Offer Letters – Considerations for Employers and Employees

Douglas Simpson, LL.M

© Leader Quest Inc. and Douglas H. Simpson

The long search is over and a verbal offer has been made.  Both parties are relieved and excited, but remain uncertain about the final outcome.  The verbal offer may have confirmed little more than the start date and salary, leaving the “details” to be set out in an “Offer Letter” still to come.  It may seem like the most important part of the negotiation is already over, but nothing could be further from the truth.  An employment contract is not merely a formality and there are some important considerations for both parties at this critical stage of their relationship.

1.  What constitutes a contract?

Some organizations have formal employment agreements that set out all the rights and obligations of the parties.  Often, however, there is no standard document and the agreement takes the form of an “Offer Letter” that lists all the key points.  The prospective employee is usually asked to sign the letter to acknowledge acceptance of its contents.

It is important for both parties to recognize that in most instances an Offer Letter signed by both will constitute a binding agreement between them.  Its contents and wording therefore become extremely important and it should be drafted and reviewed with the same degree of care and attention as any other important contract.  If other documents also contain terms that affect the rights and obligations of the parties to the agreement then it may be necessary to incorporate them by specific reference in the Offer Letter.  These might include a formal Employment Agreement, Benefit and Pension Plans, and Personnel Policies (such as e-mail and Internet use, harassment policies etc.)

Like any other contract, in order for an employment agreement to be binding there must be evidence of an offer and acceptance; consideration (usually remuneration and other benefits in exchange for work); clarity (ambiguity is usually interpreted against the interest of the party that drafted the document); and compliance with any over-riding legislation such as a Provincial Employment Standards Act (or the Canada Labour Code if the organization is federally regulated).

2.  What should it contain?

Most Offer Letters will deal with some or all of the following: start date, title, supervisor, salary and bonus entitlements, probation period, benefits and when they become effective, pension provisions, vacation allowance, performance reviews (when and by whom), confidentiality obligations and termination.  Employers may also wish to provide for future amendment of the agreement as well as restrictive covenants such as non-competition and non-solicitation obligations if these are of concern to the organization’s business.

Employers should take care to ensure that termination provisions are drafted in such a way that they will be in compliance with the minimum provisions under the relevant Employment Standards Act throughout the employment relationship.  They should also avoid making restrictive covenants too restrictive.  The letter should be reviewed carefully to ensure clarity throughout.  Special requirements such as post-hiring medical examinations or bonding processes should also be referred to, but care should be taken not to run afoul of human rights legislation.

Prospective employees should take great care in reviewing the Offer Letter to make sure that they clearly understand what it says.  This may seem trite to say, but misunderstanding can happen very easily and do much to sour a new relationship.  Certain items may require greater clarification – for example, the basis (subjective or objective criteria) for calculation of bonuses and whether or not the bonus is discretionary.  Benefits and pension entitlements may be governed by the terms of the plans covering them, but the employee may be able to negotiate the waiver of standard waiting periods.  If so, these waivers should be spelled out in the Offer Letter.

3.  How can it be changed?

A unilateral material change to compensation or employee responsibilities may give rise to the constructive dismissal of an employee.  However, if the original employment agreement or Offer Letter provides that such changes may be made by the employer upon sufficient advance notice (such notice to be greater than the minimum notice for termination provided by the applicable employment standards legislation) then a material change made pursuant to such notice should not give rise to constructive dismissal.  Employers should therefore provide in the Offer Letter for the future amendment of the agreement or the terms of employment.  Employees should consider whether such a provision is acceptable to them or whether it should be redrafted in a manner so as to allow the employee some greater degree of control.  Where no such provision is made in the original contract it will be necessary to seek agreement by the employee to the proposed change in the contract and most experts recommend additional “consideration” be paid as part of the new agreement to ensure its enforceability. 

4. Seeking Legal Advice
Far too frequently employers and prospective employees treat the offer stage of their negotiations as more of a formality than what it is – the defining step in their future relationship.  The provisions contained in the Offer Letter will govern that relationship and may come back to haunt them at some future date.  An employment contract, whether it is in the form of a standard document or an Offer Letter, is a complex agreement with long term ramifications for both parties.  Like any important contract, it merits the input of expert legal advice for both employer and employee.

Doug Simpson is an accomplished association executive and respected lawyer. He was executive director of the Ontario Bar Association and previously senior counsel at CIBC. He holds a master's degree in law and has contributed extensively to the legal profession in volunteer leadership roles. Doug lives and works in Toronto.

This article may be reproduced for distribution as a learning tool for organizations in the not-for-profit sector provided attribution is made to Douglas H. Simpson and to Leader Quest Inc.

This article contains material of general interest only and is not intended to provide legal advice or to replace a consultation with a legal professional on any particular matter.