Is an offer letter legally binding?
An offer letter can be legally binding, depending on the issuing authority and the contents.
This letter notifies you, the potential employee, that the company is ready to accept you into the fold.
Let’s explore when an offer letter is a legally binding contract as well as what it should contain to meet the standards of validity and legality.
What is an offer letter?
An offer letter (or job offer letter) is a document from a potential employer declaring their interest in hiring a prospective employee.
Think of it as an official proposal from a company, sealing the final stages of the interview process.
Depending on the industry and the specific requirements for the role, the content of an offer letter for a new job could vary.
But here are some key components:
- Official job title
- Location of the company
- Employer contact information
- Your expected availability: full-time, part-time, or freelance
- Cooperation model: hybrid, remote, on-site.
- Description of roles and responsibilities
- Company or team hierarchy
- Expected starting date and probation period
- Salary, benefits, health compensation, bonuses, reimbursements, etc.
- Specifics on leaves of absence, paid time off, sick days, etc.
- Non-compete agreement, confidentiality agreement, or NDA for protecting intellectual property.
- Other special conditions of employment such as employee visa, background checks, etc.
- An acceptance deadline.
Usually, the offer of employment expires after the expected start date.
So if you don’t deliver a response before then, the offer letter becomes null and void.
To be on the safe side, respond to the letter as soon as possible.
Can an offer letter be legally binding?
An offer letter can be legally binding because it shows that the potential employer actually made you an official overture.
But in some cases, the official letter won’t stand the rigors of employment law.
Let’s explore both scenarios using two real-life cases involving the legality of offer letters.
Legally binding offer letter: Stephen Prozinski
A classic example of an offer letter being a legally binding agreement is in the case of Stephen Prozinski (the prospect) against Northeast Real Estate Services (the employer).
When the employer sent an offer letter to the prospect, the document included a signature field under the phrase “Accepted By.”
But it gets even better. Since the offer letter contained a clause stating that if the employer cuts ties with Prozinski during the first 24 months, the severance package would be a full year’s pay with benefits.
What an offer letter to sign!
So when Prozinski was finally fired for alleged unethical and unprofessional practices, he sued the company.
But the company fought back in court, claiming he wasn’t offered an official employment letter by human resources.
However, the court sided with Stephen Prozinski, citing that the offer letter he signed was binding.
Non-legally binding / Unenforceable offer letter: Dr. Moore
Most of the time, the court doesn’t recognize an employment offer letter as a legally binding document.
Here is an example.
When Dr. Moore accepted an offer letter from LGH Medical Group, he assumed the job was already his.
However, after weeks of not receiving an official employment letter, he sued LGH for breach of employment contract.
The court ruled against Dr. Moore because of one disclaimer clause in the contract: “This is not a legally binding document…”
And there lies the difference between an unenforceable and a legally binding offer letter: one clause and a signature field.
Does an offer letter need to be signed?
Yes, an offer letter needs to be signed before the deadline as part of the hiring process.
As mentioned earlier, the deadline is usually the assumed start date.
But in some cases, the employer can specify the exact time frame for signing.
So, once you receive the offer letter, go through the details to see if they match your expectations. If so, use a legally binding signature solution to sign it.
Otherwise, reach out to the company to negotiate the terms of employment and discuss the finer details of compensation, role or roles you’ll be assigned, and other key information.
Then, you can sign or reject the offer depending on the outcome of the negotiations.
But what if you sign the offer letter and then later change your mind?
In this case, you can back out of the job offer before any legal obligation takes place by telling the employer your reasons.
They might not be happy about your decision, but they won’t take you to court.
After all, you haven’t signed an official employment letter.
Offer letter vs. employment letter
Both an offer letter and an employment letter come during the final stages of the interview process.
Although both documents contain the terms of employment, they serve different purposes.
You can only receive the employment agreement at the start of the onboarding process.
This means that you are now an official employee of the company — and all the rights that come with it apply to your new role.
An employment letter contains a revised version of the offer letter as well as the employer’s signature, stamp, and conditions for retention and termination.
If the employer doesn’t sign the letter, it is not legally binding.
You can also back out of the offer letter before committing to your new job, but if a new employee reneges on their employment contract, they’d be in legal trouble.
Use PandaDoc to draft and sign offer letters
An offer letter can be legally binding or unenforceable depending on the conditions of signing.
To protect yourself from bad contracts and scary lawsuits, use an employment lawyer to draft and review offer letters.
If you want to work with a document management solution, PandaDoc has several offer letter templates that you can customize within seconds.
This solution also allows the hiring manager to add legally binding e-signatures to sign the document while maintaining a digital audit trail.
PandaDoc users can also draft contacts faster using the Panda AI virtual assistant.
This can come in handy when negotiating or redlining the conditions in the offer letter.