The purpose of an employment agreement is to agree upon the terms and conditions of employment in advance – perhaps most important among them being how to end it in the event the relationship deteriorates.
Although the goal of an employment contract is to have clearly annunciated expectations for performance on both sides of the relationship, this is not always reached. Of particular concern is establishing the terms of termination for “just cause” – providing the employer a clear-cut right to terminate for specific breaches of conduct and performance. Both parties to an employment agreement should remember that unless the document provides an exclusive definition of what constitutes “just cause,” an employer may terminate on that basis for a range of reasons, often depending on particular facts and circumstances.
This means that if an employment agreement does not detail the grounds for termination, and provide that these grounds are exclusive, the employer may terminate employment for “just cause” based on other unspecified reasons, so long as they are material or go to the essence of the contract.
Over the years, Maryland courts have provided useful explanations and examples of how this works.
In an employment decision in 2000, the Court of Special Appeals opined that “[i]f a contractual provision providing for termination for breach is not exclusive, it does not bar the remedy of termination for a breach that is material or that goes to the essence of the contract.”
Likewise, the Court of Appeals held four years later that “[a]n employer can base its termination with just cause on ‘common law [definition of] cause”—which permits an employer to terminate an employee for a ‘material breach’ of the contract, one that goes ‘to the essence’ of the contract itself, even though that cause is not mentioned in the contract.” In this case involving termination of a university administrator, the court noted that the employment agreement enumerated various reasons for termination in language clearly indicating the list was not complete and that other, unstated reasons could come into play.
Finally, in a 1999 case, the Court of Appeals held that, in the context of employment contracts, unless a provision for termination is in terms that are exclusive, it is a cumulative remedy and does not bar the ordinary remedy of termination for “a breach which is material, or which goes to the root of the matter or essence of the contract.”
Examples of actions that have qualified as “just cause” that were not explicitly included in the definition of “just cause” in an employment agreement include illegal acts, such as violations of federal banking law and internal bank regulations, and failure to disclose material information during the hiring process that reflects on an employee’s trustworthiness, where this is a material aspect of employment.
For employers presenting employment agreements to employees or potential employees, listing the reasons for possible termination can be helpful in terms of setting clear expectations from the start. However, such provisions should be worded to indicate that the enumerated reasons are not the only ones, and that the employer reserves the right to terminate for any material breach that goes to the basic issues of employee performance under the agreement.
For more information please contact Nicole Windsor at 410-583-2400 or firstname.lastname@example.org.