Commit business agreements to writing

Date: 2009
Author: Daniel A. Lublin
Publication: Metro

Court finds “sinister” agreement should be set aside

Planning to start their own Jamaican restaurant in Edmonton, Alberta, entrepreneurs James and Mary Scott first needed an experienced cook. When a mutual friend introduced them to Warren Edwards, they knew they had found their man.
The Scotts and Edwards immediately began to discuss a potential job. During a phone call, they agreed that Edwards, who lived in Ontario, would be relocated to Edmonton, given a salary of $45,000, two months’ free rent, furniture for an apartment and airfare. None of those terms were put into writing.
With only an oral agreement to rely on, Edwards hopped on a plane and flew out to Alberta. But shortly after Edwards began work, the restaurant started losing money. The relationship then soured. Attempting to cut their losses, the Scotts offered to lease the restaurant to Edwards for $3,500 a month. Edwards countered with a smaller figure and, according to him, because he had rejected the Scotts’ price, they became hostile towards him. They stopped helping out at the restaurant, leaving Edwards to fend for himself.
Soon after, Edwards’ salary was reduced. For Edwards, this was the last straw. An argument ensued, and Edwards left the restaurant to cool down. Mr. Scott telephoned him the next day to say that as he had “quit”, he was out of a job.
Believing that Edwards had agreed to reimburse the Scotts for the expenses they had incurred to relocate him to Edmonton and the first two months of rent that they paid, they sued him. According to the Scotts, the agreement they had reached required Edwards to remain employed for a year; otherwise, he would be responsible to repay them for the moving expenses that they had initially covered. Edwards counterclaimed for severance pay, arguing that by changing the terms of his job, the Scotts had given him no choice but to leave.
Noting that Edwards had travelled across the country to take up a job, an Alberta court recently found that he was clearly in a vulnerable position when compared to his employer. When the new business venture did not go as planned, the Scotts effectively pulled the plug, leaving Edwards without any other reasonable option but to leave.
Oral agreements, once proven, can be legally binding. However, there is usually conflicting evidence of what was actually agreed to. Here, without any documentation to reflect the agreement that had been reached during the parties’ initial telephone discussions, the court struggled to re-create the terms.
But even if the court found that an agreement had been reached, it was unprepared to hold Edwards to its terms. Relying on the legal doctrine of unconscionability, which allows a court to overturn an agreement if it is substantially unfair, it found that the Scotts deliberately manipulated Edwards’ weaker bargaining position in order to take advantage of him. The Scotts’ claim was dismissed and Edwards was awarded severance pay.
Courts are loath to enforce agreements where the terms are not sufficiently clear or where the entire agreement is deemed unfair. This case presents a classic example. If you want to ensure that a contract will be enforced later on, commit the terms to writing and give each side an opportunity to review that language before finalizing the deal.