Employers want to secure top talent quickly, and many hiring relationships begin with a short and friendly offer letter and later evolve into a more detailed employment contract. But when it comes to long-term protection and legal clarity, there’s no substitute for a carefully drafted employment agreement.

While both documents deal with the terms of employment, their legal implications and purposes are very different. Confusing the two, or worse, trying to use both can potentially expose employers to costly legal pitfalls.

What’s the Difference Between Offer Letters and Employment Agreements?

Offer Letters are typically short documents that provide a brief summary that confirms the basic terms of an employment offer: the role, the compensation, the start date, and sometimes they address other matters such as benefits or probation periods. They’re often used by an employer to get a commitment from a candidate before going to the trouble of drafting a full employment agreement.

Employment Agreements, on the other hand, are comprehensive legal contracts. They should (although unfortunately do not always) deal with the specific terms of the employment relationship and both parties’ roles and obligations, including

• Termination and severance 
• Confidentiality and IP protections
• Non-competition or non-solicitation clauses
• Dispute resolution terms
• Employment standards compliance

The Legal Risk Of Using Both

Employers sometimes make the mistake of issuing an offer letter and then following up later with a formal employment agreement. This two-step process may seem harmless, but this approach can backfire.

There have been recent court cases in which an employer sent an offer letter outlining key employment terms and later asked the employee to sign a formal contract with different and new provisions, including terms which were more favourable for the employer. In such cases a Court can find that the original offer letter was binding, and the formal agreement was unenforceable because it lacked fresh consideration, which is a requirement under contract law when altering existing agreements.

Cases like these underscore a key point employers need to understand: once an offer is accepted, the contract is formed and is binding on the employer and employee. This can occur whether the terms of the offer are communicated in an offer letter or an employment agreement.  Any attempt to change the terms afterward must be supported by new consideration (such as a raise, bonus, promotion, or other benefit). Without new consideration, a new agreement could be found to be unenforceable.

Practical Takeaways for Employers

In order to avoid these pitfalls employers should consider using just one hiring document.  If you intend on having a formal employment agreement in any event, issue it at the outset of the relationship and certainly before an employee accepts any offer and prior to the employee starting employment.

Employers should be consistent in their approach to hiring and ensure that they obtain legal advice prior to sending out any type of employment offer. Employment agreements are not “one size fits all.” A properly drafted contract tailored to your workplace is an investment that can save you from future litigation.

Experienced Employment Lawyers

If you are an employer looking to ensure your employment agreements are enforceable the experienced employment lawyers at Taylor & Blair LLP can help.  Contact us today to schedule a consultation.