Offer Letters and Employment Agreements
When a job offer is made, both parties are usually anxious to start working together. However, it is important to make sure both parties understand the new employee’s job duties, compensation and benefits, and other factors of the new employment. An offer letter and employment agreement put such terms into writing, to minimize misunderstandings and future problems. Because the agreements are so important, both sides should have an attorney assist in drafting, negotiating, and/or reviewing these documents.
How Do Offer Letters and Employment Agreements Differ?
Once a job candidate receives a verbal job offer, the employer will typically follow up with an offer letter, which provides pertinent information about the position, as discussed in the next section. New York law requires employers to provide written offer letters to new employees and notices, at least, to existing employees every year. In contrast, employment agreements are not mandatory. Typically, they are given to executives or key employees and go into more detail than offer letters regarding issues unique to high-level employees, such as non-competition provisions. Both documents set forth the terms and conditions of employment and establish contractual rights and liabilities on both sides.
In New York, employment is generally “at-will,” meaning either party can end the relationship at any time for any reason or no reason at all. The existence of an offer letter or employment agreement does not negate at-will employment, unless the document specifically provides that termination is only permitted “for cause.” Furthermore, both offer letters and employment agreements are subject to federal and state workplace discrimination laws, so that regardless of what the document says, the employee retains his or her right to be protected from discriminatory acts by an employer.
Both agreements may be negotiable, which is why it is crucial to have an attorney review them. Before an employee starts working, he or she has leverage to ask for changes. After starting work, it may be much harder to ask for new terms.
What Are Common Provisions in Offer Letters and Employment Agreements?
Offer letters and employment agreements should be drafted for the specific position and parties involved. Form contracts are not advisable, particularly for managers, professionals, or anyone who will have access to company information or property. However, there are certain types of provisions which are common to both agreements.
An offer letter focuses on the key details of employment. It will include the job title and description, compensation and benefits package, bonus structure, vacation, holidays, leave policy, and start date. Generally, it will also state that employment is at-will and may provide a mechanism for resolving employment disputes such as arbitration. There may also be restrictive covenants as discussed below, depending on the nature of the position.
Typically, employment agreements include additional details regarding job duties and performance obligations because compensation may be linked to performance incentives. Since these agreements tend to be given to key employees, provisions for compensation may discuss discretionary bonuses, stock options, deferred compensation, and fringe benefits. The agreement also may be for a specified time, only permit termination for cause, and provide for an exit or severance package. Restrictive covenants will be included, as will provisions for dispute resolution.
Restrictive covenants are contract clauses which limit the activities of an employee after employment has ended. They are intended to protect the employer from former employees benefitting from the employer’s confidential business information after they have left the job. The most common types of restrictive covenants include the following:
- Non-competition. The employee agrees to not work for a competitor or start a competitive business for some set period of time and within a certain geographic area after employment ceases. Non-competition clauses are highly scrutinized in New York and are increasingly held to be unenforceable.
- Non-solicitation. This provision prevents an employee from soliciting customers or suppliers of the former employer. The purpose is to limit the employee from using information garnered during employment to lure customers away and unfairly compete with the former employer.
- Nondisclosure or confidentiality. This restriction ensures that employees cannot use or disclose proprietary information, such as trade secrets and client lists. The provision often applies for several years after employment ends unless the information becomes public through other means.
These provisions must meet stringent requirements to be enforceable. As a result, both sides should consult an attorney to ensure they are properly drafted. Restrictive covenants can be negotiated. The goal should be to reasonably protect the employer without overly burdening the employee so they cannot find new employment.
What Legal Remedies Are Available If the Agreement is Breached?
If an employer breaches the employment agreement, the employee may seek damages. However, many agreements specify how disputes will be handled. Often, they require arbitration and will set forth what state’s law will apply to the dispute and where the dispute will be heard. In the event the agreement does not require arbitration, then the employee can sue in state or federal court as appropriate.
Damages for breach generally include lost wages. Where the agreement provided that termination must be for cause and the employer terminates otherwise, the employer may be liable for the employee’s total earnings owed under the contract, including benefits. However, the employee has a duty to mitigate those damages by seeking alternative employment. In such event, the employee would be limited to damages in the amount of the difference in pay between the terminated position and the new position.
Employers may also seek damages for breach of the agreement. This typically arises where a restrictive covenant has been breached. An employer who wishes to enforce a restrictive covenant can file a lawsuit in court and obtain an injunction requiring the employee to follow its terms and/or receive damages for the breach if there have been monetary losses.
For the best protection in an employment relationship, both parties should consult an attorney. Employers should understand what is reasonable to include in offer letters and employment agreements to protect their rights and minimize liability. Prospective employees should seek guidance on the appropriateness of the provisions and the potential to negotiate more advantageous terms that apply during and after employment.
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