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Are Job Offer Letters Legally Required?

Are Job Offer Letters Legally Required?

When bringing on a new hire, it's common to extend a verbal job offer and, once accepted, send a written offer letter to confirm the details of employment. In many cases, these offer letters typically include information such as title, compensation, start date, employment status, benefits information, paid leave information, terms of employment (background checks, drug screenings, etc.), and more. But, are employers required to send offer letters? 

 

Is There a Law or Regulation?

No, employers are not required by law to send an offer letters to new hires. In fact, SHRM points out that offer letters may open employers to unnecessary risk.

If an offer letter is improperly constructed, it could inadvertently form a legally binding contract. In this instance, the employer would be held to every contractual term despite their intentions to simply send an offer letter. Obviously, this can be extremely costly to the employer.

For example, in the case TSR Consulting Services, Inc. v. Larry Steinhouse, Larry Steinhouse sued TSR Consulting Services for failure to live up to the terms guaranteed to him in an offer letter. The offer letter stated:

For the first twelve months of your employment, through May 31, 1998, your compensation will consist of a base salary, which if annualized would be $120,000. In addition, you will receive a guaranteed non-recoverable draw of $10,000 against commissions for this same period. Also, as you requested an additional recoverable draw of $20,000 against commissions can be provided. The objectives for the additional incentive/compensation commissions are outlined in schedule A. For the second year of your employment, you will receive a guaranteed recoverable draw of $120,000 against commissions.

Because the offer letter used the term “guaranteed” and specified a term through which payment was due, the letter was ruled a contract and TSR was found responsible for paying Steinhouse nearly a quarter-million dollars. TSR decided not to take the case to trial and settled the case instead. Costly. 

 

Can Employers Be Sued if They Don't Send an Offer Letter?

If an employer chooses not to send an offer letter there is no risk of a lawsuit.

The greater legal risk actually comes from sending offer letters. As seen in the above example, carelessly written offer letters can create unintended legal obligations for the employer. If an employment contract is formed and the employer does not live up to the terms of the contract, an employee has every right to sue the employer. 

 

What About Employment Contracts?

There are no laws in place that require distribution of offer letters to new hires. However, the difference between an offer letter and an employment contract is black and white—it’s either an employment contract or it isn’t.

For example, an employment contract or agreement is a signed document that explicitly lists the conditions of employment. Unlike offer letters, an employment contract is meant to create a binding promise between the employee and employer.

 

Employment Contracts Best Practices

If you have decided to extend employment to an individual using an employment contract—for example, if you're hiring a freelance photographer or an independent contractor—consider the following best practices:

  1. Use a Template: Maintain a standardized procedure by using a template to develop employment contracts. As a safeguard against legal disputes, all employment contracts should be submitted to HR for review before being sent to the prospective hire. These can be distributed, signed, and stored in an HRIS.
  2. Avoid Offer Letters: Employers should avoid risk by refraining from sending offer letters. If an employer chooses to send an employment contract in lieu of an offer letter, that employer should have an attorney review each employment contract that is sent out. With that said, this process can prove costly.
  3. Make Job Offers Verbally: This informal offer should precede a more formal employment contract upon a candidate's acceptance. 

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