SIMPLE CLAUSES YOU SHOULD INCLUDE IN AN OFFER LETTER THAT WILL PROTECT YOUR COMPANY WHEN THINGS GO WRONG

I.   TO OFFER LETTER OR NOT TO OFFER LETTER, THAT IS THE QUESTION.

More and more employers ask candidates to "sign here" when they extend that all-important job offer. Why are formal offer letters - formerly given only to high-level executives - becoming as ubiquitous as the corner coffee shop? The reason: a handshake does not spell out the nature of an agreement. Given the litigious nature of employees in the late 1990s, employers want to define as much as possible about the terms of employment in writing. Offer letters also provide employees with the specific terms and conditions of their new jobs. A formal offer letter thus helps to match expectations on both sides.

As wrongful termination litigation becomes more commonplace, employers must constantly seek new ways to minimize the chances that lightning will strike them. While employee handbooks may provide an effective defense, employees increasingly claim that they did not receive the handbook, bother to read the handbook or know its content - creating yet another issue for the courts to decide. The one item every employee is guaranteed to have read is their offer letter. Thus, the more protections an employer can include in this document, the fewer possible disputes down the road.

Obviously, every employer needs to decide for itself just how many terms it wishes to include in an offer letter. Most employers would not want to include all the clauses we mention as it creates a very formal document that may scare potential employees. Employers tend to utilize either employment contracts or employee handbooks to specifically set forth the terms and conditions of employment. On the other hand, a tailored offer letter incorporating select clauses relevant to an employer's particular needs creates an integrated at-will agreement that an employee may not modify unilaterally or deny exists.

II.   HOW TO GET THE BIGGEST BANG FOR YOUR BUCK - OR WHAT TO INCLUDE1

A.   Essentials

    1. Title/start date/annual starting salary/who employee reports to

These are the basic and critical terms pertaining to employment that employees will want to know immediately.

    2. At-will

After the above items, perhaps the most important term to include in an offer letter is an at-will provision. At will employment means that either the employer or the employee may terminate the employment relationship at any time without cause or notice. Although the presumption in California (and in every state but Montana) is at-will employment, which means either the employer or the employee may terminate the employment relationship with or without cause, and without notice, a written statement of at-will employment will arguably remove any ambiguity in the employee's mind. An employer should be careful to reiterate, in clear and unambiguous language, the employer's right to terminate the employee's employment for any reason. Including an at-will provision in an offer letter bolsters an employer's legal position that it retained the right to terminate without cause - often the deciding factor in costly litigation. While an at-will provision should also be a part of your handbook, one can never provide for this critical term of employment too many times.

    3. Benefits

If your employer's benefits do not start until after a certain time has elapsed, make that clear to the new employee. Employees assume immediate eligibility and should be forewarned if they need to make different arrangements.

    4. Stock options

Since stock options are often used as an added incentive to salary, set forth this term as early as possible so potential employees will understand the full compensation offer.

    5. Offer contingent on completion of a specified event

As employers often learn too late, applicants sometimes embellish their experience and employment history. Many employers add a sentence to the offer letter that notifies the prospective employee that the offer is contingent upon the successful completion of a reference check, fingerprint clearance or successful completion of a pre-employment drug screening. Such a clause has permitted employers to withdraw offers of employment in those instances where potential employees misstated previous experience, position and salary, or fail to comply with the requirements of a particular job.

    6. Set number of days to accept offer

This limits an applicant's ability to play one prospective employer against the other and unduly delay responding to your offer while pursuing other employment. It also ensures that employees begin positions at or around the time you really need them.

B.   Extras

    1. No modifications

Offer letters may state that no other oral or written representation may modify or change the terms set forth in the offer letter. Again, by inserting this simple language, employers may save themselves the time, expense, and uncertainty of litigation should the employment relationship sour.

In addition, once employees sign and return an offer letter that clearly states that no modifications are allowed, they are hard pressed to later claim that the employer orally agreed to additional terms.

    2. Arbitration agreement

Employers often prefer to resolve employment disputes through arbitration because it is quicker and cheaper than court litigation. If you require employees to arbitrate employment disputes, your offer letter should notify the applicant that he must sign an arbitration agreement as a term and condition of employment. Include such language in your handbook as well and have employees sign a separate arbitration agreement upon the commencement of employment.

