Can I walk away from a job without a Contract in place?
Article by Sharon Givoni
What happens when something goes wrong on a project, and there is no contract in place? Can you walk away from the job, without any formal termination terms in place?
No matter the scale of a project, we recommend creating a formal contract to set clear boundaries, manage expectations and protect you legally. However, at times you may find yourself engaged by clients in what is known as a “verbal contract”. Perhaps you’ve worked with the client previously and believe that the status quo is enough not to require anything in writing. Or perhaps the project is small-scale, and it feels overly formal to require a signature from the clients. Under such a verbal contract, you may be providing architectural or interior design services that your client has verbally agreed to pay you for.
The good news is, provided certain requirements are met, this verbal agreement is binding – your client will be expected to pay you for any services that have been completed up to that stage. The not-so-good news is that you may be required to complete the services that you have verbally committed to as part of your legal obligations. This can mean continuing to work with a client under very strained and difficult circumstances.
Another important factor to consider with a verbal contract is that many terms and conditions crucial to your services are at best loose, ambiguous and, most importantly, not in writing.
What happens if something goes astray? This is a scenario that many of my clients have brought to my firm and most, if not all, are surprised to learn that termination of a verbal contract is not a simple process, regardless of the circumstances.
How does that work?
The critical thing to keep in mind when approaching all agreements, verbal or otherwise, is that a contract between two parties is formed when:
There is an offer made,
Someone accepts that offer, and
Something of value passes between the parties (what the law calls ‘consideration’).
What happens if you want to terminate your service engagement when there is nothing in writing between you and your client?
When one party terminates a verbal contract, this can cause significant loss or damage to the other party (even if merely in the form of delays). If this occurs, the terminating party may end up being liable for the loss or damage to the other party.
For this reason, and in the interest of fairness between the parties, the law restricts the circumstances under which someone can terminate. Even where, for example, your client is impolite and rude, whilst this may appear to provide you with a way out, the reality is very different.
In contrast, if you are in the middle of providing your services to a client, and your written contract or Terms and Conditions provide you with an explicit right to terminate if your client is disrespectful, termination will be a lot more straightforward.
So how do you actually terminate the verbal agreement?
Without a formal contract in place, the law will have to “fill in” the absence of a written contract and determine by the principles of “common law” of whether you can terminate the contract or not.
The circumstances under which you can terminate under common law are limited, being namely:
One party has ‘repudiated’ the contract – that is, that party is unwilling or unable to perform their obligations under the contract. This can be established by words or conduct, for example, if a client sells the property which you were working on together;
One party has breached an essential term of the contract – that is, that party has breached a key requirement of the contract such as paying the required upfront deposit;
One party has seriously breached an intermediate term of the contract – that is , that party has made a serious breach of a term that is not a key requirement as above but is nonetheless a requirement of the contract. An example of this might be a lack of communication from the client, preventing the designer from continuing on with their work in a timely manner.
Without getting into too much detail, common law essentially requires something very serious to occur for you to end your working relationship.
This is a particularly precarious situation for you and your business as, in the absence of a written contract, there are no fixed rules as to when you can or cannot terminate.
Why does common law operate like this?
Coming back to example of a disrespectful or rude client – the law may view this breakdown in communication as a mere argument. Whether or not there are grounds for termination of the verbal contract is akin to asking - how long is a piece of string? For example, was the client shouting and physically aggressive or using physical acts of intimidation? Was this a once-off occurrence or is this a frequent pattern of behaviour? Have they engaged in harassment or abuse? Have they threatened you? Are they communicating rudely through other mediums such as emails and text messages?
As you may begin to appreciate, it’s very difficult to determine the exact point at which client conduct is serious enough for you to terminate the agreement unilaterally.
So where does that leave me?
There are few businesses offering services, creative or otherwise, that can afford to be without a comprehensive set of Terms and Conditions. Whatever your level of service, we recommend creating a contract in consultation with a legal professional.
Whilst many do not want to consider all scenarios from a legal perspective at the commencement of a working relationship, it is extremely important for you to consider your own values and how you want to run your business. This may include how you want to be spoken to and other various codes of conduct, which can be captured and cemented in a written agreement between you and your client. Not only does this protect your business but will provide you with some peace of mind.
Ultimately, the more you put in writing, the more certainty there is. With a contract, it’s easier to set clear boundaries and expectations, and more straightforward to prove when a client has been in breach of your terms and conditions. Sometimes, more is really more!
We offer members of our Premium Group Coaching Program access to an exclusive Group Contract, created by TDC legal expert Sharon Givoni. Every year, we build on this detailed and comprehensive contract with the program members, to ensure we have you covered for every conceivable challenge. The terms are written in easy-to-understand language, backed by sound advice from a reputable source.
To access this amazing Legal Contract and accelerate your business to new level, join the next Premium Group Coaching Program. Applications are closing soon.
Please note the above article is general in nature and does not constitute legal advice – always contact your lawyer if you require advice about your specific circumstances.
This article was written by Sharon Givoni, principal solicitor at the law firm Sharon Givoni Consulting (https://www.sharongivoni.com.au/).
If you have any questions, or you want her to prepare, review or amend a written contract for your business, contact Sharon and her team at: info@iplegal.com.au.
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