The Blogs of Dave Murphy: “What is an Offer Letter?”
When my clients and I get to the end of an interview process the hiring team and the candidate typically begin talking about the “Offer Letter” that will serve as the capstone to the process – a document that will enshrine agreements about a range of topics that crucial to the deal. It’s a nice concept, the notion that a letter will resolve future disputes or confusion and bring about an agreement that is a win-win for both sides. But what is an Offer Letter, really? What are the legal, ethical, and practical implications of this 2-3 page signed document? Indeed there are many, and we can consider them from both the employer and the candidate’s perspective.
For purposes of this discussion we’ll only consider employment law in the United States. Each state has slightly different direction regarding the binding nature of terms identified in the Offer Letter.
According to a May 2019 National Law Review summary of employer liability in the case of withdrawn job offers, the general rule in nearly all states is that employment relationships are, by default, presumed to be “at-will.” This means that without some agreement to the contrary, the employment relationship may be terminated at any time, by the employer or the employee, for any reason or no reason, with or without cause or notice, so long as the reason is not statutorily prohibited or otherwise unlawful (e.g., discrimination on the basis of the employee’s membership in a protected class or retaliation for engaging in protected whistleblowing activity). Generally, this means that when an employer makes an offer of at-will employment, the employer is free to rescind that job offer, for any reason or no reason at all, at any time, including the period after the potential employee has accepted the offer but before he or she begins work, without legal consequence.
There are some exceptions, however, that vary by state. Judicial exception to the at-will employment doctrine has been carved out for certain circumstances where an employer rescinds an offer of employment after the prospective employee has relied on that offer to his or her detriment, such as by leaving another job or incurring costs of relocation for the new job. But courts in some states have rejected such a claim as a matter of law, declining to make a distinction between the time period before and after at-will employment begins.
Employers also face risk if they generate an offer letter that could bind the company to obligations it had not anticipated — like creating an employment contract. The breaching of an agreement in an Offer Letter is different from that of an Employment Agreement. Offer letters should state that the letter is neither intended nor should be considered to be a contract of employment for a definite or indefinite period of time, and that any employment offered will be employment at-will. The prospective employee or applicant should be required to sign and return an acknowledgment to this effect.
The Offer Letter should also avoid specifics details in the description of the duties of the job, to protect against employee claims of deceit when changing business conditions require changes to the nature of the work. Many offer letters will even include a sentence explaining that “this letter is for informational purposes only, and is not intended to be a binding contract.”
Of course I will include the disclaimer to be sure to consult an attorney who is familiar with employment in your state if you have questions about the legality of an Offer Letter.
When an employer or a candidate breeches the agreement in an Offer Letter there are more than just legal ramifications. If an employer reneges on the agreement before the candidate begins employment, the candidate has often quit their current job and burned bridges with that employer. It’s incumbent upon the candidate to ensure that all contingencies spelled out in the Offer Letter (drug test, background check, reference calls) have been satisfied before they announce their resignation and last day of employment. The logical solution to this potential problem is for employers to conduct those contingent actions before they issue an Offer Letter, but they often want to wait to make sure there is agreement before those steps are taken. Employers have an obligation to make it clear to a candidate that the deal isn’t done until all contingencies are met.
More often it is the candidate who will renege on the agreement in the Offer Letter because he/she took a counteroffer from their current employer or they continued to interview for another job after then have signed and returned the Offer Letter. While I suppose there are unscrupulous individuals who are OK with being known as dirtbags who lie to advance their careers, more often they simply don’t realize the impact of their actions on the employer. The hiring manager now has to re-initiate the search, and in our current job market that means a high likelihood that any potential “back-up” candidates have been lost to other jobs and are no longer available.
So that means at least another two months of lost productivity and most likely the hiring manager working two jobs, when they assumed that their life was about to be improved by getting a key position filled. Projects have been reassigned in anticipation of the new hire, meetings have been scheduled and travel plans put in place. When it all blows up it is a personal affront to the employer and it’s unlikely that the hiring organization (or the Recruiter) will forget it for many years, so a bridge has been burned by the candidate who takes this path.
Offer letters will continue to be used by employers and candidates to document terms of an agreement. We need a tool like this to create and maintain a well-functioning workforce. But an over reliance by candidates on this document as providing some type of personal career protection is dangerous. Employers must also understand that receiving a signed Offer Letter is a positive step in securing a valuable new employee, but not the end of the process. It doesn’t alleviate them from the responsibility of continuing to ensure that they provide a fair and challenging work opportunity, and to continue to seek potential employees even when they think they have no “openings.” It’s not like buying another asset – this one can, and does, change their mind. Indeed, in the modern workforce there are always “openings,” even if they are just small cracks.