Are Job Offer Letters Legally Required?
Do Employers Have to Send Offer Letters?
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 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, it 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.
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. Many often do.
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
Employment contracts are a great way to avoid confusion and improve communication with staff and prospective employees. Consider the following best practices when sending employment contracts:
- 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.
- 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.
- Make Job Offers Verbally: This informal offer should precede a more formal employment contract upon a candidate's acceptance.
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