year contracts or employment at will, depending on what the parties initially want.
In closing, the court stated the following.
[I]n this case, where the employer and employee agree that the contract memorializes their understanding, can be modified only in writing and expires on a specified date absent additional negotiations for a new agreement, application of the common-law presumption would be contrary to principles of contract interpretation and the employment-at-will doctrine. In such a situation, the evidentiary presumption must yield, and this should be the result regardless of whether the contract is oral or written. We therefore hold that the common-law rule cannot be used to imply that there was mutual and silent assent to automatic contract renewal when an agreement imposes an express obligation on the parties to enter into a new contract to extend the term of employment.
The court tersely held that in situations such as described under this fact pattern the employment arrangement becomes employment at will. So let it be written, . . ..
I can’t tell you how many phone calls I get wherein junior tells me “well sure, I signed it, and sure I know what it says, but things were going along so well that we just sort of continued the way we had been.” I get it. Nobody wants to rock the boat when things are going well. All too often, I hear that they continued based on a handshake. Yes, junior would get a raise. Yes, junior would get some if not all of whatever additional benefits he was seeking. Yes, they agreed that someday soon, just not now, they would sit down and talk about partnership or buyout. In short, junior got “yessed” to death.
One main point of having a written contract is so that the future expectations of the parties can be adequately addressed and memorialized as memories of past discussions grow cloudy with age. Also, interpretations of what was discussed tend to get fuzzy and biased as time passes. One’s original intent can change along with a change in the circumstances. Things change, people change; it’s just the way it is. Look at how many doctors planned to retire until the great recession of 2008 reared its ugly head. Yes, things change.
Contracts serve not only to keep everyone on track regarding their expectations concerning the relationship as it exists, but also to preserve the parties’ expectations as their relationship either moves forward or disintegrates. Having a written iron-clad employment contract is kind of like having a prenup: it’s nothing personal, just business.