Employment Contracts May Continue Beyond the Stated Duration

By, Michael A. Siskin

Under the laws of New York, it is a long-standing rule “that when, upon the expiration of a contract of employment for a definite term, the employee continues to render the same services as he rendered during the term of the contract without expressly entering into any new agreement, it will be presumed that he is serving under a new contract having the same terms and conditions as the original one (53 Am Jur 2d, Master & Servant, § 23)….”  Borne Chem. Co., Inc. v. Dictrow, 445 N.Y.S.2d 406, 411, 85 A.D.2d 646, 648 (App. Div. 2d Dep’t 1981).[1]  “Adams v. Fitzpatrick, 125 N.Y. 124, 26 N.E. 143…settled it as the law of this State that, where one inters in to the employ of another for a year’s service at a yearly salary and continues in the employment after the year’s end, there is available an inference or implica­tion of fact that the parties intended to renew for another year….”  Cinefot Int’l Corp. v. Hudson Photographic Indus., 13 N.Y.2d 249, 252, 246 N.Y.S.2d 395, 397, 196 N.E.2d 54, 55-56 (1963).

“[T]he continuance of employment supports a presumption of renewal of the employment contract in one-year increments.”  Innovative Networks, Inc. v. Satellite Airlines Ticketing Centers, Inc., 871 F.Supp. 709, 727 (S.D.N.Y. 1995).  Even if the original contract term was greater than one year, the contract continues to renew for successive one-year terms.  Id.; Schlaifer v. Kaiser, 377 N.Y.S.2d 356, 360-61 (Sup. Ct. N.Y. Co. 1975).  “Where the original term of an employment contract is for more than one year, a continuance in employment will not, because of the Statute of Frauds (General Obligations Law, § 5-701, subd. a, par. 1), support a presumption of a renewal for the full period of the original term, but only of employment from year to year thereafter.”  Borne Chem., 445 N.Y.S. at 411, 85 A.D.2d at 648.

Fringe benefits reasonably related to the contract are valid and enforceable under the renewed contract.  Schlaifer, 377 N.Y.S.2d at 360.  “The additional amounts are merely part of the employee’s compensation, bargained for before the services are rendered and thus supported by adequate consideration.”  Id.

An employer is estopped from complaining that renewal was improper where employment continued, even though written renewal was required by the terms of the contract.  Mendelson v. Bronner, 108 N.Y.S. 807, 124 A.D. 396 (App. Div. 1st Dep’t 1908); see also, 52 NY Jur.2d Employment Relations § 66 (1996)(interpreting Mendelson).  Where a provision has been inserted into a contract for the sole benefit of the drafter, “application of the equitable doctrines of waiver and estoppel seems most appropriate.”  Citibank, N.A. v. Tele/Resources, Inc., 724, 266, 269 (2d Cir. 1983) (applying New York law to hold that any provision, including a provision prohibiting oral waivers, may be waived).

In Mendelson, the defendant employed the plaintiff under a contract for one year which contained a provision requiring the defendant (the employer) to give written notice of his election to renew the contract within certain time limitations.  Mendelson, 108 N.Y.S. at 808.  The court found that, notwithstanding the written notice requirement, absent a superseding agreement limiting the term of the plaintiff’s employment after the expiration of the first year to a period of less than a year, “[t]he law in such case implies an agreement for a renewal of the contract upon the same terms for another year.”  Id. at 808-09.  The court concluded:

I am of opinion, therefore, that it is immaterial whether the election of the defendant was exercised in the manner prescribed in the agree­ment; for by continuing to employ the plaintiff, after the expiration of the year, the agreement having been in writing and under seal and containing a provision for its con­tinuance for three years longer, the defendant should be deemed estopped from questioning the regularity of its continuance [citations omitted], which is under the origi­nal contract to which the defense of the statute of frauds is not avail­able.

Id. at 810 [emphasis added].

