Offer Letter or Employment Agreement?

You can turn any standard contract into a letter agreement by adjusting the opening and closing. (MSCD contains a chapter on letter agreements.) In what contexts might that make sense?

In particular, recently I’ve had occasion to read “offer letters” between a company and an employee. They’re letter agreements. More often than not, they use you and your for the employee.

The alternative is a standard employment agreement—with title, introductory clause, and so on—that uses the Employee or some other defined term to refer to the employee.

So, employment-law people, which do you prefer, and why?

Here’s a related question: It appears routine for companies to require that new employees sign both an offer letter and a separate confidentiality agreement. Why not combine them in one document?

[Updated 7:45 a.m. EDT, 1 Aug. 2016: Well, that was quick! The verdict is in: offer letters for at-will employees, contracts for everyone else. See this tweet, this tweet, this tweet. and this tweet. (Thanks, guys!) Presumably, for employees who aren’t at-will you could combine everything in one contract, but a company might find it easier to have all employees sign the same confidentiality agreement.]

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

6 thoughts on “Offer Letter or Employment Agreement?”

  1. Well, I read those tweets, but I still don’t see any reason for doing one in preference to the other, and your point about combining confidentiality in the employment contract (in either form) hasn’t been disputed. In my experience, these all go in the same file drawer in HR, so having separate documents for employment and NDA seems pointless. I do get the point about using the higher-formality format for senior executives, but that’s just atmospherics.

  2. There may be situations where the terms of the NDA may need to be disclosed to yet another third party. For instance, Third Party may have a contract with employer that demands written NDAs with the employees and a right to see those NDAs. (I also often see the concept of invention assignment agreement being baked in to the “employee NDA”, and again that agreement may need to be disclosed to others [sometimes to internal personnel such as IP counsel, or to the employer’s outside patent counsel] in normal course of business outside of the direct employment relationship.) In M&A due diligence the NDAs might be reviewed by one team while the employment details might be reviewed by another (often with tighter controls given the sensitivity of the employment info).

    In such cases, having the employment personal details (e.g., salary) and the IP/confidentiality concerns in a single combined contract creates a nuisance (and may require creating a redacted document, which is extra painful in a mass review exercise). So I’m inclined to keep them separate (offer letter/employment agreement versus NDA/invention assignment).

    Side note: Regardless of whether the NDA is standalone or “baked together,” the new Defending Trade Secrets Act has particular requirements for what must now be in the USA employees’ NDA. More ways to keep us all busy.

      • Here’s a good article from Nixon Peabody (which does have an appropriate degree of snark respecting how hard one really needs to worry about this; read on in their article past the part I quote below for more):

        Below is the operative discussion of the NDA point copied from the NP article:

        The DTSA provides, in 18 U.S.C. § 1833(b)(1) under the heading “Immunity,” that:

        “An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that . . . is made . . . [1] in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney” and “solely for the purpose of reporting or investigating a suspected violation of law”; or [2] “in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.”

        In subsequent provisions, 18 U.S.C. § 1833(b)(3)-(4), the DTSA states that “[a]n employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee [or contractor or consultant] that governs the use of a trade secret or other confidential information.” Ostensibly, this provision requires employers to include the immunity language in 18 U.S.C. § 1833(b)(1) in any employment, independent contractor or consulting agreement containing non-disclosure provisions, or any stand-alone non-disclosure agreement (“NDA”) or similar agreement with employees, contractors or consultants entered into on or after May 11, 2016.


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