Employment Contracts and “Cause” Provisions



cause contract termination Alabama Employment law
Employers can terminate employment contracts, even if those contracts do not have a termination “for cause” provision

An employer can terminate an employment contract — even if the contract does not have a termination “for cause” provision.  That’s the lesson to be learned from the Alabama Supreme Court’s recent decision in Shoals Extrusion, LLC v. Beal, No. 1170673, 2019 WL 1748138 (Ala. Apr. 19, 2019).

Shoals Extrusion, LLC entered into an employment contract with Lonnie Beal to serve as its plant manager.   The agreement provided that Beal would work “40 plus” hours per week on the “days and the time” set by Shoals Extrusion.  If Shoals Extrusion terminated Beal’s employment during that term, he was promised a severance package of one-year’s pay and benefits.  While most employment contracts have provisions that permit termination of an employee “for cause,” Shoals Extrusion’s agreement did not.

By July 2015, there were disputes regarding Beal’s work schedule.  Shoals Extrusion’s plant initially worked a schedule beginning at 7:00 a.m., but changed its start time to 6:00 a.m.  Nevertheless, Beal refused to change his schedule and continued to arrive for work at 7:00 a.m.  Additionally, Shoals Extrusion’s owners asked Beal to work more than 40 hours per week, but he refused unless they gave him an ownership interest.  The owners also discovered that Beal was telling individuals in the industry that Shoals Extrusion was having financial problems.

Shoals Extrusion decided to terminate Beal’s employment.  On November 23, 2015, the owners met with Beal and asked him to sign a “severance and general release agreement.”  Under that agreement, Beal would receive one-month of pay and release all further rights or claims related to Shoals Extrusion.  Beal declined to sign the agreement.  Shoals Extrusion terminated his employment and refused to make the severance payment promised in his employment contract.

Beal sued Shoals Extrusion for breach of contract — arguing that he was entitled to one year’s pay and benefits.   Soon after filing suit, Beal asked the trial court to grant summary judgment in his favor — essentially finding that Beal should win as a matter of law and without a trial.  The trial court granted that motion and Shoals Extrusion appealed.

The Alabama Supreme Court reversed and found that summary judgment was improper.  In doing so, the Court was forced to distinguish an earlier case, Southern Medical Health Sys., Inc. v. Vaughn, 669 So.2d 98 (Ala. 1995).  In Vaughn, the Supreme Court ruled that an employer could not terminate a contract “for cause” if there was no provision of the agreement permitting “for cause” terminations.  Logically, Beal argued that he could not be fired for a “cause” (refusing to work at 6:00 or work more hours) if his employment contract did not have a “for cause” provision as required by Vaughn.

Nevertheless, the Court rejected that argument and adopted Shoals Extrusion’s argument.  Shoals Extrusion argued that it did not terminate Beal “for cause.”  Instead, it claimed that Beal breached his employment agreement first, and his breach excused Shoals Extrusion from any further performance — including payment of severance.  The Supreme Court found that “[w]hether Beal breached the employment agreement and whether that breach was material to the contract are ultimately questions for the fact-finder that cannot be resolved at the summary judgment stage.”  In short, the Court found that Beal’s case had to be decided at trial.

Shoals Extrusion is a good case for Alabama employers, because it gives them an argument for terminating an employment agreement — even in the absence of a “for cause” termination provision.