Economic Duress Not a Defense for At-Will Employees Who Sign Contracts Under Threat of Termination

A recent Commercial Division ruling analyzed whether an at-will employee can raise the affirmative defense of economic duress when his or her employer threatens to terminate the employee for refusal to sign a contract. In concurrence with existing New York precedent, the court concluded that because an employer may terminate an at-will employee at any time, the threat of termination was not “wrongful.” Thus, the threat could not constitute economic duress.

In Bazylevsky v VR Advisory Servs. (USA) LLC, 2020 N.Y. Misc. LEXIS 2418, *1 (Sup. Ct. N.Y. Cty. May 27, 2020) the plaintiff, Bo Bazylevsky (“Bazylevsky”) was a Senior Portfolio Manager for defendant VR Advisory Services (USA) LLC (“VR”). VR was an asset manager who managed approximately $5 billion in assets largely made up of the personal assets of its President, Richard Dietz (“Dietz”). At issue in the case was Bazylevsky’s annual bonus, which, when he was initially hired, was based on the performance of VR’s investments.

When Bazylevsky was hired, he signed an employment contract designating him an at-will employee who could “be terminated by [Bazylevsky] or by [VR] at any time . . . with one month’s notice with or without cause[.]” Further, the employment contract set his base salary at $400,000 per year and a bonus equal to “5.5% of VR’s total performance allocation” for the year, with a minimum bonus of $1,000,000. In Bazylevsky’s first year of employment he received a bonus of $3,459,849, which was prorated because he began employment in the middle of the year.

On March 31, 2017, VR presented Bazylevsky with an addendum to the employment contract. Under the addendum, Bazylevsky would no longer receive a bonus based on a formula, but rather would receive a bonus that was based on VR’s discretion. When discussing the addendum, Dietz allegedly told Bazylevsky that “you have to sign this Addendum now. If I don’t get it back by the end of the day, you will be fired. It is not up for further discussion.” After speaking with his wife about his employment options, and fearing that his professional reputation would be harmed if he were fired less than a year into a new job, Bazylevsky signed the addendum the same day.

In 2017, Bazylevsky, under the terms of the revised employment contract, earned an annual bonus of $150,000, but would have earned significantly more under the bonus formula in the original contract. Nearly two years later, in 2019, Bazylevsky resigned and brought an action against VR asserting, among other things, that VR’s threat of termination constituted economic duress at the time Bazylevsky signed the addendum and, thus, the addendum was invalid.

In dismissing Bazylevsky’s contract claim, the court noted that under New York Law “[a] contract is voidable on the ground of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will[.]" Bazylevsky, 2020 N.Y. Misc. LEXIS 2418, at *6 (citing Austin Instrument, Inc. v Loral Corp., 29 NY2d 124, 130, 272 N.E.2d 533, 324 N.Y.S.2d 22 [1971]). However, the court found that there was no “wrongful threat” because VR had an “undisputed right to fire Bazylevsky at any time[.]” Bazylevsky, 2020 N.Y. Misc. LEXIS 2418, at *6. Thus, the threat to fire Bazylevsky unless he signed the addendum “cannot be viewed as ‘wrongful[.]’” Id. The court noted that “[w]hile VR may have placed Bazylevsky in a ‘terrible bind’, the threat of firing… an at-will employee, does not invalidate the Addendum.” Id.

The ruling in Bazylevsky is consistent with other New York state and federal cases, which have similarly held that at-will employees may not use the defense of economic duress when asked to sign contracts under the threat of termination. See, e.g., Berzin v. W.P. Carey & Co., 293 A.D.2d 320, 321 (1st Dep't 2002) (“In addition, given defendant's express right to terminate the original agreement, its threat to do so unless plaintiff agreed to the revised agreement cannot be viewed as "wrongful," and thus cannot be the basis of a cause of action for rescission of the revised agreement on the ground of economic duress.”)

As the Bazylevsky court explained, the at-will employment relationship generally allows either the employer or the employee to terminate the employment relationship at any time and for any reason. Thus, while some may view an employer’s threat of termination as unpleasant, under current New York law, such threats are permissible.

Another factor in Bazylevsky was the time that passed between when Bazylevsky signed the employment contract addendum and when he initiated suit. As the court noted, “by remaining at VR for another two years after signing [the addendum and], continuing to receive discretionary bonuses under the [addendum’s] terms”, Bazylevsky ratified the contract. Bazylevsky, 2020 N.Y. Misc. LEXIS 2418, at *7; Bank Leumi Tr. Co. of New York v D'Evori Intern., Inc., 163 AD2d 26, 30, 558 N.Y.S.2d 909 [1st Dep't 1990]; Manufacturers Hanover Tr. Co. v Jayhawk Assoc, 766 F Supp 124, 128 [SDNY 1991] [noting "[u]nder New York law, [defendants] will be deemed to have affirmed the agreements even if economic duress were evident"]; see also Kronick v L.P. Thebault Co., Inc., 70 AD3d 648, 649, 892 N.Y.S.2d 895 [2d Dep't 2010] ["By remaining in the defendant's employ under the new compensation terms, the plaintiff is deemed to have accepted them.”]).

Accordingly, New York courts have been hesitant to allow at-will employees to assert the defense of economic duress when asked to sign agreements under the threat of termination.

A significant part of our practice involves counseling clients on and litigating employment law issues. Schlam Stone & Dolan attorney Chris Dyess litigates and counsels clients regarding employment law issues including negotiating and litigating disputes over employment contracts. Contact Schlam Stone & Dolan attorney Chris Dyess at cdyess@schlamstone.com if you or a client have questions regarding an employment dispute.