Drafting Offer Letters: Keys to Simple and Effective Employment Agreements

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 and comprehensive offer letters for all of your employees. For those in the US, 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, nonexempt, full-time, part-time and temporary. 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, part-time or temporary, and specify the basic work schedule.
• Work location: State where the employee is expected to work, whether at a company location or in a hybrid/remote capacity. If the position will involve remote work, specify where that location will be.
• Exempt/nonexempt classification: It is important to properly classify your employees as exempt or nonexempt from federal, state and local overtime requirements in order to avoid penalties or claims for unpaid wages. Your attorney 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 nonexempt employees should state that they must record their hours worked, and that they will be paid overtime (as pre-approved by their supervisor), along with describing 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 that they are subject to change.
• Equity: Briefly describe the terms of any equity grants (e.g., number of shares, vesting schedule), but also be sure to 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 bonuses (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 the salary for nonexempt employees on an hourly basis and for exempt employees in terms of monthly or normal pay period amounts (e.g., $2,000 per biweekly pay period). The offer letter also can reference the annualized salary rate. Many companies will want offer letters to state that compensation may be modified from time to time, according to the company’s discretion. Be aware of minimum wage requirements.
• Benefits: Briefly describe the categories of benefits the employee will be eligible for (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 (which should govern in all cases) 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 (where allowed), 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. Note: If you are imposing a noncompetition and/or nonsolicitation provision, you should consult with counsel to ensure any relevant jurisdictional requirements of the provision are met.
• Prior employer confidential information/restrictions: Prohibit the unauthorized use or disclosure of confidential information or property/documents belonging to prior employers or any other third parties and require disclosure of any employment restrictions (e.g., noncompetition or nonsolicitation agreements with former employers).
• Contingencies: State that the offer is contingent upon a satisfactory background check, reference check and satisfactory proof of the employee’s right to work in the US.
• Dispute resolution: It can be helpful to include a dispute resolution clause, such as a mandatory arbitration provision. When drafted and implemented correctly, arbitration can present a streamlined, cost-effective and private system for resolution of claims arising out of employment. There are pros and cons to arbitration, however, and you should consult with counsel to determine whether it makes sense for your business.

Note: Certain states may require employers to obtain additional documents. For example, California requires an additional wage notice to nonexempt employees, while New York requires employers to give notice of the wage rate to all new hires. Walking through these tips and considerations with your counsel to develop template agreements that fit your operating style will help ensure that you have a solid, user-friendly offer letter ready to present to potential candidates at any time.