Lessons Learned – Part Three – The Oral Contract

This is the last post in my three part series called “Lessons Learned” pointing out the mistakes of others so we don’t step in the same messes. This update focuses on the always dicey subject of oral contracts.

In the first installment we discussed a case that showed how a no-fault attendance policy violated the Family and Medical Leave Act even though no points were assessed for taking such leave. The second post discussed just how expensive it can be when a human resources manager drops the ball, and punitive damages are awarded in a Title VII case.

Today, we are going to look at the unsigned employment agreement in Rowe v Detroit School of Digital Technology, a recent unpublished opinion by the Michigan Court of Appeals.

In this case, plaintiff Christy Rowe had several discussions with Jamie Kothe about working for the school as the Director of Affiliate Affairs. The plaintiff contends that both she and Kothe agreed to an annual salary of $100,000 and an additional $1,000 per month for telephone and car allowance. The plaintiff drafted the agreement and provided it to Kothe. According to the plaintiff, Kothe said it accurately reflected the terms that were agreed to verbally. However Kothe never signed it.

Although the contract remained unsigned, Rowe provided services to the school from Nov. 7, 2016 through April 3, 2017. She received payments sporadically, including cash, for her work but received no compensation in February or March. That is when she submitted a letter to the school, indicating it owed her over $26,000 in unpaid wages and phone/car supplemental pay.

According to the plaintiff, Kothe agreed the terms in the written contract were accurate, but didn’t sign it because she wanted her attorney to review it. According to Kothe, she declined to sign the agreement because she had not agreed to those terms and the school had only paid the plaintiff as an independent contractor for the work she performed and not as an employee.

The defendants moved for dismissal before discovery was conducted, which was granted. This is usually premature. The plaintiff appealed and the Michigan Court of Appeals reversed. Based on the plaintiff’s affidavit and text messages between her and Kothe referencing the job title and $100,000 salary, the court ruled that the plaintiff had a fair chance to uncover sufficient evidence during discovery to prove her claims, “notwithstanding the fact that the memorialization of that agreement was not signed by Kothe.”

There are several simple lessons in this case. First, don’t ever let someone start performing services for your company before the agreement, whatever it is, has both signatures. In addition, written communications during negotiations should indicate that, until the parties reach an agreement on all of the terms and reduce it to a writing signed by both, there is no enforceable agreement.

Remember, in most situations, an oral agreement is enforceable. The fact that the plaintiff performed services for several months may prove to be problematic for the defendant in this case.

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