Oral Lifetime Employment Contracts

Under Illinois law, “no action shall be brought … upon any agreement that is not to be performed within the space of one year from the making thereof, unless … in writing and signed by the party charged.” 740 ILCS 80/1

The statute of frauds prohibits oral contracts that cannot be performed within one year of their making. Martin v. Federal Life Insurance Co., 109 Ill.App.3d 596, 440 N.E.2d 998 (1982). The test for determining whether the statute of frauds applies to a contract is whether the contract is capable of being performed within one year of its formation, not whether such occurrence is likely. Id. at 604. Therefore, contracts for lifetime employment in Illinois must be in writing to be enforceable under the statute of frauds.

In McInerney v. Charger Golf, the Illinois Supreme Court noted:

“There are, of course, exceptions to the statute of frauds’ writing requirement which permit the enforcement of certain oral contracts required by the statute to be in writing. One such exception is the judicially created exclusion for contracts of uncertain duration. In an effort to significantly narrow the application of the statute, many courts have construed the words “not to be performed” to mean “not capable of being performed” within one year. See Restatement (Second) of Contracts § 130 (1981). These cases hold that if performance is possible by its terms within one year, the contract is not within the statute regardless of how unlikely it is that it will actually be performed within one year. Under this interpretation, the actual course of subsequent events and the expectations of the parties are entirely irrelevant. Restatement (Second) of Contracts § 130, Comment a (1981). A contract for lifetime employment would then be excluded from the operation of the statute because the employee could, in theory, die within one year, and thus the contract would be “capable of being performed.”

In attempting to rein in this exception to the statute of frauds, some courts have made a distinction-at times quite attenuated-between death as full performance and death operating to terminate or excuse the contract. See, e.g., Sinclair v. Sullivan Chevrolet Co., 45 Ill.App.2d 10, 15, 195 N.E.2d 250 (1964); Martin, 109 Ill.App.3d 596, 65 Ill.Dec. 143, 440 N.E.2d 998; Gilliland v. Allstate Insurance Co., 69 Ill.App.3d 630, 26 Ill.Dec. 444, 388 N.E.2d 68 (1979). Under this view, an oral contract for employment for a stated period longer than one year will not be enforced because, although the employee could die within one year of the making of the contact, these courts elect to treat that contingency as an excuse or termination of the contract and not as performance. This distinction, while perhaps logical in other contexts, is meaningless in our case where the complete performance contemplated by the parties, i.e., employment for life, is identical to the event giving rise to termination or excuse. Under the terms of the oral contract alleged in this case, the employee’s death would have resulted in full performance.

We find such an interpretation hollow and unpersuasive. A “lifetime” employment contract is, in essence, a permanent employment contract. Inherently, it anticipates a relationship of long duration-certainly longer than one year. In the context of an employment-for-life contract, we believe that the better view is to treat the contract as one “not to be performed within the space of one year from the making thereof.” To hold otherwise would eviscerate the policy underlying the statute of frauds and would invite confusion, uncertainty and outright fraud. Accordingly, we hold that a writing is required for the fair enforcement of lifetime employment contracts.” 176 Ill.2d 482, 489-90, 680 N.E.2d 1347 (1997).

In Razdan v. General Motors Corp., the federal district court followed the Illinois Supreme Courts ruling in McInerney stating, “oral contracts for lifetime employment violate the Statue of Frauds.” Razdan v. General Motors Corp., 979 F.Supp. 755, 760 (N.D.Ill.1997).