IT Employment

Can you collect on a verbal agreement?

Contrary to what some may say, many verbal agreements are legally binding. Here are some of the ways that consultants can collect from a client when there's no written contract.

So you did a quick job for a client, and because the client was in a rush and it was a small project that you knew wouldn’t take more than a few days, you didn’t insist on having a contract before you started. Or, you designed a small Web site for a friend of a friend, and because you sort of knew the person, you didn’t write up a contract. Now, neither of these folks will pay up or return your phone calls. Are you just out of luck because you didn’t have a contract?

No! An agreement is an agreement, and many verbal agreements are legally binding. Clients know they’re supposed to pay you what you both agreed upon. Neither a collection agency nor a judge will require you to produce a contract. This article will examine the circumstances under which a verbal agreement is legally binding and the options available to help you collect from a client when you don’t have a written contract.

The types of agreements that are binding
If you said you would deliver something of value and the client agreed to compensate you for that in some way, you have an agreement, whether this took place over the phone, in person, or via an e-mail exchange. For a verbal agreement to be binding, you and the client simply need to agree on two things:
  • The services you will perform
  • What you will receive in exchange

Of course, certain types of agreements must be made into a written contract or neither party can be legally held to them. According to attorney Stephan Fishman’s Consultant and Independent Contract Agreements (1998, Nolo Press), the following agreements must always be in writing to be valid:
  • Agreements to sell tangible property, such as a computer or car, worth more than $500
  • Agreements regarding the sale of real estate
  • Agreements that can’t realistically be completed in less than one year, such as a project with three six-month deliverables
  • Agreements that someone else will pay you, such as when someone who does not have authority to speak for the company promises that the company will pay you
  • Any transfer of copyright ownership

You’ll notice that agreements to provide services are not in this list. The types of contracts that must be in writing differ from state to state, so if you have any doubt, check your state fraud statutes. However, consulting agreements for less than a year should be valid even if they were made orally.

You can collect on a verbal agreement as easily as on a contract
If you are certain that you entered into an agreement with the client—the client agreed to pay you x in exchange for service y—youhave the same basic options that I outlined in my earlier article on collecting when you do have a contract: You can apply increasing pressure, turn it over to a collection agency, or take the client to either small claims or municipal court. In addition, when you begin pursuing payment with the client, the first thing to do is to remind the client of your agreement and note that even though it isn’t a written contract, it is legally binding. Notify the client of this in writing.

So that it doesn’t come down to strictly your word against the client’s, immediately archive and back up everything you have that points to a business relationship: all e-mails, faxes, written correspondence (especially if it’s on the client’s letterhead), and disks with your work on them. Even if you don’t have anything in writing about the terms of the agreement, the client’s reviews of your work, responses to e-mails, and possibly even responses to requests for payments will support your claim. For example, if you requested payment but the client e-mailed that you’d be paid next month, that proves the client agreed again to pay you.

Your work itself and a log of the time you spent on it or visits you made to the client’s offices also attest that you never intended to work for free. If the client is already using your work in a visible way, such as on a Web site or in a flier, obtain a copy of that item or file to show that the client did accept your work.

But you may not get it all
Even if you do eventually get paid from a verbal agreement, you may not be able to collect the amount of compensation you agreed upon. If your client claims he agreed to pay you $35 an hour but you remember that the agreement was for $50 an hour, a judge or arbitrator may not be inclined to give you all of the benefit of the doubt even if the ruling is in your favor.

It’s best to avoid the whole mess in the first place
To some extent, this is another case in which an ounce of prevention is worth a pound of cure. If your client thinks he can get away without paying you because you don’t have a contract, he just might try. Of course, this type of person won’t necessarily be very concerned about paying you even if you do have a contract. In general, always insist on at least some of the payment up front. This is very much a standard practice with fixed-fee projects. If the client is extremely reluctant to do this, you should regard this as a red flag about that client and be just as reluctant to start work.

A major cause of conflict in client-contractor relationships is client dissatisfaction with the work provided. Remember, because you are not an employee, in general, your work must be acceptable to the client before he is obligated to pay you. Make sure that you have a clear idea of exactly what the client expects you to produce. Of course, if the client claims that your work was unacceptable but has used it anyway, document that use in whatever way possible. If the client uses it, it’s clearly been accepted no matter what the client says.

Meredith Little has worn many hats as a self-employed writer, including technical writer, documentation specialist, trainer, business analyst, photographer, and travel writer.

Have you ever had a client go back on a verbal agreement? How did you get your money? Or didn't you get it? Share your experience with us by posting a comment below or by sending us an e-mail.
0 comments