Drafting Offer Letters: Keys To Simple And Effective Employment Agreements

by Cooley LLP
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Hiring high quality employees is one of the keys to your company’s growth.  As you hire, you will be wise to have in place clear comprehensive offer letters for all of your employees.  For those in the U.S., many offer letters can be as short and simple as two pages while containing concise versions of all key terms.  With a few basic templates for short form agreements, you can cover nearly all of your employees (including exempt, non-exempt, full-time and part-time).  For executive hires or more complex or unique arrangements, these template agreements can be tailored to include terms such as relocation benefit packages, bonus and commission programs, severance, change of control benefits, and certain tax minimization provisions.

The following Cooley GO tips will help you prepare simple and effective offer letters that work best for your company’s operating style and structure.  Use Cooley GO Docs to generate a Form of Employee Offer Letter.

Key Terms

Every offer letter should contain the following key terms:

  • Position/Title
  • Name/Position of Supervisor
  • Full-Time/Part-Time Schedule: State whether the position is full-time or part-time; specify the basic work schedule.
  • Exempt/Non-Exempt Classification:  It is important to properly classify your employees as exempt or non-exempt from federal and state overtime requirements in order to avoid penalties or claims for unpaid wages.  Your Cooley counsel can advise you about how state law will classify your employees, and how you might reshape the job requirements if you wish to reclassify.
    • Offer letters to exempt employees should state that they are not eligible for overtime pay.
    • Offer letters to non-exempt employees should state that they must record their hours worked and they will be paid overtime (as pre-approved by their supervisor), and describe available meal and rest periods.
  • Duties:  Avoid stating all duties or work rules in the offer letter.  If you choose to refer to certain specific duties, be sure to emphasize that they do not constitute a complete and exclusive list and they are subject to change.
  • Equity:  Briefly describe the terms of any equity grants (e.g., number of shares, vesting schedule), but be sure to also state that the grant will be subject to the terms and conditions of your equity plan and the employee’s grant agreement.  If performance-based vesting is used, the company’s discretion in developing performance criteria should be clarified.
  • Bonus/Commissions:  Briefly describe the terms of any bonus (e.g., target amount, criteria, payment terms) or commissions.  If you have a formal bonus or commission plan (which is often recommended), you could simply refer to the plan.  The offer letter should make clear which forms of incentive compensation will be assessed and awarded in the company’s sole discretion.
  • Base Salary:  Quote salary for non-exempt employees on an hourly basis and for exempt employees in terms of monthly or normal pay period amounts (e.g., $2,000 per bi-weekly pay period).  The offer letter can also reference the annualized salary rate. Many companies will want offer letters to state that compensation may be modified from time to time, in the company’s discretion.  Be aware of requirements regarding minimum wage requirements.
  • Benefits:  Briefly describe the categories of benefits for which the employee will be eligible (e.g., medical insurance, vacation, sick leave, holidays) or, alternatively, state that the employee will be eligible for standard company benefits available to similarly situated employees.  The offer letter should inform the employee that  benefit plan details are available for review and that the company retains discretion to modify benefits from time to time.
  • Policies:  State that employment will be subject to the company’s policies, procedures and handbook (if applicable) as adopted, revised or deleted from time to time.
  • At-Will Employment:  If the employment is at-will (as typically recommended), the offer letter should explain that either the employee or the company can terminate the relationship at any time, with or without cause or advance notice.  Avoid language implying any fixed time period of employment, or even “soft statements” about “looking forward to a long relationship.”
  • Confidentiality/Invention Assignment Agreements:  All employees should be expected to sign a confidentiality and invention assignment agreement as a condition of employment, and it should be enclosed with the offer letter.  You can generate a Form of Employee Confidential Information and Invention Assignment Agreement using Cooley GO Docs.
  • Prior Employer Confidential Information/Restrictions: Prohibit the unauthorized use of confidential information of prior employers or any other third parties and require disclosure of any employment restrictions (e.g., non-competition or non-solicitation agreements with former employers).
  • Contingencies:  State that the offer is contingent upon a background check clearance, reference check and satisfactory proof of the employee’s right to work in the U.S., as required by law.

NOTE:  Certain states may require employers to obtain additional documents. For example, California requires an additional wage notice to non-exempt employees.

Walking through these tips and factors with your counsel in order to develop template agreements that fit your operating style will help to ensure that you have a solid, user-friendly offer letter ready to present to a potential candidate at any time.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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