By Ryan Bradley, Civil Litigation Attorney at Koester & Bradley, LLP and Business Counselor at White River Consulting, LLC.
Most entrepreneurs have reached the conclusion that it is always a good idea to commit business-related communications to writing. But is this always the case?
When it comes to writing it down, think of two buckets: “Get it in writing” and “Have a conversation.”
Get It In Writing
This includes contracts, purchases of real estate, long-term agreements and some employment agreements.
Many successful founders love to brag about how they make deals based on a handshake. This method is reckless and rarely leads to a smooth deal. No matter how honest the parties to a deal may be, executing a written contract is important to provide clarity as well as protection.
The general rule is that both verbal contracts and written contracts are enforceable. The primary exception to the rule is that in almost every situation, contracts for the sale or conveyance of real estate must be in writing. This is known as the statute of frauds and it applies in other situations as well, most notably for contracts that are more than one year in duration. The application of this rule is standard in almost every state. This means that many situations can result in binding oral contracts such as employment agreements, agreements to purchase goods and services and consulting contracts.
Additionally, states such as Illinois have modified the rules concerning limited liability companies to allow verbal agreements among business partners to be valid and eliminate the need for a written Operating Agreement. This decision was made in order to incentivize founders to form businesses in Illinois and drive revenue to the state–not to protect and secure individuals starting a business.
While the elimination of a writing requirement may sound great, particularly to entrepreneurs who are concerned about keeping velocity, the reality is that verbal contracts rarely lead to success and generally lead to litigation. There are almost no situations in the real world where an agreement between individuals in a business contract should not be reduced to writing. By putting agreements in writing, even if you’re not required to do so by law, the vast majority of misunderstandings that lead to expensive court processes can be avoided.
Employment agreements are a special case. Many states are known as “at will” employment states. Illinois is a perfect example. This means that employees can be hired and fired with little to no recourse aside from the protections established by the unemployment insurance system. As a result, many founders are forced with a decision to formally hire an employee or to make efforts to keep the employee an independent contractor. While these choices come with a certain set of legal pitfalls and benefits, generally speaking, committing an employment arrangement to writing protects the employee more than the employer in at-will employment states.
If, however, a company is hiring a corporate-level employee or highly specialized individual, an employment agreement is a must. The employment agreement can stipulate the term of the employment at a minimum, but also set out a reasonable confidentiality agreement as well as a non-compete agreement. These sorts of agreements also always need to be reduced to writing.
Have A Face-To-Face Conversation
These include internal communications and strategy discussions.
While business agreements and contracts are committed to writing, certain communications should almost never be committed to writing. A great question to ask yourself before putting something in writing is whether or not you would care if the writing was shown to a jury or a judge in the courtroom.
Eliminating a paper trail is not dishonest, it is simply smart. Not too long ago, in January of 2019, email and text message communications between individuals within the presidential campaign of Donald Trump were scrutinized and eventually lead to federal indictments which are still progressing to this day as of the time of writing.
While most entrepreneurs and founders are not at risk of being indicted over a text message or email, it is vital to understand that there are certain communications that should never be emailed or sent in any sort of written manner. The basic rule of thumb that I tell upper-level executives is that if you don’t want everyone within your organization or the New York Times to read what you’re writing, go ahead and make a phone call or have a face-to-face meeting.
Additionally, if a founder, business owner or executive wishes to have a conversation regarding a current employee, whether to evaluate performance or to follow up on rumors or office gossip, having the conversation face-to-face is always a good idea as well. After all, you can always make notes of your conversation at a later time, but you can never “unwrite” that which is written and sent.
There is almost no such thing as totally secure communications in this day and age, and it is often better to have preliminary discussions face-to-face or on a secure phone line than to write them into Slack, a text or an email. This is true even if you have absolutely nothing to hide and you use end-to-end encryption.
A Brief Note About Notes
Taking notes is a pivotal part of any operation. It is vital to have a memory of what you have done and what you have committed to do. That said, use discretion when allowing your personal notes, or even business notes for that matter, to be committed to electronic form. It is far more difficult to keep anything personal once it becomes digital.
Write This Down
At the end of the day, we all do business in an unforgiving world. It is up to each founder and business owner to use their personal writings for a benefit and prevent those same writings from being used against them. Keep this in mind the next time you forward along a joke or make a snide remark about a colleague over text.