A recent opinion from the Second Circuit Court of Appeals reaffirms that the Statute of Frauds will not void an oral agreement to pay commissions if the agreement lacks a fixed duration.
In Kroshnyi v. U.S. Pack Courier Services, Inc., 11-2789-cv (2d Cir. Nov. 4, 2014), several delivery drivers filed suit for – amongst other things – failure to pay commissions, in violation of Section 198 of the New York Labor Law, and for two violations of the Franchise Sales Act (“FSA”). To obtain delivery assignments from the company, the company mandated that the drivers sign franchising agreements. The franchising agreements required the drivers to pay a subscription fee of $15,000 as well as a series of other payments. The drivers alleged that, while not set forth in the franchising agreements, the company made an oral promise to pay them a commission for each delivery in the amount of 60% of the customer’s payment to the company.
The trial court dismissed the drivers' ' wage claim on summary judgment, holding that the oral commission agreements violated the Statute of Frauds because they could not be completed within one year. At trial, eight plaintiffs prevailed on their FSA claim. Each side appealed.
On appeal, the Second Circuit - interpreting New York law – held that the Statute of Frauds does not void an oral agreement to pay commissions unless such an agreement is of fixed duration. The Court explained that “oral employment agreements lacking a fixed duration are not covered by the statute of frauds” because they create an at-will relationship which is “terminable at any time by either party”. As such, the Court found that the company’s oral contracts with the drivers were capable of completion within one year and, as a matter of law, therefore fell outside the purview of the Statute of Frauds.
