Offer Letters: Start Employment Relationships Off Right

Offer letters can set the right tone for the employment relationship—or they can lead to disappointment, frustration and even litigation. Here are some tips on what to include in the letters, how to deliver them and how to coordinate letters with accompanying restrictive covenants.

"I've worked in human resources for over 30 years and consider an offer letter an essential part of the hiring process," said Laura Lovelock, SHRM-SCP, senior director of human resources with EPIC Long Island in East Meadow, N.Y. "It is the foundation of a respectful employment relationship and sets the tone for all future communications."

What to Include

 "Being transparent with new hires establishes your relationship with your employees and ensures an open dialogue from the start," Lovelock said.

The letter should include all essential information, including:

• Start date.
• Salary.
• Title.
• Schedule.
• Benefits.
• Supervisor's name.
• All agreements, such as noncompete, nondisclosure and at-will employment.

"What has become important to add as a result of the pandemic is where work is to be performed," Lovelock noted. "Is it remote, in office or a blended option? Many employees are looking for at least a partially remote option, so that should be clear in the offer letter. Plus, if you are able to offer some telecommuting, it's a perk. Don't hide that—highlight it."

Matt Abbott, president of The Sourcery, a recruiting firm for tech startups in San Francisco, cautioned against making offer letters so simple that they miss important details.

"Especially with start-ups, you have handshake deals that are never written down, and those can come back to burn you," he said.

Personalize Offer Letters

Employers often use offer letter templates, which may not have been updated recently or customized for a particular position, said Alex Dominguez, an attorney with Neal Gerber Eisenberg in Chicago.

"It is important that HR professionals take the time to think through the specific terms of employment for each particular employee and customize the offer letter as appropriate to reflect the key employment terms," he said.

For instance, if there are any conditions set on the offer of employment—such as the completion of a successful background check or the passing of a drug test—they should be included in the letter.

Be Clear About Compensation

"Sometimes I see offer letters that are unclear about compensation terms, including bonuses, and whether the employee will be eligible to receive the bonus for work in 'X' year, even if they are no longer employed at the time the bonus will be paid out, which is often in the following year," said Angela Vogel, an attorney with Davis Wright Tremaine in Bellevue, Wash.

This can lead to disputes because the employee believes they are entitled to the bonus, even if they leave before the bonus is paid, and the employer doesn't think the bonus is owed if the employee isn't an active worker at the time the bonus is paid.

"A way to address this can be as simple as referring to the applicable bonus policy or plan that governs the bonus program, which should cover bonus eligibility considerations," she said.

Just saying that a new hire is "eligible for a bonus" without further explanation may subject the company to claims that a discretionary bonus was earned based solely on employment when there were other criteria necessary to receive the bonus, said Brian Weinthal, an attorney with Burke, Warren, MacKay & Serritella in Chicago.

Additionally, be sure to be clear about whether the employee is paid an annual salary or is paid hourly.

"What HR sometimes gets wrong in these letters is salary," Lovelock said. "If the salary listed in the offer letter is in a different or misleading format—for example, if the person is nonexempt and quoted an hourly salary but an annual salary is listed in the offer letter—this can lead to problems, misunderstandings and hard feelings."

Delivering the Offer Letter

"A nice e-mail explaining what the job will be, followed by [a link to a platform to capture electronic signatures], is the way people are sending letters now," Abbott said. "If there's a level of complexity that needs to be addressed, schedule a call before you write and send the e-mail."

Another option is to e-mail future employees an offer letter and then review it with them in person at onboarding, Lovelock said. "This gives them at least two days to review and reflect on everything in the offer letter, and it is respectful of everyone's time. We can then answer any questions that they have in person and have a hard copy of that signed agreement," she said.

Restrictive Covenants

Be aware that some states have laws specifying the amount of time that employees must have to consider certain offers and conditions of employment, Weinthal noted. For example, as of Jan. 1, 2022, employees in Illinois have a legally mandated 14 days to consider certain restrictive covenants that are made a condition of employment.

"Many companies use employee agreements in conjunction with offer letters—particularly where there are restrictive covenants imposed on employees," he said.

Some jurisdictions require that restrictive covenants be reasonable in time and scope as well as clearly set forth prior to the employee's start date in order to be enforceable, noted Susan Gross Sholinsky, an attorney with Epstein Becker Green in New York City.

"The problem, however, is that many companies do not take the time to ensure that their offer letters and their employment agreements line up precisely," Weinthal said. When the terms in an offer letter differ from those in an employment contract, "the company may create problems for itself."

When a confidentiality or restrictive covenant agreement is provided with the offer letter, the letter should cross-reference the agreement, Sholinsky said. Otherwise, the letter may unintentionally cancel out the agreement by stating that the offer letter is the final agreement between the parties.