Employment agreements and offer letters are often used interchangeably when hiring employees. Although offer letters and employment agreements share some characteristics in common, they are not the same. For an early-stage or startup company, correctly using the employment agreement and offer letter can help to prevent unnecessary and unanticipated liability for the employer. For an employee, understand the legal differences between these two types of document can help you understand your rights and obligations better.

Distinguishing Offer Letters from Employment Agreements

One of the major differences between an offer letter and an employment agreement is the extent of details contractual and legal obligations its terms impose on the employer and employee. Offer letters typically contain basic employment terms. The most important legal purpose of the offer letter is to state clearly the employment duration, for example that employment will be at will and the employer will have the right to terminate the employment at any time and without cause. Since employers typically limit offer letters to non-managerial employees, offer letters do not often mention any restrictive covenants such as non-compete, non-solicit, or confidentiality obligations. To find out more about restrictive covenants, please visit this article here.

Employment agreements spell out an employer’s expectations in much greater detail than offer letters. Employment agreements are more often used for managers, executives, and other high-level employees because they have access to proprietary information such as client lists and business strategies.

Tips for Early Stage and Startup Companies

It is important to have proper documentation when hiring employees. Venture capital investors often scrutinize existing employment agreements and can request changes to existing employment agreements. Therefore, it is important for early-stage companies to have proper employment arrangements with their founders and key employees to be commensurate with similar agreements in the relevant market. Further, a growing company should use a formal agreement when hiring an independent contractor to provide services for the company. Especially for technology businesses, the ownership of intellectual property should be properly outlined in such an independent contractor agreement.

If you would like an employment agreement or an offer letter drafted, or reviewed, contact us today for a flat rate. We also offer flat rate packages for preparing independent contractor agreements.