A contract terminable at-will can be modified by either party at any time as a condition of its continuance. In general, an employment agreement for an indefinite period is considered to be a contract terminable at-will.
A change in salary or benefits is a modification of an employment agreement which the employee accepts by continued work. An employee who objects to the proposed modification but continues to work and accept payment is deemed to have accepted the modification.
However, for the modification to be effective, the employee must be made aware of the proposed changes to the employment agreement. An employer who modifies terms of employment without notice to the employee may be in breach of the employment agreement. Such was the case in Eberstadt v. Heppenstall Company, where two at-will employees successfully sued their employer after the employer eliminated incentive based compensation. The employees’ compensation was governed by a sales incentive commission plan. The incentive plan included year-end payout of incentive commissions. The employer decided to abandon the year-end payout, but did not notify the employees of the modification. Instead, the employer merely omitted the incentive calculation from the employees’ rate sheet. The employees sued for breach of contract and alleged that they did not agree to the modification of their compensation plan. The court ruled in favor of the employees because, without notice of the modification, the employees’ continued work could not be deemed acceptance of the modifications.
Similarly, parties must continue to abide by any other terms of the contract which are not affected by the modifications. For example, in the case of Wyatt v. Dishong, the parties significantly modified the compensation terms of the employee’s agreement, but the employee was still bound by the non-competition agreement. The employer (“Clinic”) was a chiropractic clinic which hired the employee (“Doctor”) to work as a chiropractor. The parties signed an agreement in which Clinic agreed to pay Doctor $200 per week and 50% of the fees generated by patients whom Doctor treated. The contract was terminable at-will by either party with 30 days notice and contained a non-competition covenant.
Thereafter, Clinic altered Doctor’s compensation. First, Clinic ceased the $200 per week salary payment. Then, Clinic reduced the 50% fee sharing arrangement to 10% of the total because of an alleged increase in costs. Doctor continued to work despite the reduction in pay. Eventually, Doctor left Clinic to start a competing practice. Clinic sued, and Doctor argued that he was released from the non-competition covenant because Clinic altered the contract without his consent.
The court first considered whether the contract could be modified. Applying the rule that a contract terminable at-will can be modified by either party at any time, the court found that when Clinic eliminated Doctor’s salary and reduced his share of the fee sharing agreement, Doctor had the opportunity to either accept the change in the agreement or to reject the change and cease work. Because Doctor chose to continue to work he accepted the modification of the agreement. The court then considered whether the modification relieved Doctor of his duties under the non-competition covenant. The court ruled that the non-competition covenant could still be enforced by Clinic. Generally, an otherwise valid non-competition covenant will only be excused for non-performance of a contract duty so material and important that the employee could consider the contract terminated. No such non-performance existed in this case because Doctor accepted the modified compensation and, hence, Clinic did not breach the employment agreement. Therefore, the non-competition covenant was enforceable.
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