Employment Agreement Tip of The Week No. 1: Get It In Writing
Whether you’re an executive or a hiring manager, here’s a tip: if you think you have an employment agreement, or if you want to have an employment agreement, get the agreement in writing.
Sounds basic, right? Most of us know that. But a recent decision from New York’s highest court in Gelman v. Buehler suggests that not everyone does, and illustrates the consequences of not having a written agreement.
While not involving an executive agreement, Gelman v. Buehler involved an oral partnership agreement – something permitted under New York law. Gelman and Buehler, both freshly minted MBAs, entered into an oral partnership in 2007 to, according to the court’s opinion: 1) “acquire $600,000 from investors for…a ‘search fund’ to research and identify a business with growth potential;” 2) find more investors to buy the target business; 3) manage it to increase its value; and then 4) sell it at a profit. They anticipated, the court records, that the plan “would reach its objective in four to seven years.”
Sounds like a great business model, but the business didn’t take off – at all. Tensions between the young would-be tycoons mounted. After several months, Buehler demanded that Gelman let him be majority partner. Gelman refused, and Buehler withdrew from the partnership.
Gelman sued Buehler for breach of contract in New York state court. Buehler moved to dismiss the complaint, arguing that under New York State Partnership Law § 62, a partner can get out of an oral partnership agreement unilaterally where the oral agreement does not include a “definite term or particular undertaking.” The trial court agreed and granted Buehler’s motion to dismiss, but New York’s intermediate appellate court reversed. In granting Gelman’s appeal, a divided Appellate Division panel held that the partners’ business plan – find a company, buy it, run it, and then sell it – laid out a “definite term,” even if it was a term not recorded in months or years, but in activity. Because their oral agreement included this “definite term,” Buehler could not walk away from the partnership.
Then it was Buehler’s turn to appeal, this time to New York’s highest court. Buehler argued that a plan to do a series of events in sequence is not a “definite term,” and he pointed to cases interpreting “definite term” instead as a fixed amount of time. The court agreed. It also held that the oral partnership agreement didn’t set out a “particular undertaking,” because the partners’ business plan was “fraught with uncertainty,” and it wasn’t at all particular. In short, the oral partnership agreement was simply too unclear to keep Buehler from walking away from it.
The moral of the story? Gelman and Buehler probably have a lot they could tell us about their three-year odyssey up and down the New York court system. But I’ll bet you a doughnut or some fried chicken from this wonderful place moving into Suits-by-Suits’ neighborhood that one thing Gelman and Buehler would say is: get your agreements in writing if you can. Spell out each side’s obligations, rights, and duties, and provide for how and when the agreement can come to an end. If these two had done just that, they may have avoided litigation (or made it much easier), and saved a lot of time and money.