Once upon a time, business owners hired employees over handshakes. Nowadays employers are more sophisticated, and they use written documents. Those inked instruments are usually referred to as offer letters.
An offer letter is a short, informal proposal of employment which sets forth the terms of the position, such as, job title, start date, salary, supervisor’s name, work duties, conditions of employment and employment relationship. Employers usually give offer letters to lower to middle level employees.
Some small business owners use employment agreements, which contain much of the same information as offer letters. However, they include a few more significant details. They specify that employment is for a certain amount of time, the circumstances of termination from employment, severance pay, more in depth benefits and restrictive covenants. Employers often give employment agreements to higher level employees, such as, executives and specialized professionals.
Small business owners should know the difference between offer letters and employment agreements, and when to use them. Since offer letters specify that the employment relationship is at-will, meaning that the employer and employee both have the right to terminate employment for any reason or no reason, with or without advance notice, employers may want to give them to lower to middle level workers so that employers have the flexibility to dismiss them if they are not a good fit. On the other hand, since employment agreements are for a fixed period of time and include more fringe benefits, small business owners may want to use them to attract higher level professionals who are in demand and harder to find.
A word of caution. Whether an employer chooses to use an offer letter or employment agreement, it must be aware of the document’s contractual implications. Many employees have successfully brought breach of contract claims against their employers for either stating or implying in the agreement that the employee would get a raise or promotion, and he later does not.
In conclusion, employers are free to choose offer letters or employment agreements when extending job offers to new hires. However, they should analyze the circumstances to determine which is better, and make sure that they do not state or imply a promise that they will not later honor.
