Changing a verbal contract

Can either side make change terms if there is no written contract?

Question: What are the obligations of both parties of an unsigned employment contract? If the contract was verbally agreed to, then changes were made with the consent of both, are the changes valid? Can the employer change the term of the contract without the employee’s consent after the employee starts working and can the employee leave before the term is up?

Answer: A contract of employment can be based upon an oral or written agreement. Indeed, many contracts of employment are not completely in written form and often include oral agreements supplemental to written terms and terms implied by law. There is no particular form a contract of employment must take and, subject to the Statute of Frauds which requires a definite or fixed-term contract for more than one year to be in writing, such a contract may be entirely oral. A notable exception is that if it is possible for a contract to be completed within one year, even if it appears it will likely take longer, there is no requirement that the employment contract be in writing. If, however, the parties negotiating the agreement intended to have a signed contract before their agreement will be enforceable, there generally is no binding contract until the parties have actually signed the agreement.

An employment contract, as in any contract, requires certain elements: an offer, acceptance of the offer, consideration moving from both parties and the terms of the bargain must be sufficiently certain to enforce. The legal doctrine of consideration requires both parties must give up something in exchange for the bargain reached. In this case, of most significance to the formation of the employment contract is the finding of an offer and its acceptance.

It seems clear the employment contract would constitute such an offer but, as stated in the question, there was no conclusive written acceptance. Although the law requires an acceptance be communicated to the employer to be effective, there is no requirement for it to be in writing. Rather, what is required is an outward expression of intent. The validity of the acceptance will be evaluated by a court on an objective basis. The court will look to the outward expression and conduct of the parties for evidence of consensus ad idem, or “the meeting of the minds,” in order to determine the parties intended to create a legally binding employment relationship.

In the situation above, assuming the negotiations on the terms of the employment contract were complete and the parties acted within the agreement showing the employment relationship was clearly entered into, a court would likely treat the contract as accepted and therefore binding. Both parties would be obligated to fulfill their responsibilities outlined in the employment contract.

A contract of employment, in writing or oral, is in law an agreement between an employer and an individual. As a result, any variation can only be made with the agreement of both parties. An employer who is proposing to change the terms of a contract of employment should fully consult with the employee and record any agreed upon changes in writing. If, however, the variation is agreed to orally by both parties and acted upon, then there should be no issue with finding the contract enforceable, despite the fact the contract or any variation to it remained unsigned.

With respect to a definite or fixed-term employment contract, mutual agreement is also required to vary the term. If, however, the employer unilaterally shortens the term of such an employment contract, it will be considered a breach of contract and the employee will be entitled to sue for damages, on the basis of being prevented from working the entire term. The damages for dismissal will be based on the remainder of the contract, rather than a period of reasonable notice.

A similar analysis will apply should the employee choose to unilaterally terminate the contract prior to its expiration. Under a fixed-term contract, if an employee leaves her position prior to the completion of the term set out in the contract, the employer may be entitled to damages for breach of contract.

If the employer wishes to extend the term of employment, a new employment contract should be executed. However, if the fixed-term contract expires and the employee continues to work without having executed a new agreement before the expiry date, the employment relationship is then governed by the common law and treated as a contract for an indefinite term. As such, the employer may terminate the employment of the employee or the employee may resign at any time, provided that reasonable notice is given.

Brian Kenny is a partner with MacPherson Leslie and Tyerman LLP in Regina. He can be reached at (306) 347-8421 or bkenny@mlt.com.

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