 

  1. A. The Contract Was an Annual Contract

The Contract was for a definite, annual term.  The Employee was to be paid $200,000 “per annum,” and not “at the rate of $200,000.”  His compensation also included his minimum bonus of $200,000.  If the Contract was renewed, then 1991 would be changed to the renewal year.  Such terms are indicative of an annual contract.  See, Mason v. New York Produce Exch., 127 A.D. 282, 111 N.Y.S. 163, 164-65 (2d Dep’t 1908) (contract stating “for the first year” and “for the second year” constituted a hiring from year to year, just as the terms “for one year” and “for the period from January 1, 1897, to December 31, 1897”).

  1. B. Equity Requires that the Contract be Deemed Renewed

The common law equity rule in the majority of states mandates the presumption that when an employee continues essentially the same work, for the same pay, under an employment contract for a definite term, for an annual compensation, the employment contract is renewed in consecutive one-year terms.[2]  See, also, 2 Williston on Contract § 6.42, at 452 (4th ed. Lord 1990):

When a contract of employment for a definite time has been made, and the employee’s services are continued after the expiration of the definite time without objection, the inference is ordinarily that the parties have assented to another contract for the term of the same length with the same salary and conditions of service… .

The equitable policy behind this rule has been expressed as follows:

If the employe[e] remains in the same employment, after his term of service has expired, without making demand for increased pay, the employer may well presume that no increased compensation is expected or will be required, and having acted upon that presumption, and failed to protect himself by a new contract, the employe[e] will be held to have assented to a performance of the service at the original price.  The rights of the employe[e] and employer are mutual and reciprocal.  So where the employer permits a continuation of the service after the term has expired, without a new stipulation as to the price, it will be presumed that he expected and intended to pay for the service the original compensation stipulated.

 

53 A.L.R.2d 384 § 2, quoting Ingalls v. Allen, 132 Ill. 170, 23 N.E. 1026, rev’g on other grounds, 33 Ill.App. 458 (1890).

 

THE EMPLOYER’s reliance upon Klein v. Jostens, Inc., 1985 WL 1865 (S.D.N.Y. 9, 1985) (Jacoby Aff., Ex. 3) is misplaced.  There, defendant raised fact issues by alleging that it gave the employer a written notice of termination, and that the employee did not continue to perform the same work after the written agreement expired.  Thus, unlike here, triable issues of fact were presented.

 

POINT II

THE PARTIES DID NOT BAR THEMSELVES FROM RENEWING THEIR CONTRACT BY THEIR MUTUAL CONDUCT WHEN IT EXPIRED BY PROVIDING THAT THE CONTRACT “WILL TERMINATE ON DECEMBER 31, 1991, UNLESS THE PARTIES AGREE OTHERWISE IN WRITING.”

  1. Under Mendelson the contract renewed despite the parties failure to comply with the Contract’s requirement that the Contract would be renewed only if both parties so agreed in writing.                         

Although Adams v. Fitzpatrick does not address the issue of whether a “written renewal requirement” affects the majority common law rule, the New York courts, applying Adams, later determined that it does not.  Mendelson, 108 N.Y.S. at 810, 124 A.D. 396.  THE EMPLOYER argues that Mendelson is inapplicable because the renewal provisions are irreconcilably different.  But, the agreements in both Mendelson and this case require a writing to be renewed.

In Mendelson, at 808, the renewal provision provided:

[W]ith the privilege, however, on the part of the party of the first part [the employer] to renew this agreement for a period of three years from and after the expiration of one year from the date hereof, provided the party of the first part gives written notice to the party of the second part [the employee], on or before nine months from the date hereof of his intention or desire to renew said contract for said additional period of three years.

Under the text of the contract in Mendelson, it could only be renewed if the employer provided for such renewal in writing.  Here, the Contract, at ¶ 14, reads:

Except for this paragraph (which survives termination), this Agreement will terminate on December 31, 1991, unless the parties mutually agree otherwise in writing.

