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Tuesday, August 14, 2012

What An Offer Letter Is and Is Not


There are many misconceptions about offer letters.  However, before you read this post, please be aware that this is not intended to be legal advice. However, I want my readers and candidates to know what an offer letter is and is not.

Up until about 15 years ago, some of my candidates got offer letters, some did not.  It made no difference.  Today, it is a matter of course.  In fact, most of my candidates will not resign from their existing company until they receive an offer letter.  They are correct to wait for the letter.  However, even if they have one and it has been signed by both parties, it is not a contract of employment.  An offer letter merely spells out a company’s intention to hire, but it is not a guaranty of employment and it is not a contract.  

Offer letters are always for the protection of the hiring company, not the employee.

However, a proper offer letter should contain a number of items.  Among them:
-       Start date
-       Salary
-       Reporting structure
-       Duties and responsibilities
-       Eligibility for and timing of commencement of benefits
-   Other job perks
-       Bonus eligibility and details
-       Anything else discussed upon which the offer acceptance is based

According to Rick Kurnit, partner of the law firm, Frankfurt Kurnit Klein & Selz, one of advertising’s foremost legal experts, an offer letter becomes a contract only if it spells out severance.  If one resigns based on reliance on the letter, the hiring company might be responsible for reasonable loses based on that reliance – for instance, if a candidate agrees to move, hires a moving company and pays a non-refundable deposit, it is possible that the hiring company might be responsible for that cost even if the offer is withdrawn. In my experience, when things like this happen, most companies are pretty reasonable.

In my non-legal opinion, if a person resigns based on reliance of the offer letter and the offer is rescinded and the previous employer refuses to re-hire the departing employee, there could be recoverable damages.  

Because most offer letters state that employees are “at will” (meaning that they can be terminated any time and for any reason) and do not contain severance, they really offer the new employee no commitment, even during the period between the time an offer is extended and the time a person starts work.  (If there is a severance agreement as part of the offer letter, during the notice period between, the offer letter might possibly be a valid contract and, I suspect, the offer letter would only protect the new hire to the extent of the severance.  One must consult an attorney to determine if that is so.).  The Catch 22 is that a, few companies give severance except to their most senior employees and sometimes not even then but, you might have to sue to recover the severance.

The bigger issue then becomes that you may have to sue the hiring company and undoubtedly they have bigger resources than you do; especially the holding companies.  And the truth is, they know it. 
I have previously written about contracts. I cannot stress this enough: if, during interviewing and negotiating, there are agreements and understandings (e.g. salary reviews, promised raises, bonuses, promotions, anticipated career paths, etc.) and those agreements are not in the offer letter, they do not exist and are not part of the hiring agreement. I have candidates tell me tales of woe all the time, especially when a hiring manager leaves and no one has been told about agreements made prior to hiring.  

As an aside, I find most offer letters cold and filled with legalese.   Sometimes offer letters are formulaic and look as if written by a patent attorney.  They are unnecessarily harsh documents.  There is no reason why an offer letter cannot be welcoming, warm and exciting while and still containing all the necessary language. (If any of my readers would like to see samples of great offer letters, I would be happy to share them.)

31 comments:

  1. I have, in all cases of employment, received an offer letter. Most have contained the pro-forma details outlined above, and others attach a job description to something more generic. Agree that for the most part, they are dry communications

    Given that, I'd love to hear your, and Mr. Kurnit's, finer points of view on non-compete agreements: to sign or not to sign, what's considered reasonable (versus what isn't), and how enforceable they are post-exit or layoff from an agency.

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  2. @Alicia: I wrote about this in June of 2011. You may want to check it out. Here is the link:
    http://viewfrommadisonave.blogspot.com/2011/06/forcing-employees-to-sign-non-compete.html. It may answer your questions. Most agencies don't really enforce them except for their most senior employees - SVP's, EVP's and higher. Most non-competes are written with harsh language. However, the law in most states is clear: no agreement can prevent you from making a living.

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    1. Thanks, Paul! Good points in that post. I'm going to back-pocket Livingston Miller's retort for future use!

      I've had to sign them from the point of becoming a supervisor and ever after. Indeed, the language is harsh, and the last time I had an attorney read one for me, it cost me almost $800 just to hear, "It's potentially enforceable!" Sigh.

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  3. Paul - i'd love to see samples of great ones, interested to see how they are worded..

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    1. @Samantha Please send me a direct email and i will be happy to respond with a sample or two.

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  5. Hi, Paul,
    Would you kindly send me some samples of warm, welcoming offer letters. Thanks.

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    1. @Anonymous: I cannot send you a sample unless you email me your name and email address.

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  7. What if an offer letter states within 90 days of start date they will work with me to obtain relevant certifications related to my duties and when called on it they ignore me? Do I have any ground to stand on?

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    1. Jason: The first thing I would do is to ask again and put it in writing - an email will suffice. If it is true, you might remind them that you accepted the job because of this commitment from them. If they do not respond, I would begin looking for a new job or I might consult an attorney, but I suspect you have little recourse.

