Small business owners, producers, entrepreneurs and studio executives may wonder the same thing: If I enter into contract with a minor, will it be enforceable?
To enter into any valid contract, all parties must have the legal ability to do so. Minors (in most jurisdictions, people under the age of 18) generally lack the mental capacity required to enter into binding agreements under law. Basically, minors are considered to have insufficient understanding of the legal terms, obligations and consequences that contracts may impose upon them.
Because of this “lack of capacity,” minor contracts are voidable, by the minor only and at their discretion. Meaning, the contract is binding unless the minor chooses to cancel (or disaffirm) it. Minors can typically disaffirm contracts in their entirety at any time while under the age of 18 and for a reasonable period of time after the child comes of age.
Some Minor Contracts are Enforceable.
Despite the general rule, many courts enforce minor agreements if they concern “necessities.” Necessities may include things like food, clothing and shelter. Some states also have statutory exceptions, where minors’ rights to cancel agreements are limited, including those in connection with insurance, educational loans and healthcare.
Additionally, if the minor does not cancel a contract prior to turning 18 (or a reasonable time thereafter), the contract can no longer be disaffirmed based on the fact that the person was under 18 when the agreement was executed.
Entertainment Contracts in New York
New York law provides for judicial approval of minor contracts regarding personal services for performing artists (like actors and musicians) and athletes. Once an agreement has been approved by the court, the child may no longer disaffirm on the basis that he or she lacked contractual capacity at the time of signing.
The New York Supreme Court takes many factors into consideration before approving minor contracts. The court may even refuse to approve agreements until parents (or minors) agree to set aside a portion of the child’s earnings for future use. However, after court approval, a judge may modify the agreement, or even revoke approval, if the child’s obligations under the contract become damaging.
Other Considerations when working with Children
In the entertainment business, employers may be required to:
(i) obtain Child Performer Permits,
(ii) confirm that certain educational requirements are met, or
(iii) ensure that the child has established a trust account for certain employment funds.
In other businesses, state or federal labor laws may:
(a) limit the type of work minors are permitted to conduct,
(b) require additional employer permits or licenses, or
(c) dictate special working conditions for minors.
Allowing minors to disaffirm contractual agreements may be positive in terms of public policy. After all, minors may need protection from their own lack of experience and familiarity with business transactions. They may not be able to act in their own best interests or consider future consequences. Nevertheless, a contract cancelled by a minor may have serious repercussions for the other party. Before signing a contract with a minor, closely review the laws of your jurisdiction, consider the minors’ rights to cancel, and think about the business consequences of any such cancellation.
Does your business have any contracts with minors (those under 18)?