Are Unwritten Employment Contracts Legally Valid and Enforceable in Nigeria?

Introduction

A contract of employment can exist whether orally or in writing. It can arise out of any discussion, obligation or instruction to do an act as far as the elements of a contract are present. Agreements are made to be honoured. An unwritten contract is enforceable provided it complies with all the requirements of a valid contract. This article offers insights into the realm of employment contracts in Nigeria, particularly focusing on the enforcement and implications of unwritten contracts. 

Meaning and ingredients of a contract

A contract is simply a legally enforceable agreement, written or unwritten (oral), freely and voluntary reached between or entered by two or more persons with a clear intention to create a binding legal relationship. See, NURTW &Ors v. First Continental Insurance Co. Ltd (2019) LPELR-48005(CA). For there to be a valid, enforceable and binding contract between the parties, the following basic essential elements must be present.

  1. A definite offer,
  2. Unqualified acceptance,
  3. Intention to create a binding legal relationship,
  4. Consideration, and
  5. Legal capacity to contract. 

The law requires that all these basic elements must be present or co-exist in order for a binding and enforceable contract to be reached and arise on the authority of Orient Bank Nigeria Plc v. Bilante Int. Limited (1997) 8 NWLR (515) 37 at 76. However, the recognised foundation of a legally binding and enforceable contract between parties is the meeting of the minds, the agreement or on consensus ad idem by them on the subject matter as well as terms and conditions agreed to. See, Sona Breweries, Plc v. Peters (2005)1 NWLR (908) 478 at 488.

Classification of contracts 

Contracts are typically classified into two types, formal contracts and simple contracts.

Formal contracts include sealed contracts, negotiable instruments, and judgments/recognisances. All other contracts are deemed simple contract.

Contracts may also be classified as written contracts and unwritten (or oral) contracts.

Written contracts are those where the terms of the agreement are reduced to writing, while unwritten contracts are those where the terms are not formally documented.

Unwritten contracts can take the form of oral agreements or contracts implied from the conduct and actions of the parties. Examples of unwritten contracts include employment contracts, purchase contracts, and other everyday agreements where the terms are not formally written down.

Unwritten contracts are equally legally legitimate and enforceable as written contracts, as long as the contract’s vital elements (offer, acceptance, and consideration) are present.

The major distinction is that unwritten contracts are more difficult to prove because they are based on evidence of the parties’ words and behavior rather than a formal written document.

What is a contract of employment? 

A contract of employment means any agreement, whether oral or written, express or implied, whereby one person agrees to employ another as a worker and that other person agrees to serve the employer as a worker. 

Who is a worker?

A worker is defined in section 91 of the Labour Act as any person who has entered into or works under a contract with an employer whether or written and whether it is a contract of service or a contract personally to execute any work or labour. This contract is commonly referred to as Contract of Service.

How can parties agree in the absence of a written agreement?

When there is no written agreement parties can be taken to agree either on the practice of the trade or by conduct. See, Shena Security Co.Ltd v. Afropak (nig) ltd&Ors (2008) LPELR-3052(SC)

Are parties bound by the terms of a contract of employment?

It is trite law that parties to a contract are bound by its terms. The express terms of a contract of employment govern any aspect of the relationship between the employer and the employee. See, Amodu v. Amode& Anor (1990) LPELR-466(SC)

What determines the nature of a contract of employment?

Generally, employment is a contract or an agreement between parties, In the case of Mainstreet Bank Registrars Ltd v. Ukandu (2017) LPELR-43646(CA), the court stated that contract of employment is founded on the twin pillars of services and wages, it is on these that a contract of employment rest. A contract of employment is either grounded in statute or common law in which case the employment letter stipulates the terms of contract. See, NELMCO Ltd v. Onifade& Anor (2022) LPELR-58118(CA)

If any question arises with respect to the contract entered into by the parties, the terms in any document which constitute the contract are invariably, the guide to its interpretation. So, in its construction of contracts, it is the duty of the Court not to look at a contract in a narrow manner for its interpretation. The entire documents must be looked into and in conjunction with the dealings of the parties to know what they meant. See, the case of New Nigeria newspapers Ltd v. Atoyebi (2013) LPELR-21489(CA). It should be noted that contracts of employment fall into three categories:

  1. Master and servant, relationship;
  2. Where a servant holds an office at the pleasure of master; and
  3. Employment that is governed by statute. A contract is said to have statutory flavour where the contractual relationship between the employer and the employee is governed by a statute or regulations derived from statutes. See NEPA vs. Adesaaji (2002) 17 NWLR Part 797 page 578. 

