Hello, and welcome to LegalEase. Today, I would like to talk about an offer letter vs an employment agreement. Which one should you use, and under what circumstances should you use it?

The general purpose of both documents is the same. Both an offer letter and employment agreement are used to memorialize the terms and conditions of employment. However, there are circumstances when you might want to use one document over the other.

An offer letter is, typically, used for mid-level to lower-level employees. It will, usually, contain general information, such as the job title, compensation, start date, it may mention benefits, and it may describe the job duties. An offer letter is bland in its terms. However, the offer letter should always state, “This employment is at-will and can be terminated at any time by any party.” Check your state law to make sure that this language is applicable, but we always advise clients to include this language.

Employment Agreements are, typically, given to your high-level executive employees – employees who have an intricate relationship with the company. We advise clients to give employment contracts to those employees who can access the data, those who have access to client files, financial data, trade secrets, or intellectual property. This is the group of employees who need to be under contract for obvious reasons. The employment agreement will also include the basic terms such as job title, duties, compensation, but it will include more details about benefits, such as stock options and insurance, and it will contain provisions such as confidentiality, non-solicitation, non-compete, and termination. Simply put, an employment agreement will provide more protection for the company.

Employers should consider which employees should sign an employment agreement vs an offer letter.

Employers should be mindful of the fact that an employment agreement may  put restrictions on the employer. Using a termination provision as an example, an employment agreement might indicate that an employee can only be terminated with 15-day notice, which means the employer can’t simply tell the employee to, “Get out, pack your bags.”  Employers should consider the restrictions, if any, from either side.

If you have any questions, give us a call. We would be happy to draft your employment agreements for you. Thank you so much for joining LegalEase.