At-Will Employment: Court Strengthens Limits on Contracts that Modify At-Will Employment

Franco v. Liposcience, Inc., __ N.C. App. __, 676 S.E.2d 500 (2009) – The North Carolina Court of Appeals has strengthened narrow limits on what constitutes an enforceable employment contract that removes an employee from at-will status under state law. A letter given to the employee by the company’s chairman of the board stating that the company would not retaliate against the employee, the court held, was not supported by any consideration where the employee merely continued employment after he received the letter.

Richard Franco, Sr., was chairman of Liposcience’s board of directors while his son and the plaintiff in the case, Richard Franco, Jr., was vice president of marketing. Franco, Sr. was removed from the board of directors and negotiated a severance and release agreement with Liposcience in which he released all claims against the company in return for severance payments and other promises. Franco, Sr. also sought a commitment that Franco, Jr. would not suffer retaliation because of their relationship. The new chairman of the board of directors prepared a side letter to Franco, Jr. stating that Liposcience would not retaliate or take adverse employment action against him. Neither the side letter nor its commitments were contained or mentioned in the severance agreement between Franco, Sr. and Liposcience. Approximately one year later, Franco, Jr. claimed that he suffered adverse employment action in breach of the side letter and sued for breach of contract. The trial court granted Liposcience’s motion for directed verdict, ruling that the side letter was not a valid contract.

The Court of Appeals agreed, holding that no consideration flowed from Franco, Jr. to Liposcience in return for the company’s assurances. Notably, the court reinforced the principle that continued employment is not consideration for an employment contract.

Additionally, the court held that Franco, Sr.’s severance agreement was not sufficient consideration for his son’s side letter.

Ogletree Deakins attorneys Phil Strach and Greg McGuire defended the company in the matter. The case currently is on appeal to the North Carolina Supreme Court.

Note: This article was published in the October 2009 issue of the North Carolina eAuthority.