What Does It Mean To Retire - a/k/a The Dangers Of Imprecise Contracts

Defining, or redefining, “retirement” is not just a topic of commercials for annuities or RVs. It is a question so meaningful that the Court of Appeals has recently issued an opinion in which a central issue was the definition of the word.

The ubiquitous Google provides a good starting point for an analysis. A Google search for definitions of the meaning of retirement quickly yielded 14 different results. These definitions share some common themes, but they also have some very distinct differences.

This illustrates the problem of using, but not defining, the word “retirement” as part of a contract. As with any legal issue, where a contract leaves a term undefined there is an opening for a dispute that may need the intervention of the courts for resolution.

In an unpublished opinion in the matter of Nardi v. Satellite Servs., Inc., the Court of Appeals took on the issue of defining retirement. As a matter of background, the plaintiff was a former employee of the defendant. As part of an employment agreement, plaintiff was entitled to certain rights if his employment ended by virtue of “retirement.” The plaintiff left the defendant and went to work for another company, he alleged that he had “retired” and was entitled to certain benefits as defined by the contract. The defendants disagreed, alleging that “retirement” meant that the plaintiff was required to stop working in any occupation. In this matter, the Court of Appeals agreed with the plaintiff:

Resolution of this issue turns on the meaning of the word “retirement,” which is not defined in the contract. Defendants argue that “retirement” means that plaintiff was required to stop working in any occupation. However, the word “retirement” means “removal or withdrawal from an office or active service.” Random House Webster’s College Dictionary (1997). As noted by the trial court, however, today Americans often continue working in some capacity after they have begun drawing retirement benefits from a previous employer. See Derr v Murphy Motor Freight Lines, 452 Mich 375, 391 n 6 (Mallett, J.); 550 NW2d 759, amended 453 Mich 1204 (1996). Therefore, the modern understanding of the word “retirement” is an employee’s withdrawal from a particular “office” to collect vested benefits that have accrued to the employee, usually from years of faithful service. The contract’s other provisions support this definition of the word “retirement.”

Keep in mind that this is an unpublished opinion, so it is not binding as a matter of legal precedent, but it is informative on this issue. Moreover, it illustrates the problem that can occur when a contract does not expressly define a key term.

In the employment arena, or with regard to succession planning (such as buy-sell agreements and shareholder agreements), I suggest you take the opportunity to review your agreements. Is the word “retirement” used without definition? Are other key terms undefined?

What other practical advice can you take away? Spending the time with a qualified attorney to carefully draft significant documents may add to the up-front expense of a project. But the additional cost of litigation that can be the direct result from a dispute based on an imprecise contract will far outweigh the benefits of any slight cost savings from trying to cut corners when creating the agreements that will affect you and your business for years to come.