Jul 01, 1995 General Employment Issues

Employer Alert: Implied Renewal of Expired Employment Agreement

Employers often assume that when an employee continues to be employed after the expiration of his or her employment agreement, the employee automatically becomes an employee at will, whose employment is terminable at any time. This is not the case. It has long been the rule under New York law that if a written employment contract expires and is not formally renewed, but the employee continues to perform the same functions and to receive the same compensation as was received under the contract, there is a presumption that the parties have mutually agreed to a new contract containing the same provisions as the old. Cinefot Int’l Corp. v. Hudson Photographic Indust., 13 N.Y.2d 249, 246 N.Y.S.2d 395, 397, 196 N.E.2d 54, 55-56 (1963).

Fortunately, the presumption that a new contract has been created is rebuttable. An employer can avoid the risk of being bound to an implied renewal of an expired contract by making clear in writing at the expiration of the contract that, although the employee may continue in his or her employment, the expired contract no longer applies. It is also advisable to include a provision such as the following in any employment agreement:

Nothing contained in this agreement shall be construed to impose any obligation on [Employer] to renew this agreement. This agreement may be amended, modified, renewed or extended only by a writing signed by both parties. Neither the continuation of employment nor any other conduct shall be deemed to imply a continuing obligation upon the expiration of this agreement.