How binding are verbal agreements?

Question: How binding is a verbal agreement to a verbal offer without seeing the terms and conditions of an employment contract/agreement?

Answer: A verbal agreement, also known as an oral agreement, to an offer is a binding contract. When parties agree on all the essential provisions to be incorporated into a written agreement with the intention that their agreement is binding, all the requisites for the formation of a formal contract are met.

A good example of such an agreement is found in the 2000 Manitoba case of Rummery v. Matthews where the parties concluded a verbal contract on a handshake. In that case, the court was able to determine substantial parts of the contract through the plaintiff’s testimony as corroborated by the defendant.

Nonetheless, the duration of the plaintiff’s employment as manager of the defendant’s new store was a term that had not been agreed when shaking hands and the expensive consequences of this term was left up for the judge to decide. The plaintiff claimed the parties had agreed on a 10-year term. The court concluded this term was left open by the parties and said the plaintiff was hired on a contract of indefinite duration.

“In these circumstances I find that, on a balance of probabilities, there was no specific agreement made between Rummery and Matthews for a minimum 10-year contract of employment. Rather, I find that the question was left open and that there was therefore an indefinite term contract,” the court said. “I recognize that it is quite possible that, in his mind, Rummery was intending to work for at least another 10 years … however, what may have been in Rummery’s mind at the time is not a sufficient basis on which to find that a 10-year minimum term contract of employment was agreed upon in the absence of other persuasive evidence.”

As Rummery v. Matthews illustrates, the basic contract principle requiring a meeting of minds on the terms of a contract is where a court will look when determining the enforceability of a verbal agreement.

It is difficult for an employer to say, once such a contract starts to be performed, that an employee is subject to terms that have not specifically been brought to the employee’s attention prior to starting work. This difficulty also applies to an employee.

Thus, it is important to convert oral terms into writing prior to the employee actually commencing work. The consequences of leaving any ambiguity to terms such as probation, termination and restrictive covenants can result in protracted litigation and unintended financial obligations.

For more information see:

• Rummery v. Matthews, 2000 CarswellMan 271, 4 C.C.E.L. (3d) 29 (Man. Q.B.)

Brian Johnston is a partner with ¬Stewart McKelvey Stirling Scales in Halifax. He can be reached at (902) 420-3374 or [email protected].