Spacesaver Systems, Inc. v. Adam

ADKINS, J. Oil and water naturally resist each other. No matter how much one tries, the two cannot be mixed together successfully. As this case demonstrates, the same is often true of family and business. Following a dispute between sibling business partners, we are asked to re-examine the contours of the firmly established doctrine of at-will employment.

We do so in order 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. ⁴ FACTS AND LEGAL PROCEEDINGS Petitioner, SpaceSaver Systems, Inc. (“SSI”), was incorporated in the District of Columbia in 1973 by Jack and Alyce Schmidt. SSI sells and installs mobile storage equipment, including tracked shelving systems, to businesses and governmental organizations with large storage needs. In the 1990’s, the Schmidts began transferring ownership of the business to their three children: Carla Adam (“Respondent”), Amy Hamilton (“Hamilton”), and David Craig (“Craig”). As the Schmidts eased out of the business and moved to Florida, the three siblings assumed greater responsibility in the company.

In 2006, Adam and Hamilton became concerned that Craig was stealing from SSI. Hamilton, Respondent, Albert Ellen-tuck (SSI’s corporate attorney), and Erik Kloster (SSI’s corporate accountant) met to discuss Craig’s affiliation with SSI. As a result of this meeting, Ellentuck revised the siblings’ employment agreements, which subsequently contained a provision for termination for cause. This provision appeared as follows: 4.2 Termination by the Company For Cause.

The Company may, at any time and without notice, terminate the Employee for “cause”. Termination by the Company of the Employee for “cause” shall include but not be limited to termination based on any of the following grounds: (a) insubordination or refusal to perform duties of employee’s position as directed by the President of Company and affirmed by a majority vote of the Directors; (b) fraud, misappropriation, embezzlement or acts of similar dishonesty; (c) conviction of a felony involving moral turpitude; (d) illegal use of drugs or excessive use of alcohol in the workplace; (e) intentional and willful misconduct that may subject the Company to criminal or civil liability; (f) breach of the Employee’s duty of loyalty, including the diversion or usurpation of corporate opportunities properly belonging to the Company; (g) willful disregard of Company policies and procedures; (h) material breach of any of the terms herein; ⁵ and (i) material nonperformance or negligence in Employee’s performance of her duties. Adam’s Executive Employment Agreement (the “Employment Agreement”) references a “term of this Employment Agreement,” but the parties failed to define this term. Along with the revised employment agreements, Ellentuck drafted a Stock Purchase Agreement so that if an employee were terminated from SSI, she could be compelled to sell her stock to the other shareholders.

Articles 3 and 5 of the Stock Purchase Agreement provide that SSI will redeem the stock in the event of disability or death of a shareholder. Article 4 provides that shareholders can be forced to sell their shares if they engage in “Prohibited Acts.” These “Prohibited Acts” generally mirror the for-cause provisions listed in the Employment Agreement. 1 On October 19, 2006, Adam, Craig, and Hamilton each signed the individual executive employment agreements and stock purchase agreements drafted by Ellentuck. Shortly after the employment agreements were executed, Craig resigned as President and Director of SSI. Pursuant to Adam’s Stock Purchase Agreement, Craig’s stock was sold equally to Adam and Hamilton, who consequently each held a 50% interest in SSI.

Despite Craig’s departure, sibling harmony did not last long, as Hamilton and Adam began to have disputes about their respective job responsibilities and compensation. According to Hamilton, Adam’s sales performance was “not very good.” Consequently, Adam was removed from the sales force. ⁶ On May 28, 2009, Hamilton wrote Adam expressing her intent to acquire Adam’s SSI stock, and concluding that Adam’s employment was terminated. The conflict reached its apex when, on January 28, 2010, SSI sent Adam a letter terminating her employment. In response, Adam filed a Complaint on April 9, 2010 against SSI and Hamilton in the Circuit Court for Montgomery County.

On July 30, 2010, Adam filed an Amended Complaint, which alleged that she was terminated without cause in violation of her Employment Agreement. Adam filed a Motion for Partial Summary Judgment, contending that the Employment Agreement established that she could only be terminated for cause. SSI filed an Opposition to Motion for Partial Summary Judgment and Cross-Motion for Summary Judgment, denying that the Employment Agreement guaranteed Adam lifetime employment and asserting that even if the Employment Agreement were so construed, Adam had failed to give “additional consideration” for a lifetime contract. Following a hearing, the motions court denied both motions for summary judgment on August 19, 2011.

