In today’s business landscape, deals are no longer made exclusively in boardrooms or through formally drafted agreements. Emails, direct messages and text messages have become routine tools for negotiating, confirming, and even finalizing business agreements. What once required a signed paper contract can now unfold in a short string of messages sent within minutes.
As discussed in our February 21, 2024 article (link), texting has fundamentally changed workplace communication. Employers and employees alike have grown comfortable treating text messages as quick informal exchanges. However, that informality can be misleading.
Many individuals assume that text messages are merely casual conversations. In reality, under certain circumstances, a text message exchange can constitute a legally binding contract that can lead to unexpected financial liability, breach of contract claims, wage and hour disputes, vendor or partnership litigation, and reputational damage. If the essential elements of a contract are present, the agreement may be enforceable even if it was formed entirely through a smartphone screen. Courts have been accepting screenshots of text threads as evidence. In litigation, those messages may be analyzed line by line to determine whether a binding agreement was formed.
For a text message or any form of communication to be legally recognized as a contract, certain foundation components must be present. First, one party must communicate a definite promise or proposal of what they are willing to provide. The other party must clearly express their approval of the proposed terms.
Text messages often contain language such as “agreed,” “that works,” “deal,” “yes,” or “let’s do it.” These statements may appear casual but they can signal acceptance and intent to be bound. If the response changes key terms, it may be treated as a new proposal rather than acceptance.
Next, both parties must provide something of value. This may include payment, services, goods, or mutual promises. Courts also look at the language used and the party must have the conduct of the parties to determine whether there was a genuine intention to be legally obligated. Lastly, each party must have the legal ability to enter into an agreement. If these components are present in a text message exchange, the communication may be treated as a legally enforceable agreement, even in the absence of a formal written contract.
Best Practices to Avoid Unintended Contracts
To minimize risk:
- Avoid negotiating material terms solely through text
- Clearly state when discussions are preliminary
- Use language such as: “Subject to formal written agreement”
- Train managers on proper communication protocols
- Implement policies governing workplace texting
- Move significant agreements into formal written contracts
A moment of caution can avoid significant legal exposure.
Takeaway
In today’s digital environment, careful communication is essential. A simple text message can carry lasting legal consequences and businesses need to treat electronic communications with the same caution as formal contracts.