The dreaded oral contract. Before you ask "can I enforce my oral contract" you really need to ask, "should I make an oral contract". The answer to the second question is no, you should not enter into an oral contract. All your contracts should be in writing. The answer to the first question depends on other facts particular to your agreement, as some contracts have to be in writing to be enforceable. I talk about that in more detail below.
Kesha, who brought us charming ballads like "Tik Tok" and "Die Young," signed a recording contract with music producer Dr. Luke. Allegedly over a 10-year period of time Dr. Luke was sexually and physically abusive which prompted Kesha to file a lawsuit in 2014. This 2014 lawsuit included a request to be released from the recording contract due in large part to the abuse allegedly suffered. A few weeks ago, a New York Supreme Court Judge ruled against Kesha's request. This in turn made Taylor Swift, Lady Gaga, and these fans very angry.
Although I am not privy to the details of the recording contract at issue, my guess is it is written a lot like an employment contract since at its core, it's a contract for employment. As you may know, most states (North Carolina included) are "at-will employment" states which means an employee can quit a job at any time for any reason and employers can terminate an employee at any time for any reason. There are exceptions to the at-will doctrine such as employment discrimination and as you may have guessed, employment contracts.
Kesha's case is an interesting example of when at-will employment may turn out to be a better deal for employees. Usually at-will employment is seen as a vicious tool for employers to purge itself of unwanted employees but as seen in Kesha's case, it is kind of the same vicious tool for employees.
The lesson learned is this: tread cautiously before signing an employment agreement, particularly a long-term employment agreement. Employment agreements may give you a certain level of job security but it may also give you a taste of job-clauterphobia because you are likely stuck for the duration of the contract. So long as you are decently intelligent, it would be rare for a court to void a contract or otherwise release a party from a contract without some mutual agreement (or a lot more evidence of sexual and physical abuse). Also keep in mind most employment contracts include non-compete language that may inhibit your future job-hunt within a reasonable time and territory after the agreement.
Another lesson learned? Never (ever, ever, ever) sign an employment agreement without taking it to an attorney for a review - even if it's a quick review. I promise it will be worth learning what exactly you are getting yourself into.
Remember last week when protesters chained themselves together in front of the Governor's Mansion? It turns out this new law was about more than identification documents as it also included a new E-Verify requirement for all state construction contracts. Because life wasn't complicated enough already.
The new §143-133.3 & E-Verify Compliance
A new section is added to Chapter 143 of the North Carolina General Statutes that says the State (which is inclusive of all governing bodies, political subdivisions, or institutions) may not enter into a contract UNLESS the contractor and all subcontractors comply with North Carolina E-Verify requirements. If money is paid to a contractor or subcontractor in violation of this section, the state officer or employee that approved payment AND the sureties on the official bond will be liable to the amount disbursed.
The Commissioner of Labor (a.k.a. the face that graces every elevator a.k.a. Cherie Berry) is charged with handling complaints related to state contract-related E-Verify problems. It looks like the usual fun stuff applies like a good faith reporting requirement and an investigation process that may end in a hearing.
If I were drafting state construction contracts, I would make sure the contract has a term that states all parties within the contractual chain will comply with North Carolina E-Verify laws. Why you may ask? Because the presence of such a contract provisions means you are, by statute, in compliance with the new law. (See how this may be handy). If I were a contractor or subcontractor in the contractual chain with the State. I would also include this provision so that I too will be deemed in compliance with this requirement. #FreeAdviceMondays
North Carolina's E-Verify Law
This is the part of the blog where I remind you that employers in North Carolina with 25 or more employees must E-Verify all new hires. This is a lot of you so make sure you are doing it. The penalties for violating this law can be up to $10,000 per violation which can add up really fast if you have a lot of unverified new hires. Also, you don't have to have 25 or more employees to participate in E-Verify. In fact, I recommend all employers voluntarily participate.
SIDE NOTE: Make sure you are retaining records of verification while the employee is employed AND for one year thereafter. This isn't me being OCD, this is the law in North Carolina.
SIDE NOTE 2.0: E-Verify results can be used as a defense if you are ever audited by DHS, USCIS, or ICE and an employee turns out to be in the U.S. unlawfully. In other words, E-Verify is a great supplement to your I-9s.
SIDE NOTE 3.0: If you ever E-Verify a new hire and you get a Tentative Non-confirmation alert ("TNC"), talk to an HR specialist or your attorney. There is a very particular procedure you must follow (depending on which agency documents are at issue) and it can be very tricky, particularly if you have an HR Department of one.
