Thursday, December 9, 2010

Avoiding the Contract Pitfalls

I went on at some length about the pitfalls that can defeat the terms of a written contract. A word might still be useful on how to avoid the consideration pitfall.

To deal with this problem at the outset of the employment relationship, I've seen other lawyers suggesting that you advise the employee that the employment relationship is subject to them signing a written contract and accepting its terms, and documenting that the employee was so told.

Not bad, but still not infallible, in my view. I can imagine a number of ways that such a thing might go wrong. (A question as to whether or not the documentation was made contemporaneously, or accurately reflected the conversation; allegations that specific representations were made regarding the contents of contract which might give rise to a misrepresentation cause of action; etc.)

Email is a wonderful thing. Instantaneous, and everyone has it, so much like telephone, but it's pretty much automatically recorded by both the sender and receiver, so more like a letter in that way. Accordingly, in today's day and age, I would advise against making an offer over the phone. Call the candidate to tell her that the offer's coming, certainly, but make the actual offer immediately thereafter by email.

Ideally, you'll have an offer letter which offers employment subject to the terms of the enclosed contract, with instructions that the employee may accept by signing the contract and returning it to a specified person in a specified time frame. There are other ways of doing it, too, depending on circumstances. But there are also a lot of wrong ways.

To deal with the consideration problem in the middle of the employment relationship, give something extra. When it's time to give a raise, or a discretionary bonus, or something else to which the employee isn't already entitled, you can piggyback a contract onto that. As I said, a peppercorn can be consideration - it doesn't have to be a great deal of money, but there has to be something.

There are still risks. You still have to be forthright about what the employee is signing. And if there's low consideration, then there is always the risk of a court finding the deal unconscionable, a shocking abuse of the employer's position of authority, or some such thing. You need to be careful, accordingly. (And it would be a thoroughly terrible idea to give somebody a hundred dollars to sign a contract severely limiting their notice period and then to immediately turn around and fire them.)

And - this actually deals with a separate pitfall which I didn't discuss, known as the "substratum argument" - always have employees confirm the continued effect of the terms of the written contract every time you promote them. The substratum argument is basically that the contract a person signed when starting in the mail room can't still be expected to be effective when he's risen through the ranks to become president of the company. The solution is easy, and it's to make sure that you continue to have him sign new written contracts as he advances. (The advances, remember, can be consideration, if done right.)


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

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