News
When is a deal a deal?
First published in the Independent, 4 September 2008.
Many of us learn our contracting skills in the playground.
For example, many agreements in the school yard are settled (after extensive oral negotiation) with a handshake – often involving some sort of "secret" element, known only to the members of a solemn sub-tribe of pupils.
More serious arrangements may, of course, involve additional things as spitting on one's hands before "shaking on it", or (in the most extreme of circumstances) the sharing of blood to signify the sanctity of the contract.
All of these different arrangements may, of course, be vitiated if (as it is widely known) one has one's fingers crossed behind one's back at the crucial point of exchange.
These different schoolyard practices disappear from one's skill set when entering the adult world, where a written signature of a piece of paper serves as the definitive indication that you are bound to your word.
In fact, it appears that most people regard their signature as such a significant indication of agreement that without it a deal is, quite simply, not a deal at all.
In the employment law context, the key contract underlying the relationship is, of course, the employment agreement. The law requires this contract to be in writing – and, in the ordinary course, it is signed by the parties to it.
Such is the significance of this formal contracting process that many people believe that – in the absence of a signed document – there can be no formal employment relationship at all.
There is even a belief among some that this situation is akin to having one's fingers crossed behind one's back at the time of the agreement – allowing the parties to deny any existence of an agreement at all.
But the law has a different view of this situation – as is illustrated by a recent case.
The case is McEnaney v Eustruct Limited (Unreported, Employment Relations Authority, Christchurch, 28 July 2008). The applicant had been employed as a carpenter. He had been hired following an interview with senior executives of the company, following which there had been some agreement reached on such things as his salary and roster (he was to work 11 days on, three days off at the company's construction site).
When McEnaney was travelling to commence work at the site for the first time, he was handed a written employment agreement, and was told to sign it. McEnaney said that before committing to it, he wanted to read through the document, and have it vetted by his wife who had experience in formal contracting matters.
True to his word, when he returned home after his first rostered shift, McEnaney consulted his wife about the document – the outcome of which was the identification of some issues for discussion.
During his next trip to the construction site McEnaney's manager asked him for his signed agreement – in response to which he explained that there were a few issues that he wanted to discuss with the directors. It appears that, following this discussion, McEnaney went to the site and performed his work.
That discussion appears never to have taken place – and no document was ever signed.
A short time later an incident occurred which led to McEnaney's employment relationship problem. He was supposed to be picked up from his home to be transported to the company's construction site, but his ride never arrived. Instead, he was given a letter informing him that he had been dismissed and was presented with a cheque representing his final pay, his holiday pay and a week in lieu of notice.
McEnaney immediately travelled to the company's construction site where he was asked to hand over his cell phone and fuel card. At that point he was also told that the cheque which had been presented earlier would be cancelled until the company could determine whether McEnaney owed the company any money.
The written employment agreement which had been presented to McEnaney envisaged a different scenario for the termination of employment. For a start, it could only be terminated for cause (such as misconduct or poor performance), and required a notice period of two weeks.
But the company believed that, because the agreement had not been signed, it was not effective. Instead, it decided to treat McEnaney as a casual employee.
Unfortunately, matters deteriorated between the parties. The company alleged that McEnaney had committed theft – although this allegation was not pursued by the Police.
One of the key findings made by the Employment Relations Authority concerned the status of the parties' employment contract. It found that McEnaney had been offered – and had accepted - permanent employment. Even though the document had not been signed, the parties had agreed to the key points underlying their relationship. Accordingly, there was no basis upon which the company could treat McEnaney as a casual worker.
On this rationale the Authority concluded that McEnaney had been unjustifiably dismissed, and that he had suffered considerable hurt and humiliation because of his employer's behaviour towards him. It awarded him some pay (presumably in respect of the shortened notice) and compensation of $5,000.
This case operates as a warning to any employer who might believe that, in the absence of a signed written document, there can be no formal employment relationship. While it is good practice for the parties to enter into a written document (and, in fact, the law requires terms to be recorded in writing) an employee who starts work in the absence of a finalised contract, nonetheless enters into a formal employment arrangement – and is entitled to all of the benefits conferred by the law.