Under the text of the Contract, it too could only be renewed if the employer provided for such renewal in writing.  Both agreements provide for renewal only if there is a writing.  In neither case was there a writing.  In both cases, the parties continued to perform in the same manner, as if still obligated under the contract, without a new agreement.  In Mendelson, the court concluded that, “it is immaterial whether the election of the defendant was exercised in the manner prescribed in the agreement.”[3]  The contract continued.  Id., at 810.  Further, on page 810, the court came to this decision on the basis that –

by continuing to employ the plaintiff, after the expiration of the year, the agreement having been in writing…  and containing a provision for its continuance [as here, by means of a writing] for three years longer, the defendant should be deemed estopped from questioning the regularity of its continuance….

The same facts and equitable imperatives are present here.  THE EMPLOYER should be estopped from questioning the regularity of its continuance under the Contract.

In its attempt to distinguish Mendelson, THE EMPLOYER relies on a comment made by the employer that the contract would be renewed.  The court, at 809, rejected that comment as meaningless because –

the agreement to renew was void within the statute of frauds, since it rested in parol, unless it can be held that the mere continuance of the employment constituted by operation of law an agreement for the renewal of the employment… [emphasis added].

The court held that mere continuance constituted such an agreement.  Therefore, it is not relevant whether “he and THE EMPLOYER verbally agreed to waive such a provision.”  See, THE EMPLOYER’s Brief, at 13.  The Mendelson court merely requires that the parties did not enter into any subsequent contract for The Employee’s services.  Id., at 808-09.  THE EMPLOYER admits they did not.

 

  1.         A party to a contract containing a provision excluding non-written waivers or modifications may waive those provisions, or any others, without a writing. 

Although in a motion for summary judgment it is incumbent upon the opposing party to do so, THE EMPLOYER has provided no admissible evidence to dispute the facts which constitute a waiver of any requirement for a writing in this case.

Any contract provision may be waived, including provisions which require a writing to modify or amend.  Citibank, N.A. v. Tele/Resources, Inc., 724 F.2d 266, 269 (2d Cir. 1983).  “[T]he doctrine is well established that, even where a contract provides that there shall be no waiver or amendment not evidenced by a writing, `the prohibition of oral waiver may itself be waived.'”  Christian Dior-New York, Inc. v. Koret, Inc., 792 F.2d 34, 39 (2d Cir. 1986).  Judge Cardozo wrote that, “those who make a contract may unmake it.  The clause which forbids a change may be changed like any other.  The prohibition of oral waiver may itself be waived.”  Beatty v. Guggenheim Exploration Co., 122 N.E. 378, 387, 225 N.Y. 380 (1919).  In the context of expired employment contracts, the waiver may be achieved by the conduct of the parties.  Mendelsen, 108 N.Y.S. at 810.

 

THE EMPLOYER argues that the presumption of renewal which arose by operation of New York law, which it now seems ready to concede, is rebuttable.  THE EMPLOYER’s Brief, at 11.  Under the well-established rules of summary judgment motions, THE EMPLOYER must support its defenses of rebuttal with admissible evidence.  The only “evidence” of rebuttal provided by THE EMPLOYER, and it is not clearly presented as evidence supporting a rebuttal, is the pre-waiver provision in the Contract itself.  That evidence is clearly insufficient.  See, Mendelson, 108 N.Y.S. at 810.

The evidence contemplated by the courts to rebut the presumption of contract renewal is of acts taken around the time of the contract expiration.  For example, if the parties are engaged in negotiations for a new contract with revised terms, the presumption that the parties intended to continue under the same terms may be rebutted.  Martin v. Campanaro, 156 F.2d 127, 129 (2d Cir. 1946).  However, even where the employer gave timely written notice pursuant to an automatic renewal provision that the contract was not to renew, that conduct could be superseded by the continuation of the employee’s services after expiration of the contract.  Pohlers v. Exter Mfg. Co., 52 N.Y.S.2d 316, 317 (City Ct., N.Y. Co. 1944).[4]

