Implied Renewal of Employment Agreements

Employers frequently enter into employment agreements with their employees for a fixed period of time at a stated annual salary. What happens if at the end of such an agreement's term both parties continue to perform under the expired employment agreement as if the agreement were still in effect? As we discuss in this article, in a majority of states, there are certain circumstances in which a court may presume the employment agreement is automatically renewed for an additional term. In such states, courts have recognized such implied renewals and have permitted employees to sue for breach of contract based upon a theory of discharge without cause during the renewal term. We also analyze how courts have addressed the enforceability of noncompetition or arbitration agreements following termination of employment after expiration of the original agreement, but during a period when an impliedly renewed agreement is in effect. Finally, we explore several considerations for drafting employment agreements to avoid unexpected results arising from the presumption of implied renewal.