Verbal Agreements in the Workplace Binding?
Why would there be an oral agreement and can it affect contracts?
Firstly i want to say we are not lawyers, this is commentary, general information and sage advice. Seek the advise of lawyers (we can refer you) if you have a outstanding dispute. The dispute over oral agreements may arise when an employer, boss, or another person with authority to approve contractual changes makes certain promises. It may be a promise to a raise, that annual increase will be approved, to start making commissions, or a promotion.
Sometimes the promise is novel and clearly just a comment to promote productivity or friendly relationships. Verbal Agreements in the Workplace Binding? is important reading. However, the effect of oral agreements can be more detrimental when employees will book entire holidays on the promise of annual leave. Or reject job opportunities on the belief that they will receive a promotion. Therefore, the question is when does an oral agreement constitute a legitimate contractual agreement. Then if possible, can they be enforced? Lets delve into the topic now.
Its important to note Gary Pinchen the author of this article and many others is not a lawyer. A Whole New Approach is not a law firm. This is not legal advice. Our commentary is to assist you as part of your decision making processes. Further making you aware of the issues that occur daily in the workplace. This particularly comes to the fore when there is a alleged unfair dismissal and the after effects.
Enforceability
Employment contracts follow the same Australian laws as any other contracts. Including how a contract can be created, amended, or terminated. Therefore, an oral agreement does technically have the ability to be legally binding and alter, create, or terminate an employment contract without a written component, or an amalgamation of partly written and partly oral. However, the existence of an oral agreement by itself is very difficult to enforce, and a weak argument in the federal court system, because it is dependent on the unreliable memory of people.
It becomes known as the “she said, he said” scenario. No one’s memory is perfect 100% of the time and the courts are well aware of it. Some employees employment might be for 15-20 years with various position and remuneration changes. Therefore, if possible, it is always recommended to have a written statement referencing the agreement. Even if a new contract is not explicitly written, it is better to have a text message or email referencing that an agreement was made.
Its better than no written evidence at all. Note, that an oral agreement must also satisfy all other contractual elements in order to be legally binding. That the offer was agreed upon, that both parties mutually intend to oblige by the agreement, that there is consideration, and both parties have the capacity to perform the agreement.
Consideration is important
Consideration refers to the exchange of the contract. In an employment contract it is typically the monetary compensation (hourly wage or salary) for completing the work for a employer. For example, the consideration when completing more work or responsibility would be done in exchange for greater financial compensation or additional benefits (eg. more annual leave, a work car, or greater flexibility). Another example is what are conditions and terms if there is a dismissal.
Agreement may be void
Even when all the contractual elements have been satisfied there may be extraneous factors that would make the agreement/contract void. Including when the agreement is to commit an illegal act. For example, the minimum employment standard cannot be contracted out of. Therefore, a contract cannot agree to pay below minimum wage. Furthermore, a contract cannot be enforced if it was agreed upon under duress, or through misleading or deceptive conduct. This happens as a result of a dismissal where the employer puts the employee under inordinate pressure to sign an agreement.
Context
When considering the enforceability of a completely oral agreement the courts will look towards the context of the agreement. The subsequent events, and witnesses. An oral agreement can reference any aspect of employment from pay, to bonuses and benefits. Also to the type of employment itself (employee vs contractor). Therefore, context and witnesses will provide the biggest indicator or proof that firstly, an oral agreement existed, and secondly, complied with the other contractual elements.
This is on the idea that if there was an oral agreement and the employer/boss/manager did have the intention to perform the obligations of the agreement then some aspect of the employment would have changed to reflect the agreement. Therefore, the court will see to the ‘overall basis’ and ‘totality’ of the relationship, as well as if either party ‘bears hallmarks’[1] of the supposed oral agreement.
For example, this can include taking on additional relevant work on the presumption that you will be entering the corresponding role, or being given workplace entitlements and payslips on the assumption of being an employee. If there is action implemented to enact the verbal agreement, even without written proof, it will be easier to prove that the agreement existed. Furthermore, if there is an existing contract or professional relationship then the court may decide if the verbal agreement is logical to what has already been contracted.
Deceptive and misleading conduct
The legal definition of deceptive and misleading conduct is actions or inaction that “leads a person into error”[2]. Specifically, that “a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”[3]. Intention is not required to be proven, or that damage had occurred. For example, deception and misleading conduct can be done through purposely agreeing to certain conditions verbally. Then creating a different written version as employers will play on the fact that no one’s memory is perfect.
This has been seen to entice new employees to sign employment contracts as they were promised certain bonuses, salary, benefits, verbally, however the written contract does not include all of what was promised. Therefore, employees will sign their contracts expecting certain entitlements when they were never included. Exemplifying why it is always important to ready your employment contract as it is the employees responsibility to read, understand, and negotiate its clauses. An employment contract will not be nullified because the employee did not take the responsibility to read their contract before signing.
Portion or entirety of an employment contract void
Deceptive and misleading conduct can also occur from the silence of the employer. It has been found that silence and not revealing certain information can constitute deceptive and misleading conduct when there was a ‘reasonable expectation’[4] to disclose that information. Therefore, the silence during a verbal agreement can be just as important as what is mentioned. This can be done in essence to replace the fine print in a written contract. For example, it may be that there is an amazing bonus, however fail to mention that there are extremely difficult targets in order to achieve the bonus.
Depending on the context and severity of the deceptive and misleading conduct there is the ability to make a portion or entirety of an employment contract void. To be void, the conduct would have to be in reference to a quintessential part of the employment.
