Is an oral employment contract enforceable?
An employment contract doesn’t always have to be in writing to be enforceable. While that may be the case, written agreements are certainly easier to enforce and not subject to certain limitations that oral agreements are. Oral agreements are still subject to the requirements of what it takes to form a basic contract.
The oral statement of the offer must be clear and definite. It must be sufficiently clear that the parties meant to change the relationship to something other than employment at-will. Thus, the oral promise must specifically limit the employer’s right to terminate the employee at-will. Oral employment contracts usually fall into four categories: (1) promises of employment until retirement age; (2) promises of lifetime employment; (3) promises of employment as long as the work is satisfactory; and (4) promises to only fire an employee for good cause.
However, general assurances of job security will not create an enforceable employment contract. The promise must be so definite that a reasonable person would rely on it. So, for example, an employer’s promise that the company would find another position for an employee if things did not work out did not create an enforceable employment contract. Similarly, if an employer tells an employee he has a job a life, that promise is not enforceable. Only where the promise expressly limits the employer’s right to terminate will there be an enforceable contract.
Further, the oral promise or statement must be attributable to the employer. This does not necessarily mean that the employer must have made the promise; the promise could have been made by someone acting on behalf of the employer such as an agent. Finally, the offer must have been accepted by the employee, and been supported by an exchange of value, or consideration.
Even if an oral agreement meets all of the above requirements for contract formation, it still may be unenforceable under the statute of frauds. The statute of frauds prevents certain oral agreements from being enforced. In the employment context, the statute typically applies to contracts lasting more than one year. Thus, a contract that cannot be performed in one year or less must be in writing and signed by the party against whom it is sought to be enforced.
For example, an employer orally promises an employee to pay the employee for five years of his services. The employee shows up for his first day, and the employer claims he no longer needs him. If the employee sues the employer to hold up his end of the bargain, the employee will lose because the agreement cannot be performed within one year, and thus it needed to be in writing and signed by the employer.
However, there are exceptions to the statute of frauds. Notably, there is something called “promissory estoppel.” When it applies, an oral contract can be enforced even though it is not in compliance with the statute of frauds. For promissory estoppel to apply there must be: (1) a specific promise by the employer to take some action; (2) reasonable reliance on that promise by the employee; (3) harm to the employee because of that reliance; and (4) injustice if the promise isn’t enforced.
Take the example above with some new facts. Before the employer has orally offered the employee a five-year job, the employee was already working at a comfortable job. The employer then tells the employee that if the employee quits his current job to work for the employer he will be employed for five years. The employee quits his job in reliance on that promise, but when he shows up to work for the employer, the employer claims he no longer needs the employee. While typically such an oral agreement would be unenforceable, here there is a specific promise, reasonable reliance by the employee that resulted in harm to him, and injustice can only be avoided by enforcement of the promise. In this case, the oral agreement will be enforced.