Implied & Oral Contracts

Implied Contracts

Implied contracts can be created many ways. They are more common than written contracts in the employment relationship.

Implied contracts are often called "oral or implied contracts." This is because implied contracts are usually created by both circumstances (which "imply" that a contract exists) and oral statements.

For the sake of clarity, "oral or implied contracts" will be referred to here simply as "implied contracts."

Contracts that are more strictly oral in nature will be called "oral contracts", and are discussed below.

The Essential Term of the Implied Contract

"Good Cause" is discussed in the section for Breach of Contracts under written contracts. It is very nearly the same when dealing with implied contracts.

An agreement that the employer won't fire the employee without "good cause" is the basic term of the implied contract in an employment relationship.

An employer "breaches" or "breaks" not to fire without "good cause" when:

  1. The implied contract said no termination without good cause.
  2. There was no good cause to fire the employee.
  3. The employee was fired anyway.
How the Implied Contract is Created?

The following are some of the ways implied contracts can be created. The more factors that exist in a given situation, the more likely there is an implied contract.

  1. Length of Service

    This is a very important factor in creating an implied contract. The length of service must be significant. Two weeks at an employer does not create an implied contract.

  2. Progressive Discipline Policy

    Many employers have policies of "progressive discipline." These policies state that employees will not be fired the first time they make a minor mistake. Instead, employees receive warnings, second warnings, etc., before they are fired. Even when there is a progressive discipline policy, there are probably a number of things the employee can do which will get him fired immediately.

  3. Employee Benefit Programs

    Retirement programs, 401K programs, and the like can help to create implied employment contracts, because they help imply that the employee is expected to be around long enough to participate in them or get their benefit.

Good Cause for Termination

As stated above, employees who have created implied contracts cannot breach them.

To determine if an implied contract has been broken, the employee must consider what he's suing for. For instance, maybe the written contract stated that the employee would be there for five years, unless there was "good cause" to fire him. The employee doesn't think he's done anything wrong.

This is the most common situation. The employer said there was good cause to terminated and the employee says there was no good cause. (See above discussion of the Essential Term of the Implied Contract.)

Here, the employee's claim is that contract was breached for the following reason:

  1. The contract said no termination without good cause.
  2. There was no good cause to fire the employee.
  3. The employee was fired anyway.

Just like the "good cause" determination discussed above when there is a written contract, the employee must look at the contract itself to determine if the employer has breached it.

But how does the employee look at something that isn't written down? Employee Handbooks

Most often, the "terms" of the implied contract can be found in an employee handbook. For example, the handbook may have a "progressive discipline policy" (see discussion above), which states that employees are to be given warnings for certain infractions before they are fired.

If the employee can establish that there is an implied contract, and that one of the terms was that the employer would follow the progressive discipline policy in the handbook, the employee can point to the handbook and treat it like a written contract. He can look at the language of the policy and see if the employer has failed to follow it.

Oral Contracts

It is possible to have an oral contract concerning your employment; however, it may not be enforcable. Some contracts must be in writing to be enforcable.

Confirm in Writing

The major problem with an oral contracts is that it is hard to prove. If what you are asking for is important, ask your employer to confirm it in writing. It is important to note that many executive contracts are in writing.

The Burden of Proof

The best thing to do if you believe you have an oral contract with your employer that the employer has breached is to call an attorney. However, don't be surprised if the attorney doesn't take your case if you don't have proof of the oral contract.

If it only comes down to your word against the employer, you will probably lose because "you" have "the burden of proof."

Further Information