Courts carefully scrutinize arbitration agreements in which employees relinquish rights to litigate in court. While courts will uphold such arrangements, most courts insist they be contained in a separate agreement and not buried in a document designed for a different purpose. Therefore, it is inadvisable to include the arbitration agreement itself within an offer letter.

    3. Non-disclosure of confidential information

A separate non-disclosure agreement benefits employers by discouraging employees, particularly as they become former employees, from revealing any confidential or proprietary information or trade secrets learned on the job. It should also provide for return of employer property upon termination of employment. Since trade secrets may be as mundane as your customer list, the usefulness of this clause is not limited to high tech companies. And as anyone who has ever been involved in trade secrets litigation knows, an ounce of prevention is worth a pound of cure. Therefore, employers could state in the offer letter that they require employees to sign a non-disclosure agreement as a term and condition of employment.

The key to success here is that the employees accept such terms. Employers should educate their workforce about the value of maintaining confidentiality. An employee responding to a competitor's courtship will be more likely to honor the principles of confidentiality if these terms have been consistently advanced by the employer. Further, when you learn that one of your own is leaving, remind the remaining personnel of their obligations.

Likewise, your offer letter could make it clear that you are hiring an employee for his/her talent and not for information about a previous employer's business. Such language may help if a trade secrets claim is made by your new employee's prior employer.

    4. Assignment of inventions

Employers want to make sure that any inventions or valuable intellectual property developed on the job stays with the employer if the employee goes to a competitor or starts a competing business. Again, you may state in the offer letter that you require employees to sign a separate assignment of inventions agreement. If an employee is going to balk at such an arrangement, you are better off knowing that before they even begin employment.

    5. Employer's right to reassign employee

The employment market is not static, and the job you hired someone for today may be gone next month. Therefore, it is advisable to retain the right to reassign employees up front, in order to prevent confusion or claims later.

    6. Bonuses

In order to assure yourself greater flexibility, make sure you protect the discretionary nature of bonuses. Discretionary bonuses should be based on performance goals at the end of a specified period.

III.   CONCLUSION

Although more complicated than the offer letter of yesteryear, today's offer letter confirms the essential terms of the employment relationship for both parties and establishes and preserves important legal rights for the employer - just in case things go wrong. The time to take protective action is at the beginning of the employment relationship.

September 25, 1998

Ms. Jane Doe
1111 Oak Court
San Jose, CA 95112

Re: Offer of Employment

Dear Jane:

We are pleased to offer you a position as a Marketing Representative beginning October 5, 1998 in our Los Angeles office. Your annual salary will be $52,000, and you will report to the Manager of Marketing, John Smith. You will be eligible for a discretionary performance bonus at fiscal year end, up to 10% of your annual salary. You are also eligible for our health, life, and disability insurance. Coverage for these benefits begins on November 1, 1998.

We are offering you this position under the following terms and conditions:

You have the right to terminate your employment at any time, with or without cause and with or without notice. We also have the right to terminate your employment at any time, with or without cause and with or without notice. No person other than the President may change this at-will employment relationship and such a change must be made in writing.

We retain the right to reassign you to a different position, at any time with or without notice, and to change your job duties to meet our business needs. Our industry changes rapidly and we must be flexible to meet the needs of the business.

As a term and condition of employment you will be required to sign the following documents prior to beginning your employment: an arbitration agreement; confidential information agreement; assignment of inventions agreement; and acknowledgment of receipt of the employee handbook. You understand that you are obligated to your previous employers to protect the confidentiality of confidential information learned while in their employ and agree not to disclose such information to us.

This offer is contingent on the completion of reference checks and verification of employment information. In this regard, we require that the references are generally positive in content and character.

This offer is the entire offer to you. There are no other express or implied promises, representations, or contracts being offered to you.

If you agree to accept this offer, please sign and date one of the two enclosed copies and return it to me within seven days of the date of this letter.

We look forward to you joining our organization. We believe you will find work here to be rewarding personally and professionally. If you have any questions prior to your first day, please give me a call.

Very truly yours,


Kathleen T. Smith
Director, Human Resources


I agree to accept the position as described in this letter.


______________________________________
Jane Doe


______________
Date

Footnotes

1. A sample offer letter is included at the end of these written materials.