The hearing judge found the contract ambiguous, ruling that “extraneous evidence of what the parties intended may be admitted to assist the court in determining the agreement of the parties.” After three days of testimony, the trial court ultimately concluded that the Employment Agreement transformed what had previously been an “at-will relationship” to a “lifetime contract,” such that Adam could only be terminated for cause, death, or disability. Crucial to the trial court’s analysis was that the for-cause provision would be rendered superfluous if the Employment Agreement were construed as at-will. The trial judge rhetorically asked, “why in the world would you have to worry about [cause] if you had an at-will contract?” The trial judge found a breach of the Employment Agreement, and awarded Adam $255,868.20, representing lost salary and commission. ⁷ SSI appealed to the Court of Special Appeals, asserting that the trial court erred in concluding that the Employment Agreement was not an at-will contract, but rather a for-cause lifetime contract. Spacesaver Sys., Inc. v. Adam, 212 Md. App. 422 , 69 A.3d 494 (2013).

On June 27, 2013, the Court of Special Appeals partially affirmed and partially reversed the trial court’s interpretation of the contract, holding that the contract’s plain language created a “continuous contract terminable for-cause,” which obviated the need for special consideration. Id. at 447 , 69 A.3d at 510 . SSI petitioned for writ of certiorari, which this Court granted on October 18, 2013 to answer the following questions: 2 1. Is there any difference between lifetime and “continuous for-cause” contracts? 2.

Did the Court of Special Appeals err in applying dicta from Towson University v. Conte, 384 Md. 68 , 862 A.2d 941 (2004), which suggests that a “just cause” provision transforms at-will employment into lifetime employment terminable only for cause? 3. Does the presence of a for-cause provision, which does not state employment is terminable only for cause, transform at-will employment to lifetime employment terminable only for cause? As to the second question, we affirm the judgment of the Court of Special Appeals. The first and third questions we shall answer in the course of explaining why this written employment contract is distinct from the alleged “lifetime employment contracts” that we have historically held to be unenforceable.

STANDARD OF REVIEW “The interpretation of a contract, including the determination of whether a contract is ambiguous, is a question of law, subject to de novo review.” Towson Univ. v. Conte, ⁸ 384 Md. 68, 78 , 862 A.2d 941, 946 (2004) (quoting Sy-Lene v. Starwood, 376 Md. 157, 163 , 829 A.2d 540, 544 (2003)). Maryland law dictates the objective interpretation of contracts, which provides for the following: [A court is to] determine from the language of the agreement itself what a reasonable person in the position of the parties would have meant at the time it was effectuated. In addition, when the language of the contract is plain and unambiguous there is no room for construction, and a court must presume that the parties meant what they expressed. In these circumstances, the true test of what is meant is not what the parties to the contract intended it to mean, but what a reasonable person in the position of the parties would have thought it meant.

Consequently, the clear and unambiguous language of an agreement will not give away to what the parties thought that the agreement meant or intended it to mean. Gen. Motors Acceptance Corp. v. Daniels, 303 Md. 254, 261 , 492 A.2d 1306, 1310 (1985). In determining whether a contract is ambiguous, a court may consider “the character of the contract, its purpose, and the facts and circumstances of the parties at the time of execution[.]” Calomiris v. Woods, 353 Md. 425, 436 , 727 A.2d 358, 363 (1999) (quoting Pac.

Indem. v. Interstate Fire & Cas., 302 Md. 383, 388 , 488 A.2d 486, 488 (1985)) (internal quotation marks omitted). 3 DISCUSSION Petitioner attacks the opinion of the Court of Special Appeals on several grounds. First, Petitioner maintains that when the Employment Agreement is read in conjunction with SSI’s Employee Handbook, 4 it is clear that the contract could ⁹ be terminated with or without cause. SSI highlights that the Employment Agreement’s for-cause provision says that SSI “may” terminate for cause. The provision did not say that Adam can “only” be terminated for cause.

Petitioner contends that if the for-cause provision were meant to carry so much weight, it would have authorized termination “only” for cause, which the Employment Agreement did not do. Petitioner’s most significant argument concerns the distinction that the intermediate appellate court drew between “continuous for-cause” and lifetime contracts. In Petitioner’s view, there is no distinction between the two. SSI contends that both are terminable by the employer only for cause and terminable by the employee without cause.

