In an effort to bind employees to certain duties without creating an employment contract, many employers are sending offer letters setting forth the terms and conditions of an employment relationship and requiring employees to sign them to show their acceptance of such terms and conditions. However, in doing so, employers may be binding themselves to certain obligations to which they never intended to be bound. Northeast Real Estate Services, LLC was one such employer.
In 1998, Northeast Real Estate Services recruited Stephen Prozinski to become Northeast’s chief operating officer and chief financial officer. Northeast did not provide a written employment agreement to Prozinski, but provided him with an offer letter that stated, in part:
During the first 24 months of employment, if your employment is terminated by the Company, then the Company will pay you the equivalent of 1 full year’s pay including benefits.
The letter included a space for Prozinski to sign, under the phrase “Accepted By,” which Prozinski signed. Ten months after he began his employment with Northeast, Prozinski was terminated by Northeast, for among other reasons, submitting improper reimbursement requests, financial mismanagement, and complaints from female employees alleging that Prozinski sexually harassed them. Northeast also discovered that Prozinski had been distributing pornographic emails to employees and exchanging obscene emails with male employees and others outside of the office.
Prozinski sued Northeast after his termination claiming, in part, that Northeast breached his employment agreement by failing to pay him the 1 year severance that was set forth in the offer letter that he had signed. The Court agreed with Prozinski and awarded him the 1 year severance payment, among other things.
How can employers avoid Northeast’s problem? Employers should understand first and foremost that sending an offer letter and requiring the employee to sign it may create a legally enforceable contract between the employer and the employee that the employer did not intend to create. Further, the offer letter signed by the employee may also destroy the “at-will” relationship that an employer may have intended if it is drafted in such a way as to show that the employment relationship was for a term of years, whether stated explicitly or implicitly.
The following are some ways to ensure that an offer letter will not bind an employer to anything more than what the employer intended:
- Include only the starting date of employment. Creating a “term” of employment is likely to destroy the “at-will” status. Be sure to include wording that states that the employment relationship is “at-will” and may be terminated at any time for any reason or no reason at all.
- State the compensation to be paid in terms of payroll increments. For example, state that the compensation to be provided an employee is $X per week, which is the equivalent of $Y annualized. Promise of a yearly salary may bind an employer to an implied employment term on a yearly basis, which may result in a claim that an employee is owed to one year’s worth of compensation even if he is terminated mid-year for misconduct.
- Do not use terms such as “guaranteed” or “entitled,” unless they are preceded with the word “not.”
- State only the title of the job and the direct reporting arrangement contemplated at the time of hire. Job duties and obligations should be referred to only in general terms. For example, the letter may state “your job duties and obligations are as generally described in your interview and will be described in more detail upon commencement of employment. The job duties and obligations may change from time to time as determined by the Company.”
- Identify the contingencies of the offer, such as execution of a nondisclosure agreement, or receipt of appropriate papers to satisfy immigration requirements, or satisfactory completion of drug testing.
- Reiterate that the employment is “at-will,” including wording that the offer letter is not intended to and should not be construed as creating a contract of employment.
- State that continued employment is contingent on a number of factors, including as examples, performance of job duties and obligations and compliance with company policies.
- Do not require an employee to sign the offer letter, even if such signature is a mere acknowledgement of receipt of the offer letter. Instead, state an expectation to see the employee on his/her first day of employment.
Because offer letters may be deemed to be contracts of employment, employers need to be careful in their drafting of them. If an offer letter is necessary, do not assume that it either is or is not a contract - review the wording carefully to ensure that only what is intended is set forth in the offer letter. If the employer intends to bind the employee or itself to certain obligations, then a properly drafted employment agreement is often the better practice to avoid unintended liabilities.
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