    [1] See also, Huntingdon v. Claffin, 38 N.Y. 182 (1868); Douglass v. Merchants’ Ins. Co., 118 N.Y. 484, 486, 23 N.E. 806 (1890); Adams v. Fitzpatrick, 125 N.Y. 124, 128, 26 N.E. 143 (1891); Bennett v. Mahler, 85 N.Y.S. 669, 672, 90 A.D. 22 (App. Div. 1st Dep’t 1904); Brightson v. H.B. Claflin Co., 180 N.Y. 76, 80-81, 72 N.E. 920 (1904); Baker v. D.Appleton & Co., 95 N.Y.S. 125, 127-28, 107 A.D. 358 (App. Div. 2d Dep’t 1905); Treffinger v. M. Groh’s Sons, 98 N.Y.S. 291, 112 A.D. 250 (App. Div. 1st Dep’t 1906), aff’d, 185 N.Y. 610, 78 N.E. 1114 (1906); Mason v. New York Produce Exch., 111 N.Y.S. 163, 165, 127 A.D. 282 (App. Div. 2d Dep’t 1908); Wood v. Miller, 138 N.Y.S. 562, 565 (App. Term 1st Dep’t 1912); Eicks v. Wittemann Co., 142 N.Y.S. 190, 192, 157 A.D. 412, 415 (App. Div. 1st Dept. 1913); Pomerantz v. Polonsky, 170 N.Y.S. 43, 45 (App. Term 1st Dep’t 1918); Brown v. Actors’ Fund of America, 171 N.Y.S. 682 (Sup. Ct. N.Y. Co. 1918); Carter v. Bradlee, 280 N.Y.S. 368, 369, 245 A.D. 49, 50 (App. Div. 1st Dep’t 1935); Pohlers v. Exeter Mfg. Co., 52 N.Y.S.2d 316, 317 (City Ct. N.Y. Co. 1944); Mason v. Lory Dress Co., Inc., 104 N.Y.S.2d 906, 909 (Sup. Ct. N.Y. Co. 1951); Shenn v. Fair-Tex Mills, Inc., 273 N.Y.S.2d 876, 877, 26 A.D.2d 282, 283 (App. Div. 1st Dep’t 1966); Hubbell v. Hubbell Highway Signs, Inc., 422 N.Y.S.2d 199, 201, 72 A.D.2d 923, 924 (App. Div. 4th Dep’t 1979); Klein v. Jostens, 1985 WL 1865, *4 (S.D.N.Y. 1985).

    [2]  53 Am.Jur.2d, Master and Servant § 75; 52 N.Y. Jur.2d, Employment Relations § 101; See also, Restatement (2d) Contracts § 33, illustration 6; 30 C.J.S. Employer-Employee § 29(a); 53 A.L.R.2d 384; 82 Am.Jur.2d Wrongful Discharge § 3; 52 N.Y. Jur.2d, Employment Relations § 66; 1 Williston on Contracts § 90 n. 46 (1920); 1 Williston on Contracts (4th ed.) §§ 1:6, 4:2, 4:20 n. 11 and 6:42 (1990).  Connecticut courts have adopted parts of Williston on Contracts, and, in fact, have cited with approval 1 Williston on Contracts § 90.  Hayes v. Clark, 111 A. 781, 783, 95 Conn. 510 (1920) (not referencing note 46).

    [3]  THE EMPLOYER argues that Mendelson should not be followed because it is contrary to the canon of construction that every contract provision should be given effect if reasonable.  THE EMPLOYER’s Brief at 13.  However, the expired employment contract cases assume that, in certain circumstances, such as these, the parties’ conduct in continuing the relationship in the same manner reveals their intentions and imply a renewal by operation of law.

    [4]  Although the employee alleged an oral agreement to withdraw the written notice, the oral agreement comprised a separate cause of action, and was not considered in regards to the implied renewal.  Pohlers, 52 N.Y.S.2d at 317.  It is significant that the court found that the parties could orally agree to withdraw the written notice that the contract would not renew.  Id. at 318.