An offer letter is the foundation for employment and a great way to ensure the employer-employee relationship is built upon mutually understood expectations. It is important to keep in mind that the offer letter is a legally binding document, representing a contract between the employer and the employee.
A well-crafted offer letter should include four important elements to help ensure it is legally sound.
1. Declaration of At-Will Employment. Under an at-will employment arrangement, an employer can terminate an employee with or without cause, provided doing so does not run counter to certain public policies. Exceptions include, but are not limited to, termination on the basis of gender, age, race, ethnicity or religion, as well as retaliation for reporting discrimination or employer wrongdoing. Most states presume a job is “at-will” unless there is evidence to the contrary, such as an employment agreement suggesting the employer and employee agreed to specific conditions for employment, including conditions for employment termination.
2. Carefully Worded Descriptions of Compensation, Benefits and Other Terms of the Offer. Because offer letters are legal documents, precise yet flexible wording is critical. Phrases that suggest an indefinite period of employment, like “job security”, “we are in this together” or “you will be able to grow here” have been interpreted by courts as establishing an expectation that the employment relationship would not be terminated without cause. Similarly, expressing compensation in terms of an annual salary has been interpreted as establishing a one year employment contract. Instead, compensation should be expressed in terms of hours, weeks or months, or as “the equivalent of” a set amount per year.
3. Restrictive Covenants. Employers frequently require employees to sign non-compete, non-solicitation, confidentiality, and non-disclosure agreements to protect intellectual property, trade secrets, and clientele. If the position offered is contingent upon the applicant signing these types of agreements, they should be mentioned in the offer letter, along with a clarification that these agreements do not alter the at-will employment relationship. Similarly, employers should use the offer letter to confirm that applicants are not bound by agreements with a previous employer that would prevent them from carrying out the duties of the position being offered.
4. Conditions to Employment. All offers should be made contingent upon proof of identity and employment eligibility (completion of an I-9). Additionally, federal, state, local and job-specific laws often require that certain screenings, including medical screenings and background checks, be conducted after an employment offer is made. It is therefore important that employers reserve the right to withdraw an employment offer if an applicant fails to “pass” a post-offer screening.
As a general rule, it is always best to use precise language when drafting an offer letter. Avoid using vague or casual language that could be misinterpreted. A little careful consideration upfront can save you a lot of headache down the road and ensure that you get off on the right foot with your new employees.