It is virtually impossible to prove the terms of a verbal contract, which invites trouble when things go sour with vendors, employees, contractors or business partners.  Written contracts help clarify what the terms of the agreement are, make sure both sides are in agreement, and give legal protection in case one party doesn’t live up to its obligations. Contracts relating to real property, commercial loan agreements, contracts for the sale of goods more than $500 are specific transactions that must be in writing in North Carolina to be enforceable.

A binding written contract can be formed by exchange of emails, even where the parties don’t both print and physically sign a document.

Contracts do not need to contain much “magic language” to be valid, but they do need to name the parties,  be signed by both parties, and the price needs to be stated or determinable.  If certain terms are missing, often the Uniform Commercial Code can fill the gaps, such as delivery or shipping terms, risk of loss, warranty.  In addition, both sides need to give “consideration,” which is the exchange of something of value. Usually one party promises to provide a good or service, and the other side promises to pay for it.  Sometimes one party offers not to do something (called forbearance), and the other party promises to pay, such as where one party agrees to settle a claim.

Contracts, however, are one of the most important devices to help a business minimize its risks.  The indemnity, limitation of liability and warranty provisions address what happens when things go wrong, and who will pay for them.  Take a look at what my colleague, Tom Bowden, thinks about do-it-yourself contracts.

Related articles

• How to simplify and improve any contract (vabizlawyers.com)
• Offer, Acceptance (illegitcode.wordpress.com)
• Drafting Non-Competes Is Risky Business (virginiaworkplacelaw.com)

This is a HUGE change in policy and procedure, and is certainly the DOL’s first step in attempting to move away from the Supreme Court’s opinion in Overnight Transportation Co. v. Missel, 316 US 572 (1942).  Plaintiffs have been arguing for years that the  reliance on Missel to award only a  .5 premium to employees who have been improperly classified as exempt is unfair.  It is my understanding that the DOL will be interpreting any misclassification under this new standard.  So, if the employee received bonuses or premium payments, and they were improperly classified as exempt, the argument the DOL intends to use is that since the fluctuating workweek does not apply, Missel does not apply and therefore the payment premium amount is 1.5 instead of .5. 

In addition, last week, the DOL unveiled a software application (app) that employees may download to their phone to track hours worked. We believe this is an effort to get the first “Blackberry” case going by the DOL (i.e. managers who call non-exempt employees at home to ask questions, or to email, the app will track the hours as compensable hours that should be compensated).

This is very important information, because the “heat” is really on to get those job classifications correctly analyzed. If you have any questions, contact a North Carolina employment attorney.

Remember the classic Monty Python skit? Eric Praline (John Cleese) walks into the Post Office to get a fish license for his pet halibut (also named Eric) and gets into an argument with the man behind the counter (Eric Idle). Here is an excerpt*:

Praline (pulling out his “cat license” to prove such things exist):
What’s that then?
Man: This is a dog license with the word ‘dog’ crossed out and the word ‘cat’ written in crayon.
Praline: The man didn’t have the proper form.
Man : What man?
Praline: The man from the cat detector van.

It gets sillier from there, but I digress…

Of what possible relevance is this you ask? Simple, this happens all the time in small business. Understandably, business owners want to control costs. Legal fees in particular. In light of the huge volume of legal documents accessible from the web, who can blame a business owner for finding what looks like a perfectly good form, marking it up and using it for a critical contract. This is commonplace, but very risky. I spend a significant portion of my practice time trying to extricate clients from unfortunate situations caused by this casual approach to contracts.

Here’s an example. Suppose business is tight, and you need some additional help, but you’re not prepared to hire a full-time employee. That’s when many businesses turn to “independent contractors” or “1099s” (in reference to the tax form the company sends to the contactor at tax time). This can be an excellent solution to the business problem, but a casual approach to the contract can have consequences far more expensive than the withholding tax that might be saved. In these situations, I have seen numerous examples where the business owner simply takes their standard “employment at will” agreement, does a search and replace substituting “contractor” for “employee” and “contract” for “employment.” What could be simpler?

But here’s the rub. Many of the pro-employer terms in a good employment agreement can have disastrous tax consequences if they remain in an independent contractor agreement. The IRS is not bound by your contract, but it can certainly give them lots of ammunition to use against you. The IRS has a list of 20 characteristics that determine whether the relationship is truly an independent contractor relationship, or merely a disguised employment. One of those key points is whether the relationship is terminable at will by the “employer.” If it is, then the IRS will likely take the position that this is an employment relationship.

So the standard “at will” clause in an employment agreement is the last thing you want to see in an independent contractor agreement. That’s just one of many examples. If the IRS decides your independent contactor arrangement is really just employment in disguise, they will not only assess the employer for unpaid withholding taxes, they can also impose a heavy 100% penalty on the “control persons” who write the checks or authorize the payments. That would generally be the owner. And what’s worse, if the IRS recharacterizes the independent contractor relationship as one of employment, then the contractor/employee may even have a claim against the employer for unpaid overtime, which would include significant damages and legal fees.

Take the same situation, but reversed. If the company dusts off what is really an independent contractor agreement, and tries to use it as an employment agreement, they have probably tossed away their right to terminate the employee “at-will” because the contractor agreement was for a specified task at a set price. As long as the contractor performs the specified task, they have a right to finish the job and get paid. Is this what you want in an employment agreement? Probably not. Keep that in mind if you are considering the DIY approach. Sure, you will probably save some legal fees, but from our experience, they will be dwarfed by what it will cost to untangle the “hairball” you may create.

For more merriment from Monty Python’s Flying Circus, go here.