My colleague Chris Engler reports today on a new Connecticut Appellate Court case that focuses on a often misunderstood concept in employment contracts — the need for “consideration”. What was it that Dire Straits’ sang about in the 1980s? Getting “Money for Nothing”?
We’ve all been told that you can’t get something for nothing. That lesson was reiterated in a new case by the Appellate Court due to be officially released next week.
As told by the Court, the facts of the case, Thoma v. Oxford Performance Materials, Inc., revolve around the employer’s attempts to attract investors.
One investment company told the employer, Oxford, that it wanted assurances that key personnel would not leave. Oxford dutifully entered into employment contracts with various employees, including Lynne Thoma.
The details of the contracts are important. This first employment contract gave Ms. Thoma a higher salary, job security (termination could only be with 60 days’ notice), and a severance package. In return, Ms. Thoma promised not to leave during the contract period and not to work for a competitor for six months after leaving. Ms. Thoma signed this contract.
At this point, both parties had gotten a benefit, and all seemed well.
But then a second investment company informed Oxford of its dissatisfaction because the employment contract was “too strong.” So Oxford went back to the drawing board and crafted new contracts.
Ms. Thoma’s second contract was quite different. It removed all of the monetary elements, including the salary increase. The new contract also allowed Oxford to fire Ms. Thoma without notice or cause. Finally, it prohibited Ms. Thoma from working for a competitor. (The length of this prohibition was unclear. If you’re a contract jargon junkie, I recommend reading the court’s analysis in full.)
Nevertheless, Ms. Thoma went ahead and signed this contract as well.
A year later, Oxford fired Ms. Thoma. She demanded the benefits from the first contract. Thus commenceth this case.
Is the Second Contract Enforceable?
Ultimately, both the trial court and the appellate court sided with Ms. Thoma, concluding that she didn’t receive any consideration in exchange for the sacrifices she made in the second contract. In other words, she gave up some perks without getting anything in return.