SIDE NOTE 4.0: E-Verify rules are different for Federal Contracts. HINT: Federal requirements are more strict with more severe penalties.
Earlier this month, the North Carolina Court of Appeals held in Employment Staffing Group v. Little that an unmentioned $100 check would suffice as consideration for a non-compete agreement prohibiting an employee from "competing" or "soliciting" customers for 1-year within a 50-mile radius. Employers: 1 // Employees: 0.
Essentially, the case went like this: Employee was asked to sign an agreement that limited her ability to "compete" against her employer upon her departure from the company. This agreement also included a non-solicitation provision that essentially prohibited the employee from wooing away her employer's customers/clients and its employees upon her departure. The agreement was signed during the course of her employment (a.k.a. after she had already been established as an employee and NOT at the point of being hired) and it said absolutely nothing about consideration. *
[ * ] Consideration is legal jargon for money or another "perk" or "benefit" offered in exchange for agreeing to the terms of a contract. Contracts are only binding if there is consideration for the agreement so no consideration = no binding contract.
When said employee left the company, her former employer sought to enforce the non-compete agreement. Employee said no thanks and argued that without consideration the noncompete was non-binding. Employer fought back and pointed to a $100 payment employee received four or so days after signing the agreement- a payment the Employer says was offered in exchange for her signing the non-compete. One year later, the Court of Appeals sides with the employer.
In North Carolina, non-compete agreements have always been a tough nut to crack. There is no statute setting parameters for non-compete agreements so as an attorney frequently tasked with drafting these agreements (and sometimes tearing them apart), I look at the court cases. In short, in North Carolina a valid non-compete must be: (1) in writing; (2) reasonable in time and territory (meaning the agreement cannot extend for too long and cannot include too large of a geographic territory); (3) based on valuable consideration; and (4) fair to the parties and not otherwise against public policy. The writing requirement is easy to figure out. We also know from past cases that time and territory have an inverse relationship: the longer the time, the smaller the territory and vice versa. It is the "valuable consideration" that is tricky in Employment Staffing Group v. Little and here is why:
Problem 1: A valid non-compete must be in writing but after this case it appears not all the essential terms need to be in the writing. This is confusing and obviously opens up some questions about what actually must be stated in written form and what can be concluded from parol evidence outside of the four corners of the document. There is also the whole issue of everything that is not in writing becoming a "he said, she said" nightmare.
Problem 2: A non-compete may be valid without a single dollar sign in the agreement. This leaves consideration subject to some after-the-fact interpretation by the parties. Based on this case, so long as you can show that consideration was in fact paid within a reasonable time of signing the agreement you should be fine. The problem is that when the consideration is not specifically defined in the agreement, it can suddenly be anything. For example, a bonus an employee was already getting but maybe didn't know they were getting.
Problem 3: The threshold for what is "valuable" consideration just got lower. A lot of cases point to $500 as a solid example of valuable consideration. Now $100 seems to be okay. Granted, consideration's value is based on a lot of factors such as the employee's role in the company, their base salary, etc, but this number still seems low considering the employee in Employment Staffing Group was asked to sign a 1-year, 50-mile radius non-compete among other restrictive provisions.
So what do you do? For starters, keep in mind, this case may be appealed to the North Carolina Supreme Court (obviously, I'll keep you updated if this happens). But for now, here are some quick tips for non-compete agreements that should help keep you out of trouble (key word: help):
Tip # 1: Have an attorney look at your non-competes before you present them to employees. Or better yet, have one of us draft it for you. We may be socially awkward beings who use words like "barrister" and terms like "caveat emptor" but we actually do possess a very specialized body of knowledge and most of us generally do want to help.
Tip # 2: Mention consideration in the agreement. Just say what it is, how much it is, etc. This will save you some grief when and if you ever need to enforce the agreement. If the consideration is a check (as it usually is), the check should be issued within 24 hours of signing the agreement and the memo line should say something like "for consideration of agreement signed [DATE]."
Tip # 3: Have an attorney assist with the time and territory. This is also really tricky and really subjective so an attorney is a good moderator that can comfortably tell you whether or not thats going to fly in court. We have also drafted a few of these in the past and can probably give you some idea of what has worked and what has not. Just a thought.
If you have specific questions about employment agreements, non-competes, or the like, feel free to give us a call and we'll chat! #HappyMonday