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Do employers have to send job offer letters?

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HR Best Practices blog series

Navigating the world of HR can be overwhelming—period. That’s why we’ve created a blog series to answer common HR questions. To help answer each question and define best practices, we have three HR heroes with very different approaches to HR: Bythe Booke, Sam Blackheart, and Peggy Prag. You may find yourself relating to one (or more) of our heroes depending on the given situation. To see full descriptions of each character, reference our first blog of the series using this link.


Last week we covered, “Do I have to offer severance pay?” Now, let’s see what Bythe, Sam, and Peggy have to say about our next question.

 Background

When bringing on a new hire, a common practice is to make a verbal job offer and to follow that verbal offer with a written offer letter in order to confirm what was stated over the phone. 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.).

But do you really have to send an offer letter? Are there any legal implications of not sending one?

 

Is there a law and/or regulation?

No, employers are not required by law to send an offer letters to new hires. In fact, offer letters may open employers to unnecessary risk. If an offer letter is improperly constructed, that offer letter could inadvertently form a legally-binding contract. The employer in that case would be held to all the terms of that contract—despite the employer’s intentions to merely send an offer letter. This can be extremely costly to the employer.

For instance, 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.

 

Is there a risk of a lawsuit?

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. Many often do. Here’s another example:

In the case, Prozinski vs. Northeast Real Estate Services, Inc, Steven Prozinski was terminated from Northeast Real Estate Services, Inc. for financial mismanagement, sexual harassment and discrimination. Prozinski argued that he was entitled to the 1 year’s salary and benefits coverage that had been promised in his offer letter. Because the offer letter was signed and also used “promise-making” language, Northeast Real Estate was found responsible for paying Prozinksi for the severance compensation listed in his offer letter.

 

What's the cost of compliance?

Because it is risky to send offer letters, employers should refrain from sending them. 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. This can be costly.

 

Is compliance black and white or is it gray?

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

 

What is the risk of bodily harm?

There is no risk of bodily harm.

 

What is the risk of negative public relations?

The risk of negative public relations is low, as most new hires will reach out to their prospective employer in order to clarify the nature of the offer. If the new hire receives pushback from the employer for the requested information, the risk is slightly heightened.

 

What is the risk of jail time?

There is no risk of jail time.

 

What would our HR Heroes say is the best practice?

 

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 Bythe Booke: We’ve found that employment contracts are a way to avoid confusion and improve communication with our staff and prospective employees. In order to keep a standardized procedure, we always send employment contracts using a template. As a safeguard against legal disputes, all employment contracts should be submitted to HR for review before being sent to the prospective hire. These should be distributed, signed and stored in our HRIS.

 

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 Sam Blackheart: Great, we don’t have to send offer letters! Let’s not send any offer letters—I don’t want to take on the risk.

 

 

 

iStock-165967112Peggy Prag: As a small business that’s been around for 30 years, we’ve hired quite a few employees in our time—most of which never received an offer letter. It’s simply not part of our practice. This practice has never caused any legal issues, so I don’t feel a need to change things up. Let’s continue to make job offers verbally.


 

Have a question you’d like to see our heroes answer next? Let us know in the comments section below!

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