Key Case law
Watson v Foxman (1995) 49 NSWLR 315
This case references the difficulties of trying to use disputed conversation as evidence as they are notoriously unreliable. Not only is it difficult to decide if an agreement existed, but this case discusses the difficulty of trying to decide if deceptive or misleading conduct had occurred. This is without having reliable access to the specific words (or lack of words) used. His Honour McLelland CJ states that “human memory… is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time”[5]. His honour also discusses the fact that without written conversation the court cannot dissect the “relatively subtle nuance” that is grammar and structure of words. A key component of trying to decide on matters such as deceptive conduct.
The case is important as it lays out why verbal agreements. While having the legal ability to create contractual agreements, is incredibly difficult to successfully enforce in the court system.
Sarah Mandelson v Invidia Foods Pty Ltd [2023] FWC 50
This recent general protections case demonstrates the importance of contextual information when deciding on the enforceability of verbal contracts. The case surrounds the issue that Ms Sarah Mandelson was verbally told that she would be an employee of Invidia Foods on a part-time basis. Ms Mandelson verbally agreed to be a part-time employee. After a certain amount of time Ms Mandelson was dismissed via email and Ms Mandelson subsequently lodged a General Protections claim to the Fair Work Commission.
No mutually signed employment agreement
The issue is that while Ms Mandelson and Invidia Foods had made a verbal agreement that Ms Mandelson would be a part-time employee and was ‘clearly contemplated’. She was not actually considered an employee but an independent contractor. This was on the basis that there was no mutually signed employment agreement stipulating Ms Mandelsons part-time employment. Her pay did not include the usual part-time employment exclusions of superannuation, tax deductions, or sick and annual leave, and Ms Mandelson often directed her work. Therefore, there may have once been a verbal agreement, however the context of her relationship with Invidia Foods provides a different and stronger argument. Therefore, the verbal agreement would not be upheld.
Before conflict arises the best and safest option is to demand that all negotiations or offers regarding your employment will be delivered in writing, preferably with a signature or formal formatting. Not only because it will be easier to enforce if the agreement is not abided by, but will ensure all parties completely understand what the agreement entails. An informal message, such as a text message can be just as enforceable. It is best not to rely on what has been negotiated orally, or depend on future income or opportunities on a verbal agreement.
Written proof of the agreement.
If a written offer is not an option then try to organize a witness to be at every (or any) meeting or conversation where employment and agreements are discussed. Once the agreement has been accepted by both parties it is imperative to continuously ask for written proof of the agreement. Either in a contract form, acknowledgment that it was agreed upon, that something will be implemented regarding the agreement, or any other written statement to a similar effect.
If you have asked for a written statement and it has not been provided then you have the workplace right to complain as it pertains to your employment. Complaints could be done in the form of emails reminding your employer of the agreement, organising meetings, or other written correspondence. The complaint itself can include not receiving a written statement, the agreement itself not taking place yet, or other factors that refer to the agreement itself.
Always try to remain respectful and professional to not jeopardize your workplace relationships. However it is in your best interest to keep the topic relevant and not let it be forgotten. It would be almost impossible to try and enforce a verbal agreement that was discussed months in the past. Not only does this have the potential to resolve the issue itself, but then there is still a greater chance of your employer acknowledging that an agreement does exist or was discussed.
Verbal agreement can constitute a legally enforceable contract
A verbal agreement can constitute a legally enforceable contract. Therefore, it is technically possible to sue your employer on the basis of breach of contract if they do not comply with the verbal agreement. Whether that be a promotion, pay rise, benefits, or other negotiations. However, as discussed it is very difficult to rely upon a verbal agreement unless there are strong contextual factors. Furthermore, the court system is infamously slow and time consuming.
Additionally, known to be extremely expensive, not only to pay for the fees of the court, and legal representation, however if you lose, the court can mandate for you to pay the other parties legal costs as well. Therefore, it should not be recommended without serious thought to try and sue your employer if there is solely a verbal agreement to rely upon with no other evidence or witnesses. If you have made complaints regarding your verbal agreement. Then your employer has decided to punish or retaliate against you for exercising that workplace right then it may be possible to go to the Fair Work Commission to seek a remedy or financial compensation.
Known as a General Protections claim (either involving or not involving dismissal), it protects employees who exercise workplace rights and have been detrimentally affected by it. Including complaining about an aspect of your employment. It is not a claim that will enforce the verbal agreement or force your employer to abide by the agreement. However, it does allow a negotiation (through a conciliator) process where you can argue that adverse action were taken against you because you complained that your verbal agreement was not being upheld.
Conclusion to: Verbal Agreements in the Workplace Binding?
Thank you for reading “Verbal agreements in the workplace”. The answers are not always easy, we are here to help you. We are A Whole New Approach, long established advocates and commentators for employees. AWNA are leaders in employee representation We are always researching general protections and unfair dismissal cases.
To keep you up to date what are best practices, what the tribunal and courts are deciding. There nothing more political than workplace relations, its effects all working Australian’s, its changing daily.
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Citations for Verbal Agreements in the Workplace Binding?
[1] Sarah Mandelson v Invidia Foods Pty Ltd [2023] FWC 50; Singh v Sydney Trains [2017] FWCFB 4562 [51].
[2] Legal Services Commission South Australia, Misleading or Deceptive Conduct (Webpage, 16 December 2021), <https://lawhandbook.sa.gov.au/ch10s04s04.php#:~:text=Misleading%20conduct%20is%20conduct%20that,to%20prove%20loss%20or%20damage>.
[3] Australian Consumer Law, clause 18.
[4] Wormald v Maradaca Pty Ltd [2020] NSWCA 289.
[5] Watson v Foxman (1995) 49 NSWLR 315, 318-319.
