The question
Two years ago, I was verbally promised a partnership in the company I work for if I met certain milestones. It’s a similar track that all senior managers enter and it would come with about $1-million in shares to the company. The company was recently sold and the person who promised me the partnership is no longer with the new company. Does the new company still have an obligation to honour my partnership and shares?
The first answer
Melissa Rico and Kathleen O’Brien, Carbert Waite LLP, Calgary
The situation described involves a contractual dispute within an employment relationship. The issue is whether you can enforce the terms of a verbal agreement.
As a starting point, verbal contracts are as binding as written contracts so long as the parties are clear on the terms of the agreement. This is the challenge in this case: given that the person who made those promises is no longer employed by the company, how do you establish the terms that were agreed upon? If a dispute arises there is nothing to support the specifics of the terms and it would be difficult to determine obligations or entitlements under the agreement.
The takeaway for both employers and employees is that nothing should be left uncertain within an employment relationship. Promises should be documented in writing and agreed-upon terms should be clearly set. This protects both parties and makes it easier to enforce the agreement.
The above analysis contemplates contracting with the company prior to the sale. The sale of the company and how it was acquired will affect the enforceability of any contract made with the old company. At a high level, if your company was acquired as a share purchase, there has been no change to the employment relationship and the new company has inherited all employment-related liabilities. In other words, presuming you could establish a verbal agreement, the new company would be on the hook. However, if it was an asset purchase, the employment relationship has essentially been terminated and the new company has no obligations to you. These are complicated issues and it would be prudent to seek legal advice.
The second answer
Samantha Lamb, partner, Jewitt McLuckie & Associates, Ottawa
Whether there is any obligation on the new company depends on a number of factors, starting with whether the verbal promise ever amounted to a verbal contract. Was the person who promised the partnership someone who was in a position to make promises on behalf of the company? Or, was it reasonable to believe they held the authority to make such promises? If so, was the agreement set out in specific enough detail to be considered a verbal contract?
There is a legal difference between someone suggesting that if you meet milestones you will be offered a partnership that could be worth $1-million in shares, and someone making a promise that amounts to a contract. A contract would set out in detail the targets that must be met and by when, and exactly what you will receive in exchange for meeting them, and when you will receive it. To be a verbal contract, the discussion must have included all of the necessary specifics of how partnership would be triggered. The type of company and the nature of the sale also determine the answer as some types of sale transfer liability for all contracts to the new company while others keep liability with the original company.
Finally, even if there was not a contract, you might be able to argue detrimental reliance, which depends on whether you have relied on the promise to your detriment, including making major decisions in anticipation of the upcoming partnership. A lawyer can review the details of your conversation(s) with the old company to help you determine whether the new company must uphold the promise.
Have a question for our experts? Send an email to NineToFive@globeandmail.com with ‘Nine to Five’ in the subject line. Emails without the correct subject line may not be answered.