Employment Contracts and the Statute of Frauds
In our assigned case study, Jennifer Masterson, with a new MBA in Accounting in hand, is hired by Big Firm. Ms. Masterson has to relocate to accept the job offer, so she requests reassurance from Big Firm that her employment, with a salary of $50,000 a year, will last a minimum of two years. Big Firm makes an oral agreement over the telephone that they hope to employ her even longer than two years. Ms. Masterson quickly drafts a letter summarizing their agreement and sends it to Big Firm. Ms. Masterson is then fired ten months after her hire date and sues for wrongful termination and breach of contract; Big Firm asserts that the Statute of Frauds allows them to ignore their previous verbal agreement. We are asked to determine if Ms. Masterson had a contract with Big Firm, if she has a viable suit for breach of contract, and if the Statute of Frauds applies to the contract between Ms. Masterson and Big Firm.
There appears to be a valid contract, as Big Firm offered Ms. Masterson employment and she accepted, and there was an exchange of Ms. Masterson’s skills as an accountant for an annual $50,000 salary from Big Firm. However, Ms. Masterson’s letter might not preserve her rights or help her legally persuade Big Firm to honor the oral contract they agreed upon over the phone; i.e., that Ms. Masterson, since she would have to relocate, would have a position for a minimum of two years with Big Firm. Big Firm did not sign Ms. Masterson’s letter, so they could argue that Ms. Masterson is misremembering their agreement. We are not told whether Big Firm is located in an “employment at will” state, but that would stack the deck against Ms. Masterson as well, as the majority of U.S. states have laws in place that protect employers more than employees.
In Aurigemma v. New Castle Care LLC, 2006 WL 2441978 (Del. Super. Aug. 22, 2006), Dr. Aurigemma sued the New Castle Care rehabilitation center in Delaware, his former employer, for breach of contract. Aurigemma alleged that he and the center had a verbal agreement that he would serve as Medical Director for one year. The rehab center claimed that there was no such agreement, but if there had been, it should be in writing to be valid and enforceable because the Statute of Frauds requires that any contract which extends beyond a one-year time period must be put into writing. The court agreed with New Castle Care. Dr. Aurigemma lost his case (Miller, 2006).
In LaRue v. Kalex Construction and Development, Inc ., Case No. 3D11-2368 (Fla. 3d DCA, August 22, 2012), Ms. LaRue was hired by Kalex in February of 2006 as a Vice President, but they terminated her employment in December of 2009. Ms. LaRue alleged that Kalex had made her a verbal promise that she would receive 25% ownership in Kalex after three years of employment; Kalex claims that they made no such offer. Unfortunately for Ms. LaRue, she failed to get Kalex’s promise in writing. Florida’s Third District Court of Appeal held that the oral contract Ms. LaRue alleged Kalex had made was not a promise that could be considered fully concluded within the span of a single year, and thus the Statute of Frauds would not apply. Ms. LaRue lost her case (Tuschman, 2012).
In Kant v. Columbia University, 08 Civ. 7476 (S.D.N.Y. Mar. 9, 2010), Professor Kant was employed by Columbia University to teach Economics. He alleged that Columbia had made a verbal promise to him that he would be promoted to a tenure-track full-time position if he met Columbia’s conditions (which included approval by the Economics Department’s senior faculty members and Professor Kant’s participation in weekly seminars) and that, a year after Professor Kant was hired and had accepted these terms made to him orally, a Professor Davis had echoed these same assurances to him. Professor Kant met all of Columbia’s conditions, requirements and obligations but was not then promoted to the senior-level position that he felt he had been promised. Even though Professor Kant had, in essence, two verbal contracts, each for a time period of less than a year, the court held that they needed to be considered as if they were the same contract. Unfortunately for Professor Kant, that meant that the Statute of Frauds would not apply, as the time period for the alleged verbal contract would then have extended beyond the one-year limit covered by the statute. Professor Kant lost his case (Miller, 2010).
In Crabtree v. Elizabeth Arden Sales Corp., 305 N.Y. 48, 110 N.E.2d 551 (N.Y. 1953), Mr. Crabtree was offered a two-year contract with an escalating pay-scale, but did not have a single document with all the details of the agreement set down in one place. Ms. Arden approved Mr. Crabtree’s hiring and salary for the first six months, but declined to approve the agreed-upon pay raise for the second six months. Because Ms. Arden’s personal secretary had initially submitted a payroll change memorandum for Mr. Crabtree, and because Mr. Crabtree had several written documents that backed up his assertions that Elizabeth Arden (the company) had made the salary offers he alleged they had, the court agreed that a contract did not have to be confined to a single document to be valid. In this case, primarily because Mr. Crabtree had written documentation to back up his claims, even if it was not a single written contract document, he won his case (Contract Law Cases, 2008).
In Alaska Democratic Party v. Rice, 934 P.2d 1313 (Alaska 1997), Ms. Rice, a former executive director of the Alaska Democratic Party, alleges that she had resigned her post working on Al Gore’s Vice Presidential campaign because the Chair of the ADP, Mr. Wakefield, made a verbal agreement with her over the telephone to entice her to return and resume her executive director position for another two years. Ms. Rice agreed to accept the position. After she had resigned from Gore’s campaign staff and relocated to Alaska, she was then told she would not get the promised job. In this case, the court sided with Ms. Rice because they felt that her resignation and relocation indicated “clear and convincing evidence” that her assertions were true; the ADP appealed, citing the Statute of Frauds, but Ms. Rice prevailed again upon appeal. Unfortunately, even though a jury awarded Ms. Rice damages (under both “promissory estoppel” and misrepresentation) in excess of the salary she would have earned from the ADP, she was only allowed to recover an amount that ensured that she would not profit from her suit to a degree that would eclipse the salary she had agreed to be paid by the ADP or what she would have earned should the promise of employment made by the ADP not have been made at all. She was allowed to recover reliance damages, but not to make a profit (Lawnix, n.d.).
In McInerney v. Charter Golf, Inc., 680 NE 2d 1347 (Illinois 1997), Mr. McInerney was working for Charter Golf when he received a better salary offer from a competitor and filed notice that he planned to quit. The owner of Charter Golf convinced Mr. McInerney to stay, promising him an even more competitive salary, plus regular commission income; both offers were promised to be good for the duration of his life time (unless he became disabled and unable to work, or unless he was caught engaging in some dishonest behavior). Mr. McInerney agreed, but failed to get this verbal contract in writing. When the relationship between Mr. McInerney and Charter Golf soured a few years later, he was fired. Mr. McInerney attempted to claim damages for what he felt was a breach of contract, but the court disagreed and held that all so-called lifetime contracts must be put in writing. Mr. McInerney lost his case (Ford & Harrison LLP, 2008).
Ms. Masterson’s verbal agreement with Big Firm was for a two-year period, which would mean it was not covered by the Statute of Frauds, which limits such agreements to one-year (or shorter) intervals. Since Big Firm did not, as far as we know from the information given in our case study, sign off on Ms. Masterson’s letter, which was the only written record of the alleged terms of her employment contract, then the only agreement she had with them was the oral agreement over the telephone. Ms. Masterson is not likely to be able to successfully challenge her termination and win damages in court; she is out of luck.
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