If you play hardball, you might get left in the dust.

Robert P. Bennett v. Sage Payment Solutions, Inc., 282 Va. 49; 710 S.E.2d 736, 2011 Va. LEXIS 135 (June 9, 2011). In this case, the Supreme Court of Virginia decided that an employer can use an employee’s repudiation of an employment agreement as a defense to a breach of contract claim.

Robert Bennett became President of Sage Payment Solutions, Inc. in February 2008. Bennett and Sage entered into an employment agreement, under which Bennett was to earn $360,000 per year. The agreement provided that Bennett would receive severance benefits of a year’s salary plus benefits, unless he was terminated for good cause or he resigned without good reason. The agreement also included a non-competition clause that would restrict Bennett’s employment for the year after his employment with Sage ended.

After Bennett had been at work for roughly four months, he emailed Sage and demanded an increase in salary to the $1 million range, or “we agree to my transition out of the company.” Bennett wrote that if his demand could not be met he would consider staying on as a consultant, but he would want the clock to start running on the non-competition period.

Sage did not increase Bennett’s compensation to the $1 million range and considered Bennett’s email to be a resignation, rather than a request for a higher salary. Bennett disagreed, and viewed Sage’s refusal to pay him an increased salary to be a termination of his employment.

Bennett sued Sage, seeking severance payments due under the agreement. At the eleventh hour—the third day of a jury trial and just prior to the end of Bennett’s presentation of evidence—Sage made a motion to amend its pleadings. In that motion, Sage asked the court to allow it to argue the defense of “repudiation.” Usually, repudiation is thought of as an “anticipatory” breach: one which arises when a party to the contract makes it known that the party will not perform when the time for performance comes around. As a result of a party’s repudiation, the non-repudiating party is excused from performing any further duties under the contract.

Bennett objected to this repudiation defense, but the circuit court agreed with Sage and granted its motion. The jury then found that Bennett had repudiated his employment agreement, leaving him with no damages, and Bennett appealed. The Virginia Supreme Court held that a party to a contract could repudiate that contract after performance had already begun, and that such repudiation would excuse further performance by the non-repudiating party. Though this legal maxim sounds relatively straightforward, the positions of Bennett and Sage show that subtleties of interpretation can make all the difference.

Bennett argued that his email to Sage did not constitute a repudiation, but instead that he was inviting Sage to renegotiate his salary. After all, Bennett argued, he was only “suggesting” that his salary be tripled. To the contrary, argued Sage, through his words and actions, Bennett clearly and fully repudiated the contract. Bennett offered only two options, he gave Sage a deadline by which he would leave if his compensation did not increase, and he insisted that if he were to serve as a consultant the non-competition “clock” would begin running. Additionally, Sage argued, Bennett never indicated that he would continue working at the $360,000 salary.

The Virginia Supreme Court agreed with Sage and found that Bennett had offered Sage an ultimatum, which Sage would not take. It found that Sage was reasonable in relying on Bennett’s repudiation and treating it as a breach, noting that if Sage had not relied on it then it could not have begun its search for Bennett’s replacement until after Bennett failed to show up for work. Accordingly, the Supreme Court agreed that the circuit court did not err in allowing Sage to use the defense of repudiation, and affirmed the lower court’s judgment.

In the end, Bennett didn’t get the raise, he lost his job, he lost his claim for severance payments, and, presumably, he was bound by a non-compete for a year after he resigned.

Employees who wish to renegotiate their salaries should take the following lesson from this decision: saying “pay me more or I quit” is the same thing as saying “I quit,” if your employer chooses not to pay you more. Playing hardball may be an effective negotiating strategy in some situations, but an ultimatum may, in the employer’s discretion, be treated like a resignation.

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