Offer letter vs employment contract: what's the difference?
When bringing on a new hire, there are two documents that are sometimes confused: offer letters and employment agreements. What are the differences between the two? What's the purpose of each document? Let's take a look!
What is an offer letter?
An offer letter is an informal offer of employment that is typically made to confirm a verbal agreement. Offer letters are not meant to be contracts—they simply summarize the employer’s employment offering to it’s prospective hire.
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 example, in the case Prozinski vs. Northeast Real Estate Services, Inc, 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 is an employment agreement?
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. For instance, an employer might write an employment contract that requires the employee to perform at a predefined level in order to stay employed.
Offer letters vs. employment agreements
The bottom line difference between offer letters and employment agreements? Offer letters are an unofficial means of presenting a job to a candidate without any legal obligations. An employment agreement/contract is a binding agreement that both the employer and employee must live up to. Not sure which document to send your new hires? Check out this blog!
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