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Posted: October 4, 2017

Unsigned Employment Agreement Void Under Statute of Frauds

On September 20, 2017, Justice Platkin of the Albany County Commercial Division issued a decision in Gonick v. Adirondack Research & Management, Inc., 2017 NY Slip Op. 51216(U), holding that an unsigned employment agreement was void under the statute of frauds, explaining:

To be an effective and valid employment contract, all the essential elements thereof must be shown. These elements consist of the identity of the parties, the terms of employment, which include the commencement date, the duration of the contract and the salary.

Under New York law, the rule is settled that unless a definite period of service is specified in the contract, the hiring is at will and the employer has the right to discharge and the employee to leave at any time. Thus, absent an agreement establishing a fixed duration, an employment relationship is presumed to be a hiring at will, terminable at any time by either party. The at-will presumption may be triggered when an employment agreement fails to state a definite period of employment, fix employment of a definite duration, establish a fixed duration or is otherwise indefinite.

In addition, where the alleged employment contract by its terms is not to be performed within one year from the making thereof or the performance of which is not to be completed before the end of a lifetime, a writing must identify the parties, describe the subject matter, state all the essential terms of an agreement, and be signed by the party to be charged. In order to remove an agreement from the application of the statute of frauds, both parties must be able to complete their performance of the contract within one year.

Under the alleged employment contract sued upon by Gonick, there is no period of service defined by fixed commencement and termination dates. Rather, ARMI’s purported obligation to employ and compensate Gonick continues for the life of the Fund. According to Gonick’s own testimony, there is no set formula for determining the life of the Fund, there is no way to know when or if the Fund will dissolve, and there is no way to say whether the Fund will remain in existence for the rest of Gonick’s lifetime (or even beyond). Thus, defendants have shown, prima facie, that the alleged 2010 Agreement does not fix Gonick’s employment to any definite period of service.

. . .

To be sure, an agreement can establish a fixed duration even if its duration cannot be determined ab initio, as long as the duration is delimited by legally and realistically cognizable boundaries. In the Court’s view, ARMI’s alleged contractual promise to employ and compensate Gonick for the life of a third-party mutual fund lacks the type of legally and realistically cognizable boundaries that are experientially limited and ascertainable by objective benchmarks. In other words, whatever the precise limits of the doctrine enunciated in Rooney, the promise allegedly made to Gonick clearly lies outside of them. Based on the foregoing, the Court concludes that the term “life of the Fund” lacks sufficient definiteness to render inapplicable the presumption of at-will employment.

Moreover, even if the alleged 2010 Agreement were construed as a valid employment contract for a definite period of employment, which it is not, defendants have established that the unsigned agreement is void under the statute of frauds. It has long been the law of New York that the statute of frauds is applicable to employment contracts to pay commissions on customer accounts brought in by an employee for so long as the account remained active with the employer. In holding that a contract to pay post-termination commissions is not by its terms performable within a year, the Court of Appeals emphasized that performance is dependent, not upon the will of the parties to the contract, but upon that of a third party.

Here, ARMI’s alleged obligation to pay commissions to Gonick under the 2010 Agreement encompasses customers placed in the Fund through Gonick’s efforts, and there is nothing in the 2010 Agreement that allows the parties to terminate the alleged contract for cause or convenience. ARMI’s alleged obligation to employ and compensate Gonick continues until the Fund is dissolved, a contingency that is dependent not on the actions of the parties to this case, but solely on the actions of third parties, including Adirondack Funds, its trustees, governmental regulators and, of course, the Fund’s customers. And while it is theoretically possible that the Fund could have terminated its existence within one year of the alleged making of the 2010 Agreement, the same is true of cases like Zupan, since the third-party customers brought in by the plaintiff were free to have terminated their accounts with the defendant-employer within one year of the alleged oral employment agreement. And while termination of the contract within a year might result if defendant’s business were dissolved or otherwise ended, termination is not performance, but rather the destruction of the contract where there is no provision authorizing either of the parties to terminate as a matter of right.

(Internal quotations and citations omitted).

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