What is the difference between an employment contract renewal and an employment contract extension?

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What is the difference between an employment contract renewal and an employment contract extension?

I am on the board of a non-profit organization. The executive director’s contract expires at the end of next month. Are we obligated to renew/extend his contract? What is the difference between an employment contract renewal vs contract extension? I thought a renewal is a new contract defining work scope, duration of employment, salary, benefits, etc while an extension extends the duration of the original contract.

Asked on May 25, 2012 under Employment Labor Law, Washington

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

There is no bright line distinction between the terms renewal and extension. As to how those terms are most commonly used, a renewal would usually mean adding on another contract term at the expiration of the current term, while an extention would be lengthening the contract before it runs out (e.g. taking a three year contract in year two and making it a five year contract). For both it's usually the case that most terms would remain the same, save for economic terms (e.g. when an employment contract is extended or renewed, salary might be increased or a bonus given--or if there is already bonus, its structure might be changed; for a lease, the rent may increase), but that's not requirement: the renewal or extension may have any changes or terms the parties agree to.

There is no obligation to extend or renew a contract unless the contract itself requires that. For example: some commercial leases or service agreements provide they will automatically renew unless a party specifically provides notice of nonrenewal by some certain date. But without a renewal term or clause, it's up to the parties to decide whether to renew (or extend) and under what terms, and either party could refuse to do so.


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