Is an Offer Letter Considered an Employment Agreement?

by Ruth Mayhew

Permanency is the primary difference between an offer letter and an employment agreement. A permanent job is virtually unheard of because employers make it clear that they follow the employment at-will doctrine. However, an employment agreement provides some degree of assurance that the job will last or that the employee will know when the end is nearing, based on the terms and conditions of many employment agreements. An offer letter doesn't give the same assurance that the job will last.


For many jobs, the hiring process starts with a preliminary interview conducted via telephone, followed by at least one face-to-face interview with a recruiter or hiring manager. The hiring manager then tells the recruiter to send a conditional offer to the top candidate. The offer is contingent upon the candidate passing the background check and drug screening. Once the pre-employment steps are complete, the company sends a final offer to the future employee. In some cases, the candidate and hiring manager negotiate the salary, start date, benefits or perks before printing the final offer letter. On the other hand, an employment agreement might begin with a similar interview process; however, there's usually a negotiation phase prior to the employer extending an offer or agreement. Such is the case with executive employment agreements, wherein the executive-level candidate and a member of the employer's chief-executive-level staff negotiate the terms of the agreement, salary, bonus payments, perks and benefits.

Employment at-Will

An offer letter usually refers to employment that's subject to the employment at-will doctrine. Employment at-will means the employer and the employee have the right to end the working relationship at will. Neither the employer nor the employee needs a reason for severing the employment relationship, nor does either party have to give advance notice under employment at-will. One exception is that employers cannot base their decisions on discriminatory reasons, such as firing women employees because the company owner wants an all-male workforce. Employment agreements are another important exception to the employment at-will doctrine.


An offer letter also differs from an employment agreement based on formality. During the hiring process, an offer letter is a standard pre-employment step. It communicates the employer's interest in a candidate, provided the candidate can pass the background check and other pre-employment details. Conversely, an employment agreement is a formal document that often contains the employer's expectations, such as an executive's duty to develop business contacts that result in measurable increases in revenue or a jump in the stock price. Many employment agreements also contain nondisclosure, confidentiality, severance and noncompete clauses. Offer letters contain a brief description of the job, salary and start date, but expectations are most often communicated in the job description and in the company's performance evaluation materials.


Employment agreements are an excepted from the employment at-will doctrine. The company can't fire an employee at-will if the employee has an agreement. An employer or an employee can terminate the relationship; however, they must adhere to the terms and conditions of the agreement to sever it. Many employment agreements contain a termination clause, which often requires advance written notice to terminate the agreement. It's not uncommon to find an employment agreement that requires 90-day written notice to terminate. In this sense, the working relationship based on an employment agreement has a better guarantee than the typical employment subject to the employment at-will doctrine.

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