Maryland Court Of Appeals Holds That Inclusion Of Permissive 'Termination For Cause' Provisions Negates Presumption Of At-Will Employment And Creates 'Continuous For-Cause' Contract

In a recent decision, Spacesaver Systems, Inc. v. Adam, --- A.3d ----, No. 98, 2014 WL 4216024 (Md. Aug. 27, 2014) ("Adam"), the Maryland Court of Appeals was "asked to re-examine the contours of the firmly established doctrine of at-will employment." Adam, 2014 WL 4216024, at *1. Specifically, petitioner Spacesaver Systems, Inc. ("SSI") asked the Court "to determine if a written contract containing a for-cause provision but no definite term of employment exists as an at-will contract, a lifetime contract, or something else." Id. The Court found such a contract to be something else, and affirmed the contract's designation by the Court of Special Appeals as one for "continuous for-cause" employment, finding this was the "best moniker" for such an arrangement. Id. at *13. Given the creation of a new category of employment relationship, employers should review existing employment agreements and templates to determine whether the language therein creates the relationship the employer intends - at-will, for-cause, lifetime, or, now, continuous for-cause employment. Moreover, if an employer desires to provide for both termination with and without cause, and severance and related benefits only in the event of the latter, the burden is on the employer to make this distinction clear. Including what are intended to be optional (e.g., "employer may") for-clause provisions will likely foreclose an employer's right to terminate without cause unless the employment agreement explicitly states that the employer also has the right to do so.

The Adam Court explained that although the treasurer and shareholder Adam's employment agreement was "silent as to its duration, which can signify at-will employment, it also contain[ed] a for-cause provision, which negates an at-will employment contract." Id. at *8. Citing Towson University v. Conte, 384 Md. 68, 80, 862 A.2d 941, 948 (2004)1 and noting similar rules in other jurisdictions, e.g., Nevada and Minnesota, the Court "embrac[ed]"Conte dicta that "either a for-cause provision or a 'contractual delineation of the length of the employment period' will independently establish that an employee was not at-will." Adam, 2014 WL 4216024 at *8 (emphasis in original). It did not change the Court's analysis that the "Termination by the Company For Cause" provisions in Adam's employment agreement provided that SSI "may" terminate Adam for cause, not that it "can only" do so. Id. at *13. Thus, SSI, a closely held...