Employment Agreement or Offer Letter – Which One Should You Use?
Does your new hire need an employment agreement, or can an offer letter suffice?
If you worry about whether to present your new hire with an employment agreement, you are not alone. Employers regularly struggle with the decision, torn between the simplicity and flexibility of an offer letter and the protections an employment agreement may provide.
When Is an Offer Letter Enough?
In Virginia, offer letters are usually enough. Their standard at-will employment disclaimer generally frees employers to terminate employees when a business reason demands it. So, while employers must always comply with the law in any termination decision, without an agreement in place the employer can make termination decisions without regard for terms of employment or other contractual terms. Using offer letters also means courts will not hold employers to a special duty of “good faith and fair dealing,” that often is required between contracting parties to an employment agreement.
When Might an Employment Agreement Be Better?
Of course, there are times when an employment agreement will serve important purposes. Employers commonly use official employment agreements for high-level or executive suite personnel or when they want to establish a particular term of employment, entice an attractive candidate to join the company with unique benefits or severance guarantees, or limiting their ability to terminate without cause.
In addition, a contract may be necessary if the employer anticipates an issue could arise upon the new hire’s termination. For example, an employer may want to protect the company’s substantial investment in the hiring and training process by imposing a penalty on an employee who departs without adequate notice. Employers may also want to restrict the new employee from competing with the company or soliciting its clients if they leave.*
Likewise, an employment contract can help protect trade secrets and other confidential information and set measurable expectations for the new employee’s duties and performance. It is always easier to enforce such restrictions when they are agreed to at the outset of the employment relationship as opposed to a severance agreement or acknowledgment of a handbook policy.
Even when employers feel they need an agreement to protect against specific contingencies, a long and complicated contract may not be necessary. For example, a simple agreement provided with or added to an offer letter could entitle the employer to recoup a sign-on bonus if the new hire fails to work for a specified period.
You don’t need to over-complicate the hiring process. Make your life easier by only including terms that make sense in a particular situation.
And as always, you can contact the WRVB Labor & Employment team if you need help making that decision or drafting an effective agreement.
*More information on using non-compete agreements:
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