Friday, July 1, 2011
On June 9, 2011, The Virginia Supreme Court decided an employer could use repudiation of an ongoing contract as a defense against a suit for breach of contract by the employer in Bennett v. Sage Payment Solutions, Inc.
Robert P. Bennett, former President of Sage Payment Solutions, brought suit against the company for severance payments due under his employment agreement.
Bennett was promoted to President of Sage Payment Solutions in February 2008. With this promotion, Sage and Bennett entered into an Executive Employment Agreement. Under this agreement, Bennett earned $360,000 annually which automatically renewed for one-year terms every year. Other provisions of the contract included severance benefits which were due Bennett unless he resigned without “good cause” or was terminated for “good cause” and a non-competition agreement that restricted Bennett’s employment for 12 months.
On June 7, 2008, Bennett e-mailed Sage requesting a salary increase to around $1 million annually. After all, in 2008 the economy was humming along and what could possibly go wrong? The e-mail specified that if this request could not be satisfied, a mutually agreeable transition plan would need to be entered because Bennett would be leaving. When his compensation did not increase, Bennett looked for other positions openly but continued in his position. Sage claims the e-mail was a resignation, while Bennett characterizes the refusal to meet the compensation demands as termination. Either way, Bennett’s employment was terminated September 30, 2008.
Bennett filed suit against Sage seeking his severance payments. After some delay, Sage asserted the affirmative defense of repudiation. Although Bennett objected, repudiation was submitted to the jury, which ruled in favor of Sage. The issue on appeal to the Supreme Court of Virginia was: Can an employee’s repudiation of an employment agreement be used as a defense to a breach of contract claim against the employer after performance has begun?
Virginia generally recognizes that anticipatory repudiation can be a defense to breach of contract, it had never ruled on repudiation after performance had begun. In Bennett, the Court drew on one of its previous decisions, one decision from the U.S. Supreme Court and the Restatement (2d) of Contracts § 250 and determined that repudiation may apply to a contract that has been partially performed, if future obligations are repudiated.
Applying this principle to Bennett, the Court found that his e-mail constituted a repudiation of the contract by stating he would leave the company four months into a yearlong contract if his salary was not increased.
[JT & Katherine Freeman]