Cron v. Hargro Fabrics, Inc. 91 N.Y.2d 362 (1998)

An oral agreement to pay a bonus based on a percentage of a company’s annual pre-tax profits is not automatically barred by the Statute of Frauds simply because the calculation occurs after one year, if the employment itself is terminable at will.

Summary

Cron sued Hargro Fabrics, alleging breach of an oral agreement for a bonus based on 20% of annual pre-tax profits, in addition to his base salary matching the president’s. Hargro moved to dismiss based on the Statute of Frauds, arguing the bonus calculation couldn’t be completed within one year. The Court of Appeals reversed the Appellate Division’s dismissal, holding that because Cron’s employment was at-will, the agreement could be performed within a year, even if the bonus calculation extended beyond that timeframe. The court reasoned that the key is whether the contractual relationship, not merely a calculation of compensation, necessarily extends beyond a year.

Facts

Cron was employed by Hargro Fabrics for 13 years until January 1996. He alleged an oral agreement with Hargro, stipulating that in addition to his annual salary, he would receive a bonus equal to 20% of Hargro’s annual pre-tax profits. Cron claimed that Hargro failed to pay him the proper share of the profits and that the company president received a much higher salary. The alleged agreement was reached through annual discussions where anticipated profits were estimated, and Cron received monthly payments toward the bonus based on these estimations. Cron affirmed his at-will employment status, stating that if his employment ended mid-year, his bonus would be calculated only up to his termination date.

Procedural History

The Supreme Court denied Hargro’s motion to dismiss. The Appellate Division reversed, granting the motion and dismissing the complaint, reasoning the amount owing was not ascertainable or payable before the year’s end and the contract imposed obligations exceeding one year, even if employment ended sooner. The Court of Appeals granted leave to appeal.

Issue(s)

Whether an oral agreement to pay a bonus based on a percentage of annual pre-tax profits, where the employment is at-will, falls within the Statute of Frauds and is unenforceable if the bonus calculation extends beyond one year from the agreement’s making.

Holding

No, because when the employment relationship is terminable within a year, and the compensation measure is fixed and earned within that period, the obligation to calculate that compensation does not bring the contract under the Statute of Frauds’ one-year proscription.

Court’s Reasoning

The Court of Appeals emphasized that the Statute of Frauds applies only to contracts that have absolutely no possibility of full performance within one year. Since Cron’s employment was at-will, it could be terminated by either party at any time. The court distinguished cases where the obligation to pay commissions extended indefinitely based on business relationships initiated during employment, as in Martocci v. Greater N.Y. Brewery, 301 N.Y. 57 (1950). The court cited Nat Nal Serv. Stas. v Wolf, 304 N.Y. 332 (1952), emphasizing that contracts terminable within a year do not fall under the Statute of Frauds. The Court found persuasive the reasoning in Rifkind v. Web IV Music, 67 Misc.2d 26 (1971), which held that the mere calculation of a bonus after termination relates to past performance and doesn’t create new obligations. The court acknowledged conflicting Appellate Division rulings but adopted the reasoning that the bonus calculation method does not determine the contract’s duration. The court reinforced the purpose of the Statute of Frauds, which is to prevent fraud, not to allow the evasion of just obligations. The court stated that “when the employment relationship is terminable within a year and the measure of compensation has become fixed and earned during the same period, the sole obligation to calculate such compensation will not bring the contract within the one-year proscription of the Statute of Frauds.” The court also noted that even if the Statute of Frauds were applicable, Cron’s allegations raise a factual question as to whether complete performance by all parties was possible within a year.