SSI alleges that the Court of Special Appeals described Adam’s employment with the novel moniker of “continuous for-cause” to escape the requirements to establish a lifetime employment contract. Expanding on this theme, Petitioner leans on the major presumption under Maryland law that an employment relationship is presumptively at-will unless the parties clearly and expressly set forth their agreement that the contract is to last for a specific period of time. In SSI’s view, the lower court failed to apply the heightened standard applicable to lifetime contracts, making no finding that SSI’s intent to provide lifetime employment was specific, definite, and unequivocal. Moreover, Petitioner argues that Adam failed to provide the “special consideration” required to support such a contract.

In sum, Petitioner contends that, instead of addressing the various issues surrounding lifetime employment contracts, the Court of Specials Appeals simply created an “evil twin” and said “it is a for-cause contract that is of continuous duration, but it is not a lifetime contract.” Spacesaver, 212 Md.App. at 448 , 69 A.3d at 510 . Finally, and in a similar vein, Petitioner argues that the Court of Special Appeals ignored a strong precept of Mary ¹⁰ land law that the at-will doctrine invariably applies when an employment contract is of an indefinite duration. Specifically, SSI posits that the intermediate appellate court has -wrongly elevated dicta to law by holding that under Conte , the inclusion of a for-cause provision transforms an at-will contract to a for-cause contract. In SSI’s view, this directly contravenes our previous holding in Suburban Hospital, Inc. v. Dwiggins, 324 Md. 294 , 596 A.2d 1069 (1991) that an employment contract of indefinite duration is employment at-will, even if it states some bases giving the employer cause for termination.

In this respect, SSI contends that this holding erodes the doctrine of lifetime employment. In reply, Respondent urges us to affirm the Court of Special Appeals. Rather than responding directly to each of Petitioner’s arguments, Respondent lays out a number of propositions that, in her view, compel the affirmance of the Court of Special Appeals. 5 First, Respondent alleges that the Employment Agreement is not an unambiguous at-will contract. She underscores that two lower courts have rejected the contract as unambiguously at-will based on the rationale that a for-cause provision is inconsistent with an at-will contract. 6 In her view, the very terms of the Employment Agreement establish that it is not an at-will agreement.

Similarly, Respondent rejects any applicability of the SSI Employee Handbook, observing that the Employment Agreement itself explicitly states that it will trump the provisions of the Handbook. Respondent similarly rejects the relevance of “special consideration.” Respondent states that no Maryland authority ¹¹ supports the position that “special consideration” is necessary to establish a contract such as this one. Adam avers that, although some jurisdictions require that lifetime contracts be supported by “special consideration,” we are dealing with a “continuous for-cause” contract, not a lifetime contract. Finally, moving to a policy perspective, Adam maintains that affirming the judgment below will not have adverse repercussions for employers generally.

She argues that any decision on this case will be limited to the facts of this case— one involving a closely held corporation and an employment agreement for high-level corporate officers. Moreover, Respondent contends that employers can easily avoid the burdens of for-cause employment by drafting employment contracts explicitly to say “at-will” when they are meant to be at will. 7 Presumption Of At-Will Employment We begin by laying out the fundamentals of Maryland employment law. Our starting place is one of our most venerated common law precepts, the employment at-will doctrine. In McCullough Iron Company v. Carpenter, this Court announced that “[tjhere can be no doubt that, in this country, the rule is, an indefinite hiring is prima facie a hiring at will.” 67 Md. 554, 557 , 11 A. 176, 178 (1887).

This Court has confirmed this principle repeatedly and unequivocally. See Porterfield v. Mascari II, Inc., 374 Md. 402, 421-22 , 823 A.2d 590, 601 (2003) (“The employment at-will doctrine long has been part of the common law of Maryland.”); Adler v. Am. Standard Corp., 291 Md. 31, 35 , 432 A.2d 464, 467 (1981) (“The common law rule, applicable in Maryland, is that an employment contract of indefinite duration, that is, at will, can be legally terminated at the pleasure of either party at any time.”); see also Stanley Mazaroff & Todd Horn, Maryland ¹² Employment Law § 3.02[1] (2d ed. 2014) (“Recognizing the continued vitality of the employment at will doctrine, Maryland courts have held that an employment relationship presumptively is at will unless the parties clearly and expressly set forth their agreement that the contract is to last for a specific period of time.”). This common law doctrine reflects the courts’ concern with promoting freedom of contract and fundamental fairness.

