If it's verbal, is it binding?

As long as there is an offer and acceptance, with clear terms, then there is an agreement

If it's verbal, is it binding?
Stuart Rudner

By Stuart Rudner

An individual is let go and offered a severance package. She writes back and indicates that she will accept if the company gives her an additional $1,000 to cover her cost of seeking legal advice. The company agrees and delivers the updated settlement documentation.

To their surprise, they subsequently receive a Statement of Claim and find that the same person is suing them for wrongful dismissal. The employer thought it had a binding agreement with the former employee, but did it?

According to the Ontario Divisional Court, yes. In Shete, Lada, and Chung v. Bombardier Inc., the court confirmed that it was “clear from the sequence of events that the parties had reached a settlement.” As a result,

“There was an enforceable settlement between the parties on the terms of the employees’ termination from Bombardier. In light of that settlement, there is no genuine issue requiring a trial on their wrongful dismissal claims and Bombardier’s motions for summary judgment are granted.”

In my role as a mediator or arbitrator, I would have formed the view that there was a binding agreement in the absence of compelling evidence to the contrary.

That is consistent with the fundamentals of contract law. In order to have a binding agreement, there must be an offer and acceptance, and the terms must be readily ascertainable. A contract does not have to be signed,  sealed or witnessed. In fact, it does not even have to be in writing to be a binding agreement.

So, why do lawyers insist that agreements be set out in writing, signed, dated and witnessed? It is not because those things are required to create a binding agreement. It is to ensure that there is no uncertainty as to whether there was an agreement and no ambiguity as to what the terms of that agreement are.

There is a fairly common expression that "A verbal contract isn't worth the paper it's written on,” and many people believe that if an agreement isn’t in writing, then it’s not legally binding. That is simply not true, and people should not assume that they can avoid the consequences of the deal they make if they don't sign.

The reality is that many employees benefit from the fact that verbal agreements — or agreements based on an exchange of email messages or other communications — are binding. In many cases where employees argue that they should not be held to the agreement that they did sign, the argument is that there was already a verbal agreement in place.

As readers will know, if there was a verbal agreement to hire someone, the employer can’t simply put a written contract in place without offering new consideration. So, this notion of an agreement that is not signed being enforceable is not foreign to the employment relationship.

It is not unusual for an individual to respond to a severance offer without seeking proper advice, and engage in informal negotiations. I have seen several situations where the employer agreed to the employee’s requests, believing that doing so would mean there was an agreement in place, only to be unhappily surprised to subsequently receive further demands from the employee or their lawyer.

They might be able to enforce the settlement they thought they had but, in many cases, they grudgingly engage in further negotiations rather than incur the cost of trying to enforce what they perceive to be a “soft” agreement. And the individuals often don’t realize what they have done; it is only in cases like Bombardier, where the employer chooses to take a stand, that the individual discovers that by engaging in those casual discussions, they may have compromised their rights.

It is important to remember that as long as there is an offer and acceptance, with clear terms, then there is an agreement. It doesn’t matter whether it is set out in a formal legal document, signed and witnessed, handwritten on the proverbial cocktail napkin, set out in an exchange of email or text messages, or communicated verbally.

Of course, the latter may be harder to prove; that does not mean that a verbal agreement is not legally binding — it just means that from an evidentiary perspective, it may be hard to enforce.

The takeaway is that people should be careful about engaging in casual negotiations and inadvertently entering into a binding agreement. Otherwise, they may be limiting their options and leaving themselves in a terrible legal position.

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