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    2. I emailed my manager last week asking about it and never got a response. I emailed him about 15 minutes ago about it again. I like the job but I expect people to live up to what they say. Here is the exact wording "Also, Company will work with you, during
      your first 90 days, to develop a plan for future certifications that will assist you during your career at
      Company." My 90 days ends today I believe.

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    3. Does your company have a human resources person? Perhaps you should ask him or her to intercede. I understand that people get busy, but perhaps your manager needs a nudge from someone other than you.

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    4. Yes we have an HR department. I will try her next if I don't hear back from my manager today. Thank you for your assistance.

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  8. Paul, This is a very informational article, thank you. I do have a question for you. I was offered recently by a company, but that's not the problem I have. The problem is that, in my offer letter from current employer (the letter head states it's and "Offer of employment") they have a section called "Other understandings" and have certain clauses under it, and one of it is it says that "the individual agrees to remain employed for a minimum tenure of 2years", however there is no clarity as to what will happen if I quit before 2 years like penalty, fine etc. I have served only about a year and want to quit and go with the new company. So the question is can my existing "Offer of employment" be treated as a contract by my current employer in any kind of actions against me?

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    1. Anjan: I cannot offer you legal advice and would have to see your entire agreement. Please email me directly and I will be happy to deal with what I can for you.

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  9. Paul can an offer letter state the acceptance needs to be received by xyz date? If so, can it include a statement the offer will be revoked if the acceptance has not been received by xyz date?

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    1. @Vikki: I am not a lawyer but I believe that what you are asking is perfectly legal. The company wants a prompt decision and can ask for it in the offer letter.

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  10. This is a really good read for me, Must admit that you are one of the best bloggers.

    Semiconductor Patent Lawyer

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  11. What would your advice be on signing a offer letter that does not include salary. This is for an internal postion and not a lateral move. Going from non-exempt to exempt w/bonus. However, employer says salary will be discussed at review time.

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    1. Generally, that I am aware of (and I could be wrong), offer letters are not written for promotions. In your case, I suspect that it merely covers going from non-exempt to exempt. How far away is your review? My observation is that often people who are making this move sometimes make less. If your review is more than a month away, you should ask for it now so that you know how this move will effect your compensation.

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    2. My review is June 30. I suspect you are right in terms of going from one status to the next and the elgibility for a 5% bonus in the exepmpt status. This new role, from my understanding a typical work week is usually more than 40 hours. So on the one hand, I could possible make more in the non-exempt role but would like to at least have some idea of what I stand to gain. The new status would not start until July 1 but I am not sure of the reason why there is not full disclosure. I doubt that the number is going to be anything 3.5 months from now than it is today, so why not put that in the offer letter. Frankly, I am a little uneasy about signing it without the dollar amount but don't want to risk them recinding the offer on technicality.

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    3. Honestly, you don't sound too excited about your promotion. Going from non-exempt to exempt can be difficult financially, but only for a short time. Exempt employees make much more money in the long run. Your letter sounds more like a confirmation than an offer letter. You can only push them so far. Why don't you email me directly and we can discuss?

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    4. Hi Paul, I don't mean to sound as though I am not excited, I am very excited. I was more confused by what the recruiter told me on the phone about what would be contained in the letter. Well I received the letter now and it is a transfer (confirmation)letter and the effective date of my transfer. It states my current pay and that my non-exempt status will continue until the company changes it which I suspect will be at review time when we make the adjustment. I was told by someone else, exactly what you said about going from non-exempt to exempt status but if it is as you say, I may receive less initially but more in the long range in a salaried position - I've never worked in a salaried position so this is where my confusion stems from. Even with the limited information I provided, you return some great advice. I really appreciate you responding. I have one thing to ask of my company before I sign but I think I will be off to a great start. Exciting times ahead. Paul, thanks again for all your help.

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  12. I work for a small software company. I have been her for over 8 years. The company has started growing by leaps and bounds the last 18 months. We have a new HR person and they are going through the old files. The question comes up that I do NOT have an offer letter. Is this a problem? They are afraid that if audited the company could be fined. I say no. Thanks Regards Befuddled

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    1. @Anonymous/Befuddled: I am not a lawyer. I doubt that the company can be fined. The only thing I can think of would be Sarbanes Oxley, which came into being about ten years ago, but that has to do with financial management. The fact that you do not have an offer letter is probably moot after eight years. And it certainly is the company's problem, not yours. Don't let them make you sign anything.

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  13. My offer letter was not signed by the hiring manager even though there was a space for her to do so. Is this OK? The HR rep said not to worry about the signature from the hiring manager and that I just need to sign the letter to accept the offer of employment and return the letter to them. Seems weird that I have to sign but hiring manager doesn't have to.

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    1. @Anon: I receive all the offer letters for my candidates. I have never gotten one unsigned. An unsigned offer letter, by either party, as far as I know, is not binding on either. It doesn't matter who signs it, but it should be signed by an officer, human resources or someone who has the authority to enter into an agreement with you. If they won't sign it, neither should you. Don't let them con you. I am sure you want the job, but be strong and be insistent that they sign it; once they do you will counter sign. And don't start work without it.

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