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The Pitfalls of Verbal Contracts

Some may say that “a verbal agreement is no agreement at all”; however, this is inaccurate, especially in an employment context. A verbal contract is as legally binding as a written contract—the difference is the terms become difficult to prove. Sometimes having verbal contracts is to employees’ benefit, sometimes it is to their detriment. However, if you are an employer, having a properly drafted employment contract is crucial.

While it is often not difficult to prove that an agreement exists in an employment relationship—given that offer, acceptance, and consideration can be found in records of the employee’s hours, services, and payment for their services—the exact terms of the contract can easily come into dispute. In these cases, there is no written record to assist with settling the matter.

For an employee, this can be disadvantageous where the employee wishes to dispute their entitlement to items such as bonuses, commissions, vacation time, and promotions. However, in some cases, the lack of a written employment contract will benefit an employee for the very reason that a properly drafted employment contract tends to limit an employee’s rights to the necessary minimum entitlements.

This is also the reason it is essential for an employer to have a well-crafted written employment contract. Without one, there is no way for an employer to prove it properly limited the employee’s entitlements to the minimums under the corresponding statute. In dismissal cases, this could mean the employer becomes liable to a more significant payout to the employee as per common law principles.

An employer should also prudently outline their expectations clearly—which of course, is easier to demonstrate in a written agreement.

Having verbal contracts is not only problematic when attempting to establish a breach of the terms, but it can also create situations where one side unknowingly “breaches” the terms simply because those terms were unclear. In these cases, the employer and employee may not even have been on the same page, to begin with. Having a properly drafted written contract can avoid these situations, or at least help to resolve the matter more quickly.

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Although relying on verbal contracts may appear to be the quicker and cheaper option, it is risky to do so and often comes with long-term costs which were unforeseen by employers and employees.

If you are an employer who wants to your employment contracts drafted or updated, or an employee who wants an employment contract reviewed or has questions about their agreement, our team of experienced workplace lawyers at Achkar Law can help. Contact us by phone toll-free at +1 (866) 508-2548 or email us at [email protected] and we would be happy to assist.

If you are a small or medium-sized company looking for full-service support with same day response, visit our CLO Program page for our strategic solutions.