I’m a fan of presenting offer letters to your manager candidates. They are a great way to remind them that employment with you is at-will (if allowed in your state), some basic expectations you have and general information about what’s in it for them. Makes them feel great and provides some structure. Depending on your objectives, it can also provide some legal protection if written properly (although, not all offer letters are legally binding).
But, what if an offer letter is not written properly? What if it’s something you quickly type up, or grab from the all-knowing internet, print and execute? Offer letters, much like anything else that is employment-related, can quickly become a detriment to your company if not handled carefully.
Let’s take a look at an example of an actual offer letter that was litigated years ago (though I bet I could easily find a letter just like this today!) The compensation model described in the excerpt below may not be relevant to your structure, but the premise is.
Can you find the issues with this letter?
“Salary and Incentive Compensation
“For the first twelve months of your employment, through May 31, 1998, your compensation will consist of a base salary, which if annualized would be $120,000. In addition, you will receive a guaranteed non-recoverable draw of $10,000 against commissions for this same period. Also, as you requested an additional recoverable draw of $20,000 against commissions can be provided. The objectives for the additional incentive/compensation commissions are outlined in schedule A. For the second year of your employment you will receive a guaranteed recoverable draw of $120,000, against commissions.
Tsr Consulting Services, Inc. v. Steinhouse, 267 A.D.2d 25, (N.Y. App. Div. 1999)
A little back story – allegedly, this company had an unfortunate reputation for firing employees within a year. The employee who sued them didn’t want to meet that same fate, so he negotiated specific language to be included in his offer letter. (which probably should have been a red flag, but I wasn’t a party to the deal and it’s way easier to speculate in hindsight than to see stuff clearly in the moment)
Do you think TSR Consulting Services was surprised when Steinhouse’s attorney let them know they owed him for the remaining term of his contract? Do you think they argued he did not have a contract – that he was an “at-will” employee? Have you guessed that I’m going to tell you that because of the language they used in their offer letter, they made it abundantly UNclear that they considered his employment to be at-will?
They were arguably a little careless in using three words in that letter that are likely the sole reason they had to fork out legal defense funds. Those words were:
- THROUGH (as in “…through May 31st…”) Putting an end date in writing was the first issue that came under review. Had they simply stated an annual amount (important to also point out best practice is to provide a bi-weekly amount that is then annualized) they would have been in better shape. Using the word “through” and adding an end date, creates at least an illusion that employment was contracted to continue through that term.
- GUARANTEED (…you will receive a guaranteed non-recoverable draw…”Anyone else out there cringing at the word “guaranteed” when referring to employment? Me, too. Free advice – never use “guarantee” in any employment-related document without the words “not a” in front of it. Well, unless you really do want to guarantee whatever it is, but typically that’s not the case.
- FOR as in “For the first 12 months of employment” and “For the second year of employment” Again, this phrasing eludes to a specific period of time during which a guarantee of continued employment is implied.
Now that I’ve covered some examples of what NOT to do, let’s review how you can avoid the same fate as TSR.
First, I want to be clear that there is no reason to be reluctant to use offer letters – they can be great tools and I do recommend using them, just be careful when downloading a “sample offer letter” from the internet and making it your own.
Here are some key components of a typical offer letter for the restaurant industry:
- name, the date of the letter, the position, the date you want them to start
- basic language that you consider them to be at-will employees (unless prohibited by law – like in Montana’s Wrongful Discharge from Employment Act)
- exempt vs non-exempt classification and what that means regarding how they will be paid in terms of overtime (especially important if you will be paying non-exempt managers a salary)
- compensation info (care should be used here and you might want to get some guidance from an HR pro)
- what days you pay and if you offer direct deposit
- general expectations regarding conduct (leading by example is a good one)
- benefit info (with a disclaimer that benefits may change with or without notice)
- other important details specific to your company – maybe you want to include some training info or how you will issue a company credit card or you may want to notify the candidate about drug testing or criminal background checks (if you’re still doing credit checks for your managers we should talk).
Again, simply writing out someone’s pay and benefit deal in an official-looking letter doesn’t necessarily make it an implied contract. There are advantages and disadvantages to writing it with the intention of it being legally binding so you’ll want to carefully consider what your objectives are with presenting an offer letter.
Once you draft a great offer letter template (Amplified HR clients – we have these for you!) you might want to have an employment law attorney take a quick look. An ethical lawyer (we know some!) shouldn’t charge you more than about 1/2 hour to review one you’ve drafted and that’s a lot of peace of mind for not a lot of money.
Don’t Worry, We’ve Got This.
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