11 / 07 / 2016

Oral Contract: Is It Binding with an Employee?

employee-contract-law.jpg

The answer is, it depends. This area of the law largely deals with what is known as the “statute of frauds.” By way of quick historical context, the statute of frauds belongs to contract common law and mandates that specific types of contracts must be in writing and signed by the party to be charged. 

Importantly, the statute of frauds serves as a defense to claims from parties who argue that they deserve payment for their performance on an unwritten contract.  If you happen to strike a deal with someone in one of the following six circumstances, you better make sure you (1) get it in writing, (2) get it signed by the other guy just in case you sue him and (3) get enough evidence to ensure a court that you two indeed entered into an agreement.

  • Contracts considering marriage.
  • Contracts that cannot be performed in one year, unless it is a contract of “indefinite duration.”
  • Contracts for transferring an interest in land. Note, this type of contract does not have to sell the actual land; only an interest in the land necessitates memorialization in writing.
  • Contracts by an executor for a will to pay an estate’s debt with the executor’s money.
  • Contracts for the sale of goods over $500.
  • Contracts in which one party will become a surety/guarantor for another party’s debt.

We will be honing in on the second circumstance in this blog: contracts that cannot be performed in one year, unless it is a contract of “indefinite duration.”  Generally speaking, there are two types of “term contracts.”  You can enter into definite term contracts or indefinite term contracts

Definite Term Contracts

As the title implies, a definite term contract provides either a specific period of time the agreement will last or provides a specific date when the agreement terminates.  Either way, this type of contract does not need to be in writing if the defined term is less than one year.  However, for example, if you and your friend orally agree that you will provide work for him for 13 months, then this type of contract must be in writing to be held as valid and enforceable in court.  Technically, you and your friend don’t need to put it in writing for the job to get done, but just make sure you two do not get into a disagreement about the terms of the contract.

If you are an employer who frequently hires people on a short-term basis, then there should not be many worries about writing up contracts.  As we discuss next, those employees of yours that don’t have a defined end date might also be considered as less-than-one-year type of employees, too.

Indefinite Term Contracts

Although an indefinite term contract does not have a specified end-date, Texas law considers indefinite term contracts to be performable within one year.  What’s even more interesting, Texas law doesn’t apply any “reasonableness test” to performing the indefinite term contract, it simply considers whether there is “any possibility” the contract can be performed within a year.  If the answer can be “yes” in any way, then the contract is enforced as a less-than-one-year contract; therefore, no writing is required to be enforceable.

“You will have this job for your life” type of contracts are also known as lifetime contracts.  These are also considered indefinite term contracts performable within one year.  It sounds morbid, but this is a type of one-year contract because the employee might pass away within a year.  Another type of contract that also falls under the indefinite term category are satisfaction contracts because courts assume a party can satisfy the request(s) of the other party within a year—remember the “any possibility” rule of thumb from above.

What's Next?

What type of contract did you put together with the other party?  Was it for a definite term or an indefinite term?  Was there any writing on this agreement at a later time?  No matter where your agreement stands with the other party—it could be 100% understood between the two of you or not at all—reaching out to legal counsel will go a long way.  Just think, not only would your current agreement be tidied up, but any future agreements, oral or otherwise, will be without any concerns of uncertainty.

Questions on what employment contacts need to be in writing, and what they should say? Or, just about employment and contracting generally? Contact the business lawyers at VLF.

Request Consultation

Previous Blog Post Charles Vethan Nominated as a Fellow of the Texas Bar
Next Blog Post Trade Secrets: 10 of the Most Famous Examples

Vethan Law's guide to the Fair Labor Standards Act

Our new guide provides a simplified overview of the FLSA with definitions of terms and details regarding employee exemptions in an easy-to-read format. Click the book below to download our free guide and learn what to expect.

VLF FLSA E-book

Subscribe to our blog