What are the categories of contract of employment?

The law is settled that there are now roughly three categories of contracts of employment viz:

  1. those regarded as purely master and servant;
  2. those where a servant is said to hold an office at the pleasure of the employer: and
  3. those where the employment is regulated or governed by statute, often referred to as having statutory flavor, See, Olaniyan v. University of Lagos (1985) 2 NWLR (Pt. 9) 599.; CBN v Igwillo (2007) LPELR-835(SC)

Can an unwritten contract can be enforced?

It is settled that a Court of law will not allow the absence of writing to be used as an engine of fraud in a Court of justice. A Court will enforce the contract if it is found that there is an agreement from the fact before the Court. See, Ogundelu vs. Macjob (2006) 7 NWLR (pt. 973) 148 165. The law will not allow the absence of writing to be used as an engine of fraud unless it is a case where the law requires the transaction to be in writing. See, Lawal vs. Ejidike (1997) 2 NWLR (pt. 487) 319 at 331.

An agreement is made to be honoured. Consequently, an unwritten contract is legally binding and enforceable where it is breached. Enforceability of a contract is when a party to a contract can be compelled to observe or forced to obey the terms of the contract. An unwritten contract is enforceable provided it complies with all the requirements of a valid contract. See Jukok Int’l Ltd v. Diamond Bank Plc [2016] 6 NWLR (Pt. 1507) 73 at 26.

Legal Impact of an Unwritten Contract of Employment

Unwritten contracts can be lawful and enforceable even if they are not in writing. A contract must have an offer, acceptance, and consideration in order to be valid.

The burden of proof falls on the party arguing the existence of an unwritten contract to present credible evidence that a contract was formed as a result of the parties’ conduct and communications.

Unwritten employment contracts are believed to be “at-will,” which means that either party may end the agreement at any time without cause, unless implied provisions indicate otherwise. Implied terms might result from an employer’s conduct, policies, or statements that generate a reasonable expectation of job stability.

Breaches of unwritten employment contracts are treated the same as written contracts – the non-breaching party may sue for damages if the other party fails to meet their contractual responsibilities without explanation.

The severity of the breach impacts the potential remedies, such as permitting the non-breaching party to decline further performance.

Enforceability of an Unwritten Contract of Employment

It is a fundamental and well settled principle, that the terms and conditions of employment is the bedrock on which any claim predicated thereupon ought to squarely rest. Thus, where an employee complains of a wrongful termination of his employment, he has the onus:

  1. To place before the trial court the terms of the contract of employment;
  1. To prove the manner in which the said terms were breached by the employer thereof.

See U.T.C. Nigeria Ltd. v. Peters (2009) LPELR-8426(CA); JomboV. PEFM (2005).14 NWLR (Part. 945) 443

The question that necessarily follows is whether the Complainant has placed before the court terms of the contract of employment and whether he has shown the manner in which the terms were breached?

Where it is clear to both parties that the requirement to present such terms in the form of a document cannot be satisfied since no such express terms were at any time exchanged between the parties, that is, there was no written contract of employment between parties. The terms guiding the relationship between the parties are to be implied by the court in view of the circumstances of the case.

In view of the burden of proof placed on the Complainant and the circumstance of the suit wherein the employment relationship is largely undocumented, the court will take into cognizance the provision of section 12 (2) (b) of the National Industrial Court Act which provides that:

12 (2) Subject to this Act and any rules made thereunder, the Court:

(b) shall be bound by the Evidence Act but may depart from it in the interest of justice.

The effect of the forgoing is that the court has the discretion to depart from the rule of evidence as stipulated in the Evidence Act in the interest of justice where the occasion and circumstances of the case so demands.

