EMPLOYMENT AGREEMENT vs. OFFER LETTER
By VICKY BROWN
Employment agreement and offer letter – aren’t they just the same thing? Actually no. While I know people often use the terms interchangeably they are actually two drastically different documents, and they hold different obligations for you as the employer.
For the most part, in the US most employees are considered at-will – meaning they can resign or be terminated at any time. But one circumstance that can be a fly in the ointment, is if they are under an employment agreement.
Generally speaking an employment agreement or employment contract is a binding promise between the employer and employee, and it explicitly lists the conditions of employment and termination of employment. In most cases, an employment agreement will wipe out the at-will status – which puts more pressure on you if you decide things aren’t working out. You will be bound to the termination clauses of the employment agreement.
An offer letter on the other hand. specifically upholds the at-will status, and simply confirms the terms of employee that were made verbally. They are not contracts, and most times will say so, and don’t bind the employer to continued employment. Also, offer letters don’t make any type of promise about continued employment.
So, what goes in an offer letter
Well first you state that you are confirming the offer of employment, what the job is, who it reports to and where it will be located.
Then confirm the start date and provide a very general paragraph outlining the job duties.
Next up is the compensation, whether it is annual or hourly (one pro tip here – always use the work annualized, because you aren’t guaranteeing a whole year’s salary – if they leave early you will pro rate it, so the term annualized will make sure there is no confusion).
In this part of the letter, state all forms of compensation – so if you have a bonus program, or signing bonus – add all that in. Remember, the purpose of the offer letter is to provide clarity, so try to include all the important facts.
“…a properly worded offer letter can provide all the employment confirmation you need to start your new employee.
Hold off on the employee agreement for your C suite level hires.“
Next, it’s nice to do a general blurb about the company’s benefits. However, do not try to spell out the benefits programs in the offer letter. Benefits are governed by contracts with your insurance carrier, and they have a slew of documents with carefully worded information around what is and isn’t part of the offerings. Under no circumstances do you want anything in the offer letter to contradict those documents. So keep it general.
We always recommend you add in a statement that you fully expect the new employee to abide by any obligations to their prior employer. So if they have a non compete (which by the way, is not valid in California – but is in other states), you are stating that you expect them to uphold those obligations.
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Mention that you have company rules and regulations and you expect them to abide by them. And mention if you have any other documents you expect them to sign, like and Inventions or Confidentiality agreement.
Then comes the all important at will statement, and the sign off.
Now, I know many times people like to include information about things like vacation and other time off. If you do want to add in the language, be sure you have disclaimers stating that the company can change those policies at any time – you don’t want to be locked into a vacation policy that no longer applies.
So see – a properly worded offer letter can provide all the employment confirmation you need to start your new employee.
Hold off on the employee agreement for your C suite level hires.
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