What is the Difference Between an Offer Letter and an Employment Contract? - American Society of Employers - Anthony Kaylin

What is the Difference Between an Offer Letter and an Employment Contract?

 

Although an offer letter and an employment contract have similarities, they are very different.  An offer letter has very basic terms and conditions of employment, generally subject to completion of a successful background check and/or medical exam, and states that employment is at-will.  In other words, the employee can walk anytime, although notice requirement is requested, and the employer can terminate for any reason at any time. This term will likely prevent, in a dispute situation, the offer letter being construed as a contract.  Most employees are hired simply with an offer letter.

An offer letter generally has limited terms including:offer letter

  • Position/title
  • Full or part-time status
  • Start date
  • Times of work
  • Compensation – including benefits
  • At-will employment statement 

However, employees hired with an offer letter generally are required to sign non-solicitation and confidentiality agreements.  In a number of jurisdictions, such as California and Illinois, an offer letter must require specific notices including:

  • Rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime
  • Any allowances taken as part of the minimum wage (e.g., tips, meal and lodging deductions)
  • Regular payday designated by the employer
  • Name of the employer, including any DBA names used by the employer
  • Physical address of the employer’s main office or principal place of business and a mailing address, if different
  • Telephone number of the employer
  • Name, address and telephone number of the employer's workers' compensation insurance carrie

An employment contract is a more formalized document that has more complicated terms and conditions of employment and will include clauses for non-solicitation, confidentiality, compensation, benefits, job duties, and the circumstances under which the employee can be terminated.  Usually these types of contracts are reserved for high-level employees and officers of employers. Employment agreements are also used to help protect the employer's assets, such as preventing a departing employee from taking IP, clients, customers, and other confidential information.  A typical employment agreement will have the following terms:

  • Term of employment
  • Title and duties
  • Exclusivity
  • Compensation and benefits including milestones, etc. for raises and bonuses
  • Confidentiality
  • Termination process
  • Severance pay
  • Arbitration

Unlike an employment agreement, if an offer letter is rescinded there could be legal liability that attaches to the recession.  If an offer letter is to be rescinded, make sure it is done before the offer is accepted.  "It is asserted in circumstances in which there may be no formal written contract, but where there has been a promise significant enough to cause someone to act on it to his or her significant detriment," said Maria Greco Danaher, a shareholder in the Pittsburgh office of employment law firm Ogletree Deakins. "This could occur when, based on an offer of employment, someone quits a lucrative job and relocates geographically for new employment, only to find out that the offer of new employment has been withdrawn."

Further, liability could arise for a number of other reasons with the recession of an offer letter.  A candidate could claim fraud if the reason for the offer withdrawal is a corporate restructuring, budget cuts, or an office relocation; and the disruption was known by the employer before the job offer was made.  In addition, if the candidate is a member of a protected class, a discrimination claim based on failure to hire could arise.  Also, the offer letter may teeter on being considered an employment contract; therefore, offhand comments or written responses such as something as innocuous as “welcome to the team” could be construed as meaning that the offer letter is more of a contract. 

Therefore, HR should ensure it has a standard offer letter, reviewed by an attorney, and a hiring process that prevents any candidate from claiming liability.  Recruiters should educate hiring managers on why it’s important to maintain a consistent hiring process.

 

Additional ASE Resources
CCH HRAnswersNow – ASE members have access to the CCH HR AnswersNow online library, which contains sample job offer letters.  The site can be reached by logging into the ASE Member Dashboard.

 

Sources:   DLA Piper 10/9/18, SHRM 8/25/16


 

 

 

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