Can a Verbal (Employment) Agreement Be Legally Binding?
There is a common misconception that if an agreement isn’t set out in writing, then it’s not legally binding. The fact is there’s no requirement that a contract must be in writing for it to be enforceable, therefore a verbal contract can be enforced. This is true for verbal employment agreements also.
On the other hand, if a verbal contract governs the employment relationship, it may be harder to enforce than a written one. The difficulty is in establishing its terms and conditions.
Therefore, setting a contract out in writing and having it signed, dated, and witnessed is not done because these are necessary steps that must be taken to make it legally binding. Rather, it is to reduce any uncertainty surrounding the contract and avoid any ambiguity as to its terms. This is often why an employer and an employee enter into a written employment contract.
Can a Verbal Agreement Be Legally Binding?
In Ontario, all employment relationships are governed by an employment agreement, whether or not it is set out in writing. Unionized workplaces are governed by a collective agreement that applies to all employee members of the union. In non-unionized workplaces, the employment relationship between employer and employee is governed by either a written or verbal employment agreement.
If an employee starts work in the absence of a written employment agreement, the employment relationship will be governed by an implied verbal employment agreement. The terms and conditions of the implied verbal employment agreement will be governed by applicable employment law legislation, such as the Employment Standards Act and the Human Rights Code, the common law, and any other representations made by the employer regarding the employment.
For example, where the employee is a non-manager, the Employment Standards Act will imply into the terms of a verbal employment agreement the employee’s right to overtime pay. Further, the common law will imply into the terms of the verbal employment agreement the employee’s right to reasonable notice in the event of a without cause dismissal.
Common law reasonable notice can be significantly higher than the notice entitlements under the Employment Standards Act, and as such can be very costly for employers. Since a written employment agreement can limit or displace the generous rights of employees that the common law implies into a verbal employment agreement, employers will often require their employees to sign written employment contracts before starting work.
Verbal Employment Agreements – Disputes Between Employers And Employees
Where a dispute arises between an employer and an employee regarding the terms of a verbal employment agreement, the onus is on the party asserting the existence of the verbal agreement to establish that there was a clear offer, clear acceptance of the offer, and valid consideration (i.e. something of value exchanged between the parties).
Credibility will play an important role in determining the outcome of such a dispute and no outcome is guaranteed. Therefore, a significant degree of uncertainty arises from verbal employment contracts.
The best way to mitigate this uncertainty is to explicitly set out the expectations of both the employee and the employer in a well-written employment contract.
Considerations For Employers
Disputes between employers and employees over verbal employment agreements often arise in the context of wrongful dismissal claims or the interpretation of the terms of the compensation package. Whether the employment agreement in question is verbal or written, courts generally consider the employer to be the author of the agreement, due in part to the power imbalance existing between employers and employees. It is also a general legal principle that any ambiguity in a contract will be interpreted against the party who authored the contract in question. As a result, courts often favour the interpretation of the employee in such disputes.
Considerations For Employees
Employees may benefit from the fact that verbal agreements are enforceable. For example, if an employee was hired on the basis of a verbal agreement, then the employer cannot later put in place a written employment contract and impose its contractual terms on the employment relationship without offering the employee fresh consideration under the new contract. In disputes where employees argue that they should not be held to the terms of a written agreement that they signed, the argument is that a prior verbal agreement governing the employment relationship was already in place beforehand, and the employer failed to offer the employee fresh consideration under the new written employment agreement.
Contact Achkar Law
If you are an employer who is facing an issue regarding a verbal employment agreement, or an employee who has been wrongfully dismissed, our team of experienced employment lawyers at Achkar Law can help.