See Dwiggins, 324 Md. at 303 , 596 A.2d at 1073 (“The [employment at-will] doctrine was born during a laissez-faire period in our country’s history, when personal freedom to contract or to engage in a business enterprise was considered to be of primary importance.”). This rationale is clearly expounded in Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts: [T]he courts have shown a marked reluctance to enforce contracts for life employment. In large part, this stems from the realization that such contracts frequently are, in practical effect, unilateral undertakings by the employer to provide a job for so long as the employee wishes to continue in it but impose no corresponding obligation upon the employee. When this is the case, the burden of performance is unequal, as the employer appears to be bound to the terms of the contract, while the employee is free to terminate it at will.

Accordingly, it has been said: An employee is never presumed to engage his services permanently, thereby cutting himself off from all chances of improving his condition; indeed, in this land of opportunity it would be against public policy and the spirit of our institutions that any man should thus handicap himself; and the law will presume ... that he did not so intend. And if the contract of employment be not binding on the employee for the whole term of such employment, then it cannot be binding upon the employer; there would be lack of “mutuality.” § 54:39 (4th ed. 2001) (quoting Pitcher v. United Oil & Gas Syndicate, 174 La. 66, 69 , 139 So. 760, 761 (La.1932)) (ellipsis in original) (footnotes omitted). ¹³ Yet we observe that presumptions can only act as an aid to interpreting a contract, not as a substantive limit on parties’ ability to contract. See id. (“The employment-at-will doctrine is a rule of contract construction, not a rule imposing substantive limitations on the parties’ freedom to contract ... ‘[i]f the parties include a clear job security provision in an employment contract, the presumption that the employment is at-will may be negated.’ ” (quoting Eck & Assocs., Inc. v. Alusuisse Flexible Packaging, Inc., 700 N.E.2d 1163, 1167 (Ind.Ct.App.1998))) (footnotes omitted).

Indeed, the employment at-will doctrine, even in the seminal case of McCullough, was not presented as absolute. 67 Md. at 557 , 11 A. at 178 . There, this Court observed that “an indefinite hiring is prima facie a hiring at will.” Id. (emphasis added). Nothing in this doctrine prohibits contracting parties from showing a mutual understanding that rebuts this prima facie presumption.

Indeed the presumption of at-will employment can be defeated through the inclusion of a just-cause requirement, or by specifying a duration of employment: While the language of the contract itself may express a just cause requirement, a contractual delineation of the length of the employment period will also create a just cause employment relationship because by specifying the length or term of employment, the employer usually is considered to have surrendered its ability to terminate the employee at its discretion. Conte, 384 Md. at 80 , 862 A.2d at 947-48 ; see also Mazaroff, discussed supra. One type of for-cause employment is lifetime employment. We discussed lifetime employment at length in Chesapeake & Potomac Telephone Co. of Baltimore City v. Murray, 198 Md. 526 , 84 A.2d 870 (1951). “[A] contract for permanent or life employment is valid and continues to operate as long as the employer remains in the business and has work for the employee and the employee is able and willing to do his work satisfactorily and does not give good cause for his discharge.” ¹⁴ Id. at 533 , 84 A.2d at 873 .

We declared, however, that those claiming a lifetime employment contract faced an uphill climb. First, the law protects stockholders’ ability to alter a corporation’s management by electing boards of directors. Id. at 531 , 84 A.2d at 872 . Recognizing that the directors’ authority would be hollow if corporate officers were able to grant “persons of their selection employment for life,” we stated that one hurdle to lifetime contacts is “proof that there was definite authority, by by-law, action by the board of directors, or otherwise, to make such a contract.” Id.