It is pertinent to mention that the Nigerian Labour Law, through the provisions of sections 7 – 20 of the Labour Act prescribes matters that the employer ought to put in writing and given to the employee within three months of the employment. Such matters include the wages to be paid and the manner of payment and the appropriate period of notice to be given by the party wishing to terminate the contract. It must also be noted that where there is no written agreement as to the period of notice of termination of contract of employment, the notice to be given must be reasonable notice and same can be implied by the court. See Union Bank of Nigeria Plc v. Soares (2012) LPELR-8018(CA).

The forgoing provision aside, it must be noted that it is possible for parties to orally enter into a contract of employment as the court in Shena Security Company Ltd V. Afropak (Nigeria) Ltd &Ors. (2008) LPELR-3052(SC) held that a contract of employment means any agreement, whether oral or written, express or implied, whereby one person agrees to employ another as a worker and that other person agrees to serve the employer as a worker. That is by the definition of the Labour Act (Cap. 198) LFN, 1990 which applies to workers, strictly defined to the exclusion of the management staff.

It is not entirely out of place for parties not to have their contract of employment in writing but failure to express certain terms would leave the court with the responsibility of implying same as guided by the statute.  In the case of Afrab Chem Ltd v. Owoduenyi (2014) LPELR-23613(CA), the court held that in an employer-employee or master-servant relationship, in addition to or to the exclusion of the express terms of the contract, the law imposes certain implied terms into the contract. These implied terms may either be founded on statute, by custom, by practice, public policy or such terms as to ensure that the master does not subdue the servant to a condition of servitude or slavery or like terms. 

While the court should not concern itself with the reasonableness or otherwise of the contractual terms between the contracting parties, the law would not allow the imposition of servile conditions on an employee. Any such contract which tends to impose servile obligations upon any person would not be enforceable, see Davies v. Davies (1887) 36 Q – D 359. Where a term is permitted to be implied into a contract, the implied term has the same binding effect on the parties.

The court has the power to imply terms which the parties have themselves failed to agree upon but are necessary and would have been stated had the parties adverted their minds to it. See Lister v Romford Ice and Cold Storage Co. Ltd. (1959) WLR 555 at 594.

In Shena Security Company Ltd v. Afropak (Nigeria) Ltd &Ors. (2008) LPELR-3052(SC), the court posited that where there is no mode of termination of the contract of service by any form of notice, the common law rule will apply. That rule is that the court will imply a presumption that contract of service is to terminate by reasonable notice given by either party. What amounts to reasonable notice will depend on the intention of the parties as revealed by the terms of the contract.

Furthermore, the court in Akumechiel v. B. C.C. Ltd. (1997) (Pt.484) 695 at 703, stated that where the contract of employment is silent as to the required notice of termination, the court will imply that a reasonable notice is necessary. And it is within the province of the Judge acting as a jury to decide what is reasonable notice, having regard to the following factors:

  1. the nature of the employment
  2. the length of service, and
  3. other circumstances of the case.

In giving effect to the implied term as to notice of determination, the court relied on the provisions of the Labour Act of which section 11 stipulates the various length of notice for the determination of an employment with regards to various periods in employment. Section 11 provides that:

  1. Either party to a contract of employment may terminate the contract on the expiration of notice given by him to the other party of his intention to do so.
  1. The notice to be given for the purposes of subsection (1) of this section shall be-
  1. one day, where the contract has continued for a period of three months or less;
  2. one week, where the contract has continued for more than three months but less than two years;
  3. two weeks, where the contract has continued for a period of two years but less than five years; and
  4. one month, where the contract has continued for five years or more.

The court found that the implied term as to notice of termination of employment of the Claimant was breached in the absence of the any reasonable notice given to the Claimants before their employment was terminated.

Conclusion

Unwritten employment contracts are legally valid and enforceable in Nigeria. Their enforceability is dependent on the claiming party’s ability to establish the existence of a valid contract by convincing proof of the parties’ actions and communications. The assumption is that these contracts are at-will, however implied clauses can cause exceptions to this rule. Breaches of unwritten employment contracts can be remedied by legal action, with the possible remedies depending on the gravity of the breach.

Note: The content of this article is anticipated to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstance.

By Adeola Oyinlade & Co.

Adeola Oyinlade & Co.; a full-service law firm in Nigeria provides help and offers advisory to both local and foreign clients in Nigeria. 

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