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COA Rules Against Terminated Employee Based On Absence Of Consideration To Support Employment Agreement

By Sean E. Andrussier

Today the Court of Appeals (COA) issued a split decision upholding a directed verdict for an employer in a contract action brought by a former VP of marketing after he was terminated. The case is Franco v. Liposcience, Inc. Judges Wynn and Hunter (the senior) were in the majority; Judge Ervin dissented.

The employer argued that plaintiff, Franco, was an at-will employee. Plaintiff contended he had an employment contract, relying on a letter the employer had issued after Plaintiff had already been serving as an at-will employee (the "Retaliation Letter"). The Retaliation Letter promised not to retaliate against Plaintiff based on his father's actions and not to take adverse employment action against him for two years absent approval of the new chairman. (The Retaliation Letter arose in the context of his father's severance agreement when he was ousted as chairman of the company. When the board voted to remove his father as chairman, his father received concessions, among them the Retaliation Letter protecting his son.)

The trial court ruled that the Retaliation Letter wasn't supported by any consideration from Plaintiff and thus wasn't an enforceable employment contract, with the consequence that Plaintiff was an at-will employee. The COA majority agreed, holding that Plaintiff couldn't rely on consideration given by his father in the context of the father's severance (i.e., couldn't rely on a third-party beneficiary theory) and that Plaintiff's continued employment wasn't valid consideration (no more so than it would be in the context of a non-compete executed by an employee without independent consideration).

Judge Ervin dissented. For consideration, he relied on the father's surrender of his right to take legal action against Defendant (the employer) when the father was ousted as chairman. Judge Ervin deemed there to be "ample consideration for the Retaliation Letter based upon [the father's] decision to enter into the Severance Agreement rather than pursue whatever legal rights he might have had against Defendant following his removal as Defendant's Executive Chairman."

Full post as published by North Carolina Appellate Blog on May 19, 2009 (boomark / email).