Like most states, North Carolina recognizes the enforceability of oral employment contracts. Earlier this month, the North Carolina Court of Appeals upheld a $1 million jury verdict against an employer based on an oral promise to pay bonuses in addition to the employee's base salary.
In Kornegay v. Aspen Asset Group, LLC, the plaintiff was employed by a real estate developer. In addition to his $72,000 base salary, he contended that he had an oral agreement with the company to pay him a 20% bonus for all sales that he closed. The employer contended that the bonus discussions were merely negotiations that were never consummated.
The Court of Appeals rejected this contention, noting that the defendant's president had the sole authority to make decisions involving employee compensation. Although no final agreement was ever reduced to writing, the jury had the discretion to determine whether there was adequate offer and acceptance to constitute a binding contract. In this case, that determination was largely based on "he said/he said" testimony of the plaintiff and the defendant's president.
The court refused to award double damages and attorneys' fees under the North Carolina Wage and Hour Act. It concluded that the trial judge and not the jury determines whether the employer acted on a good faith belief that its actions were in compliance with the law.
This case points out the dangers of failing to document the terms of compensation of all employees. Even if, as with most employees, no employment agreement is used, the employer should fully memorialize compensation terms in an offer letter or other confirmation upon hire. In addition to base salary, the communication should set forth all available incentive compensation, or refer to written policies that govern such compensation. As this decision amply illustrates, leaving these terms even slightly ambiguous can open employers to claims for oral contracts.