Offer Letters & Employment Contracts

Posted June 21, 2011 in Labor and Employment by

In today’s economy, most people are so happy when they get a job they sometimes overlook the paperwork they’re signing and don’t actually read the fine print. You may think you’re signing a contract, but really you’re accepting a job with a specific title, job description and salary. When is a contract versus an offer letter used? Read on to find out more to find out what the differences are.

It’s fairly common – particularly in "white collar" jobs and for more highly compensated positions – for potential employers to provide job candidates with an offer letter when offering them a job. This letter typically includes some basic information about the position, such as:

  • Company name
  • Job title
  • Starting date
  • Salary, pay schedule and whether the position is exempt or non-exempt
  • Specific benefits, particularly if you’ve negotiated benefits that deviate from the company’s typical offering

Depending on whether lawyers were involved, the letter may also contain some "legalese." It might include disclaimers that the job and terms spelled out are subject to change when the company decides they want changes. It might say that final employment is subject to certain background checks or other conditions being met. And it may mention at-will employment.

Finally, the letter often includes a deadline by which the potential employee has to accept the offer, and a line for your signature indicating your acceptance of the job.

Because these letters appear very official – or, let’s just say it, legal – in nature, they often lead to confusion because people mistake them with employment contracts. That serious tone is somewhat deliberate. After all, the company wants the prospect to commit to the position. The more official-looking and sounding the letter, the more seriously the job prospect will take it. In other words, the company wants to reduce the risk that a candidate will sign the letter then back out of the job at the last minute.

At-Will Employment & Employment Contracts

Most employees are hired "at will." This means they can be fired without just cause and can quit at any time.

However, companies will use employment contracts for some employees, particularly top management, as well as sales reps and independent contractors. An employment contract typically contains information discussing:

  • Compensation and severance pay (if any)
  • Length of the contract, if it’s for a specific time
  • A term that the employment is at-will if it’s not for a specific time.
  • If the contract isn’t on an at-will basis, any specific grounds for termination.
  • A non-disclosure clause preventing the employee from giving away trade secrets or using confidential data like customer lists for a competitor’s benefit.
  • A non-compete clause preventing the employee from working for a competitor after leaving the company.
  • A detailed description of any stock options or other ownership interests the employee receives.
  • What happens when the contractor leaves the company.
  • An arbitration provision in the event of future disputes between employee and employer.
  • A list of the job’s duties.

Is It an Offer Letter or an Employment Contract?

Some of the most commonly asked questions on the legal forums relate to offer letters and employment contracts.

It’s important to realize that the vast majority of offer letters are not employment contracts. That means your employer is free to terminate your job at any time – including before you officially start the job. In most cases, you’ll be owed no compensation for any time other than the actual time you worked. But it also means you are free to walk away from the job at any time.

Employment contracts are relatively uncommon. If you weren’t a top corporate executive or an independent contractor or in a commission-based sales position, you probably don’t have a legally enforceable employment contract.

If you are at all uncertain about whether you have an employment contract or an offer letter, talk to an employment lawyer. Ideally, you should have this conversation before signing any legal documents.

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