Second, a lifetime employment contract must be supported by consideration beyond that incident to accepting the position. See id. at 533 , 84 A.2d at 873 (holding that “the mere giving up of a job, business or profession by one who decides to accept a contract for alleged life employment ... to place himself in a position to accept and perform the contract” is not sufficient consideration for lifetime employment); see also Page v. Carolina Coach Co., 667 F.2d 1156, 1158 (4th Cir.1982) (holding that relinquishing a job and benefits to assume a new position was not sufficient consideration for lifetime employment). Third, a lifetime employment contract must clearly stipulate the “terms as to work and salary” in order to be enforceable. Murray, 198 Md. at 534 , 84 A.2d at 874 ; see also Balt. & Ohio R. Co. v. King, 168 Md. 142, 149 , 176 A. 626, 628 (1935) (holding that lifetime contracts “at least should be specific and definite, with little or no room for misunderstanding, even if they are not required to be in writing” (quoting Arentz v. Morse Dry Dock & Repair Co., 249 N.Y. 439, 443 , 164 N.E. 342, 344 (N.Y.1928))); Yost v. Early, 87 Md.App. 364, 383-85 , 589 A.2d 1291, 1300-01 (1991) (reaffirming that an alleged oral lifetime employment contract was only employment at-will because there was no showing that it clearly expressed the specific terms of the agreement, including duties, wages, and performance guidelines). ¹⁵ Before evaluating the Employment Agreement, we observe that our primary inquiry concerns whether the contract created at-will or for-cause employment.

For our purposes here, employment contracts can be broken into three categories, those with: (i) specific temporal duration, terminable before the expiration only for cause; (ii) no specified temporal duration, but containing a clear for-cause termination provision; and (iii) no temporal duration, and no for-cause termination provision, which are terminable at will. Placing the Employment Agreement in one of these three categories will determine the resolution of this controversy, as Adam has no cause of action sounding in breach of her employment contract if she fits in the third category, at-will employment. See James J. O’Malley, “Cause of Action for Wrongful Discharge from Employment in Breach of Contract,” 18 Causes of Action 229 (1989) (“To establish a prima facie case in an action for wrongful discharge from employment in breach of contract, the plaintiff must prove that: 1. The defendant promised ... c. that the plaintiff would be discharged only for just cause[.]”).

Nature Of The Employment Agreement “Our analysis begins, as it should, with the language of the employment contract at issue.” Conte, 384 Md. at 78 , 862 A.2d at 946 . Under the objective interpretation of contracts, we focus upon whether a reasonable person, in the parties’ position, would have thought that the contract provided any measure of job security. “Under the objective view, a written contract is ambiguous if, when read by a reasonably prudent person, it is susceptible of more than one meaning.” Calomiris, 353 Md. at 436 , 727 A.2d at 363 (citation omitted). Moreover, this Court has been clear in observing that: “[a] recognized rule of construction in ascertaining the true meaning of a contract is that the contract must be construed in its entirety and, if reasonably possible, effect must be given to each clause so that a court will not find an interpretation which casts out or disregards a meaningful ¹⁶ part of the language of the writing unless no other course can be sensibly and reasonably followed.” Cochran v. Norkunas, 398 Md. 1, 17-18 , 919 A.2d 700, 710 (2007) (quoting Sagner v. Glenangus Farms, 234 Md. 156, 167 , 198 A.2d 277, 283 (1964)). Although the Employment Agreement is silent as to its duration, which can signify at-will employment, it also contains a for-cause provision, which negates an at-will employment contract.

Conte is instructive on this point. After evaluating Dr. Conte’s employment contract, which had a for-cause provision similar to Adam’s and a definite durational term, we held that the contract “makes clear that Dr. Conte was not an ‘at-will’ employee.” Conte, 384 Md. at 79 , 862 A.2d at 947 . We also held that the university could not avail itself of the protections afforded employers who terminate at-will employees. Id Of special import here, the Conte Court also opined 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.

Id at 80, 862 A.2d at 948 . Petitioner characterizes this pronouncement as dicta that is at odds with Dwiggins . We agree that it was dicta, but feel secure in embracing it here. Indeed, Conte finds support from a number of other jurisdictions that have adopted a similar rule.

See Bell v. Ivory, 966 F.Supp. 23, 29 (D.D.C. 1997) (“The presumption of ‘at will’ employment can be overcome by the creation of a contract of employment for a fixed term or an indefinite contract that allows termination only for cause.”) (emphasis added); Gladden v. Ark. Children’s Hosp., 292 Ark. 130, 136 , 728 S.W.2d 501, 505 (Ark.1987) (“[W]e reject as outmoded and untenable [the view] that the at will rule applies even where the employment agreement contains a provision that the employee will not be discharged except for cause, unless it is for a definite term.”); Dillman v. N.H. College,