Employer May Terminate Employee Early If Employee Tries to Renegotiate Contract Mid-Term

In a recent decision that strengthened contractual freedom in the employment arena, the Virginia Supreme Court held that a partially-performed employment contract was not enforceable after the employee tried to renegotiate it.  This decision, Bennett v. Sage Payment Solutions, Inc., affirms the Fairfax County Circuit Court judgment, which upheld a jury verdict finding that the employee repudiated the contract four months into its year-long term.

The case involved an executive, Robert Bennett, who was promoted to the position of President of Sage Payment Solutions, Inc. in February 2008.  At that time, Bennett signed an Executive Employment Agreement agreeing to a $360,000 salary, a one-year employment term, and a one-year non-compete following termination of employment.  Nevertheless, four months later on June 7, 2008, Bennett sent an email to Sage demanding a salary increase to “the $1 million range,” or else he would begin looking for other employment.  Bennett further asserted that, unless his demand was met, the clock would start running at that point on his one-year non-compete clause.

When this demand was rejected, Bennett continued working in the job for several months while looking for other employment.  During that time, Sage sought to end his employment, prompting Bennett to claim that Sage’s conduct constituted a termination of employment and entitled him to severance benefits.  Sage denied that it was terminating his employment and asserted that Bennett’s demand constituted a resignation without “good reason” under the contract, for which severance was not available.  Sage ultimately ended Bennett’s employment on September 30, 2008.

Bennett then filed suit to collect severance benefits under his theory that Sage discharged him and violated the Agreement.  Sage originally defended the case on the grounds of Bennett’s resignation and then, before the close of Bennett’s case, sought leave to amend its answer to add a “repudiation” defense.  The Supreme Court allowed Sage to raise the defense at that time since the supporting facts were not a surprise to anyone, especially since Bennett’s own testimony just provided at trial supported the repudiation defense.

The Supreme Court upheld the jury instruction which stated:

If you find that Mr. Bennett repudiated or rejected the Executive Employment Agreement by conditioning his performance of his duties on the Company’s acceptance of such changes beginning in May 2008, then you may not find [Sage] liable for breach of contract for its subsequent rejection of his demand for severance pay.

The Court thus relied on the evidence that Bennett rejected the terms of his contract – a move by Bennett to impose new provisions mid-term – to find that continuous performance under the terms of contract had been repudiated.  By rejecting Bennett’s efforts, this decision aids employers in resisting employee efforts to renegotiate terms during performance, when the employee may have more bargaining leverage due to the employer’s need for continuity.

Click here for the opinion by the Supreme Court of Virginia.