On Friday, April 18, 2008, a New Jersey jury awarded Alfred West $10.5 million in a breach of employment contract claim. Mr. West, a telecommunications entrepreneur, entered into an informally written employment agreement with IDT Corporation. The agreement obligated him to work for IDT for five years in exchange for compensation totaling over $2.5 million per year. IDT failed to pay according to the agreement, and the lawsuit ensued. IDT argued that the agreement was merely “an agreement to agree” and not a binding contract. However, the Court and jury disagreed, finding that all of the elements of a contract were present.
The case highlights the important fact that a legally binding employment contract does not have to be a “boilerplate” legal document. In fact, employment contracts which are written on a napkin, sketched on a blackboard, or even discussed and agreed upon orally, can be legally enforceable, so long as the elements of a contract are present.
I will say, however, that such contracts are harder to enforce and are more likely to lead to litigagtion. I have represented several New Jersey executives in similar matters. These individuals came to me after their contracts were breached, not before. While I have been able to achieve very good results in my contract cases, my clients would have saved a lot of money, time, and aggravation had they consulted me before they signed their agreements. It is very important that both employer and employee fully understand their rights and obligations at the outset of the employment relationship. If the parties have a mutual understanding of the terms of the agreement, and have signed a well-drafted contract, litigation can sometimes be avoided.
I congratulate Mr. West and his excellent attorneys for the sizable verdict. I would expect, however, that Mr. West would have preferred to have been paid his money as an employee, rather than having to go through the extraordinary expense, in both money and time, of a lawsuit.