The Statute of Frauds and Oral Promises of Job Security: The Tenuous Distinction between Performance and Excusable Nonperformance
54 Pages Posted: 27 Aug 2016
Date Written: July 1, 2009
In general, an employment relationship between an employer and an employee is considered to be on an “at will” basis, meaning that either the employee or the employer can terminate the relationship at any time for any reason, without liability. An oral promise of job security can, however, rise to the level of an enforceable promise. But even if such a promise is otherwise enforceable, the oral nature of the promise renders it subject to a Statute of Frauds defense. Specifically, such a promise might be considered incapable of being performed within a year, thus necessitating the promise to be evidenced by a writing to be enforceable. On the other hand, courts might construe the employer's promise as providing the employer or the employee with the right to terminate the employment relationship within one year. In such cases, the contract might be considered capable of being performed within one year of its formation and thus outside of the Statute. Courts that have addressed these issues have reached conflicting results. Essentially, the issue revolves around whether any retained right by either the employee or the employer to terminate the employment relationship within one year of its formation means that the contract can be performed within a year or alternatively, whether such a right to terminate is considered either the defeasance of the contract based on excusable nonperformance or cancellation based on the other party's breach. If it means the contract can be performed within one year, the Statute is not a bar; if the right to terminate the relationship is construed as either defeasance based on excusable nonperformance or cancellation based on breach, the Statute renders the contract unenforceable. This Article maintains that in “close” or “doubtful” cases, an event that permits early termination of an employment contract should be construed as excusable nonperformance instead of performance. Such an approach is consistent with the purpose of the Statute's one-year provision and the purpose of the employment-at- will doctrine.
Keywords: Contract law, at-will employment, oral promises, Statute of Frauds defense, breach of contract
JEL Classification: K12, K20, K40
Suggested Citation: Suggested Citation