Lapsed Employment Agreements May Result in At-Will Employment

There can be many benefits to entering into an employment contract, for both the employer and the employee. To ensure each party continues to receive those benefits after expiration of the original contract, it is important to draft a formal, written extension agreement, or a new employment agreement altogether. Without a written extension agreement, the employment relationship could revert to “at-will” employment, giving the employer the right to alter compensation arrangements, or terminate the employee at any time. 

A recent case from the New York Court of Appeals dealt with this issue. In Goldman v. White Plains Center for Nursing Care, LLC, the plaintiff-employee argued that the expiration of a two-year employment contract gave rise to successive one-year implied contracts because the employee continued to work for the employer after the contract expired. The plaintiff argued that under the common law, there is a presumption of the parties intent to renew an employment agreement for an additional year if the employee continues to work for the employer after the employment agreement has expired. The plaintiff’s argument would mean that the employment agreement automatically without the execution of a new written contract or extension. In rejecting the plaintiff’s argument, the court noted that the employment contract contained a provision that required a signed writing in order to modify any terms of the agreement. Since the contract set a specific date for expiration of the agreement, the court held that there was an express duty in the contract for the parties to enter into a new contract to extend the term. Therefore, once the employment contract expired, the plaintiff continued on as an at-will employee.

For employees with an employment contract in place, the best means to avoid at-will employment is to obtain a written extension prior to the expiration date of the employment agreement. For employers, best practice is to specifically state within the employment agreement that upon expiration the employee becomes at-will.