• Creating Unintended Legal Obligations Through Offer Letters
  • October 23, 2003 | Author: Beth A. Slagle
  • Law Firm: Meyer, Unkovic + Scott llp - Pittsburgh Office
  • Employers are often surprised to learn that they may have created legal obligations that they never intended by simply sending out a letter to a prospective employee offering that person a job. These offer letters typically contain all the traditional elements of an enforceable contract and are often treated as such by the courts even though they were meant to merely outline the terms of the job. This does not mean that offer letters should not be used. In fact, offer letters can prevent many more misunderstandings than they make, as long as they are done correctly.

    Misunderstandings created from offer letters can take many forms, but the most common mistake is when the employer unintentionally creates a term contract. For example, an offer letter issued to a candidate for employment, stating that the candidate is offered employment for one year at a monthly salary of $4,000 is a simple "term" contract, in the absence of any statement qualifying that one-year term or salary. The employer sending out this letter may not have meant to legally obligate itself to employ that individual for an entire year, but that is precisely what the employer has done. Further, for the duration of that one-year period, the employer cannot reduce that employee's salary. The mistake made by this employer was in not adding qualifying language to the offer letter stating that employment was "at-will".

    In Pennsylvania, employment is deemed to be "at-will" which means that, generally, either the employee or the employer may terminate the employment relationship at any time, for any reason. The at-will rule also means that the employer can change the terms and conditions of employment whenever it desires to do so, provided that it pays the employee all compensation earned before the change was made and communicated to the employee, and provided that the employee is not deprived of vested or accrued benefits. In the employer's situation stated above, legal obligations were created which may not have been intended, and could have easily been resolved by explicitly stating that at-will employment was intended.

    Unlike a formal employment agreement, an offer letter typically is intended to summarize the terms of employment. To prevent disputes that may later arise regarding the terms of an employee's employment, points that the employer should include in the offer letter are:

    1. An identification of employee and employer. With respect to identifying the employer, do so specifically, especially if the company has affiliates, a parent, subsidiaries or other related entities.

    2. The employee's job title, and perhaps job duties and responsibilities.

    3. If at-will employment is intended. Alternatively, if a term contract is intended, specifically state that as well.

    4. If there are any conditions on the offer that must be satisfactorily completed by the applicant, such as drug tests or medical examinations, background investigations or proof of authorization to work in the United States.

    5. If the candidate is required to execute any other agreements relating to employment, including, confidentiality, non-competition, non-solicitation, intellectual property and/or arbitration agreements. If so, these agreements should be attached to the offer letter, and at a minimum, delivered to the candidate before the candidate accepts or starts employment.

    6. Recite any representations by the candidate upon which the employer is relying in making the offer, such as: the candidate is not party to any non-competition agreement; the candidate has the required licenses or certifications; and the candidate has not been convicted of a crime.

    7. If relocation assistance is offered, explicitly state any terms and contingencies, e.g., a maximum of $5,000 will be reimbursed for relocation assistance, or if employee terminates employment within 6 months of being hired, all relocation assistance provided must be reimbursed.

    8. If any severance compensation is offered, address any limitations and conditions.

    9. Identify any fringe benefits, e.g., vacation, sick days, holidays, car allowance, or expense reimbursement policies.

    10. If and when participation in stock, units or other equity interests is permitted and the terms of those plans.

    11. Identify whether any other written policies are applicable, including those related to employee retirement and welfare benefit plans.

    12. Include the terms and conditions of bonus and commission plans.

    13. Identify any disclaimers and reserved rights, e.g., the terms of this offer are subject to the terms and conditions of the employee handbook, and any benefits offered in the offer letter are not in addition to the benefits offered in the employee handbook.

    14. Clearly address any other material items.

    The vast majority of employee disputes and costly litigation results from misunderstandings that never would have occurred had the lines of communication between employer and employee been clear and open in the first place. Following this simple checklist will save employers from the hassle and headache of trying to "fix" or correct what they intended in the first place.