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Is an Offer Letter an Executive Employment Contract?

As executive employment attorneys, when we ask new clients to send us their employment documents for review, we often hear the comment, “I don’t have an employment agreement, just an offer letter.” This is particularly true in the financial services industry and certain other industries as well, particularly for executives below the so-called “C-Suite” level.

In fact, however, an offer letter is in fact an employment agreement, even though it is not what we term a “fully-integrated” agreement and even though it often is not a particularly good agreement for reasons which will now be discussed.

First, what is a “fully-integrated” agreement, the sort of employment agreement commonly given to college and university presidents and many C-Suite executives in finance and industry?

These agreements, customarily more lengthy than a two- or three-page executive offer letter, are termed “fully-integrated” because they contain the full and complete terms of the employment agreement between the executive and his or her employer.

Indeed, such agreements ordinarily contain a provision explicitly stating that the document contains the entire agreement between the parties, and that the employer has not made any promise to the executive other than the specific promises contained in the document.

Accordingly, as executive employment lawyers point out to their clients, “what you see is what you get,” meaning that if the executive is accepting the position based on the written employment agreement, they cannot later claim that they were induced to take the job on the strength of some promise which is not contained within the written terms of the document.

As every first-year law student learns, the proverbial twenty bishops can be brought in to swear under oath to the making of a promise not contained in such a “fully-integrated” written document and their testimony will be discarded; courts will not allow such testimony to establish an unwritten promise against the plain language of the “fully-integrated” agreement.

By contrast, an executive offer letter usually contains far fewer terms and often is more notable for what it leaves out than what it includes. As noted above, this is particularly true in the financial services area, where offer letters frequently throw around big and enticing numbers with few legal protections.

For instance, an offer letter may include a promise to pay a sizable sign-on bonus at the end of some specified period if the executive does not resign and voluntarily leave the firm’s employ before that time.

That is a contractual promise, but one that leaves aspects of the promise notably unanswered. What if the executive dies or is disabled before the end of the specified period? Is the sign-on bonus still paid? Or, in a scenario even more likely than death or disability, what if the executive is terminated without Cause before the end of the time specified? Does he or she still get the substantial sign-on bonus?

What a smart executive and their experienced executive employment lawyer should do, confronted with this type of vague and incomplete offer letter, is to insist that the missing terms be filled in and not left indeterminate. A key term of any executive employment agreement is exactly what severance payment or payments the executive will receive if and when the executive is terminated without Cause, and it is precisely this type of protective promise which is most often absent from an employment offer letter which is not a “fully-integrated” employment agreement.

Moreover, some employers try to “have it both ways” by offering an employment letter containing incomplete promises or vague language, but with a final clause stating that the employer is making no promises other than what is contained in the inadequate offer letter. These offer letters represent an even more dangerous situation for the executive who is tempted to accept the employment offer, particularly if it involves substantial potential remuneration.

Accordingly, the answer to the initial question must be a modified “yes”: an offer letter is a contract, but often can be an incomplete and potentially misleading contract. One of our jobs as executive employment attorneys is to firm up the terms and protections of such offer letters, if possible, but in any event to make certain that our executive clients understand the risks of accepting new employment based on nothing more than an offer letter which does not contain adequate protections for the executive.

About the Author

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George Birnbaum

Since 1980, sophisticated business people have relied on George to apply the meticulous preparation, attention to detail, and devotion to his clients he learned from fabled trial lawyer Louis Nizer. A graduate of Harvard College and Harvard Law School, George has over 35 years of distinguished deal-making, litigation, mediation and arbitration experience which he has used to negotiate high-stakes agreements for senior executives and select business clients throughout the United States.