Cron v. Hargro Fabrics, Inc.
91 N.Y.2d 362, 670 N.Y.S.2d 973, 694 N.E.2d 56 (1998)
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Rule of Law:
Under New York's Statute of Frauds (General Obligations Law § 5-701[a][1]), an oral employment agreement, terminable at will, does not require a writing merely because compensation based on annual profits must be calculated after the passage of one year, provided the measure of compensation is fixed and earned within that year.
Facts:
- Plaintiff was employed by defendant corporation, a textile fabrics converter, for approximately 13 years until he was discharged in January 1996.
- From 1990 through 1995, plaintiff alleged an oral agreement with defendant to receive an annual salary equal to the defendant's president's salary, plus a bonus of 20% of defendant's annual pretax profits.
- Plaintiff's employment with defendant was terminable at will by either party.
- Plaintiff claimed that if his employment ceased during any given year, he would be entitled to his annual base salary and bonus percentage computed to the last day of his employment, based on profits transacted up to that point.
- Defendant contended that annual net profits or sales could not be determined according to usual accounting methods until sixty days into the next calendar year, and that due to the seasonal nature of its business, any bonus based on profits could not be determined in a meaningful and fair way until after the calendar year's end.
- Plaintiff discovered that his compensation during the 1990-1995 period was not paid in accordance with the alleged oral agreement.
Procedural Posture:
- Plaintiff commenced an action against defendant corporation in Supreme Court (the trial court of first instance in New York) alleging breach of an oral employment agreement.
- Defendant moved to dismiss plaintiff's complaint pursuant to CPLR 3211(a)(5), asserting the oral agreement was unenforceable under the Statute of Frauds.
- The Supreme Court denied defendant's motion to dismiss.
- Defendant appealed the Supreme Court's ruling to the Appellate Division (an intermediate appellate court), where defendant was the appellant and plaintiff was the appellee.
- The Appellate Division reversed the Supreme Court's order, granted defendant's motion, and dismissed plaintiff's complaint.
- Plaintiff then sought and was granted leave to appeal to the Court of Appeals of New York (the state's highest court), where plaintiff was the appellant and defendant was the appellee.
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Issue:
Does an oral employment agreement, which is terminable at will and provides for compensation based on annual profits, fall within the Statute of Frauds (General Obligations Law § 5-701[a][1]) merely because the calculation of the bonus necessarily occurs after the passage of one year?
Opinions:
Majority - Smith, J.
No, an oral employment agreement, terminable at will and where compensation is fixed and earned within one year, does not fall within the Statute of Frauds merely because the calculation of the bonus occurs after the one-year period. The Court reasoned that New York's Statute of Frauds (General Obligations Law § 5-701[a][1]) applies only to contracts which, by their terms, "have absolutely no possibility in fact and law of full performance within one year." An at-will employment relationship is generally terminable within a year, and therefore typically falls outside the Statute of Frauds' one-year proscription. The Court distinguished prior cases that applied the Statute of Frauds to agreements involving indefinite, newly arising payments that extended employer liability indefinitely. Instead, it adopted the rationale that when the employment relationship is terminable within a year, and the measure of compensation has become fixed and earned during that same period, the sole obligation to merely calculate that compensation after the year's end does not bring the contract within the Statute of Frauds. This approach, while a slight modification of previous language requiring full performance by all parties, is consistent with the Statute's purpose of preventing fraud and not enabling the evasion of just obligations, particularly when the measure of the defendant's obligation is fixed within a year. The plaintiff's allegations, that a pro-rata bonus would be due upon mid-year termination, further supported the conclusion that full performance could be achieved within a year.
Analysis:
This case significantly clarifies the application of New York's Statute of Frauds to oral at-will employment contracts that include profit-based compensation. It establishes that the timing of a bonus calculation, distinct from the earning of the compensation itself, does not necessarily render an oral agreement unenforceable under the one-year rule. This ruling resolves a conflict among the Appellate Division departments and strengthens the enforceability of legitimate oral compensation agreements, preventing employers from using procedural delays in calculation as a technical defense to evade obligations. It underscores the court's commitment to balancing the Statute of Frauds' fraud-prevention purpose with the avoidance of unjust enrichment.
