Avoid Trouble With Employment Offer Letters

How could this sentence have gotten anyone into trouble?

That sentence was part of a warm welcome letter that a Los Angeles-based firm sent to a new employee. It cost the firm almost $1 million. Here's what happened: After receiving the letter, the new hire moved his family to LA. Two and a half years later, he was terminated. Upon termination, he sued the company for wrongful discharge, claiming that the congratulatory letter -- including the sentence above-constituted an employee agreement. The company settled out of court for the near-million-dollar figure.

On the East Coast, a woman was hired by a firm and was given a company procedures manual before going to work. She read the manual as directed. It was written entirely in male pronoun: 'He will be expected to . . .,' 'It is his responsibility to . . .,' etc. At work the new employee didn't follow any of the policies dictated by the manual, and she was fired. Upon termination, she sued for wrongful discharge, claiming that nowhere in the manual did it say that the women in the office had to follow those procedures. At last report, the case was still in the courts, according to a labor management publication.

In another case, a firm wrote to a job candidate offering him a job at $80,000 per year. He accepted and was terminated after seven months on the job. He sued the employer on the grounds that the offer letter created a one-year employment contract. Based largely on a 1922 decision in a similar situation, an intermediate appellate court agreed with the plaintiff. The New Jersey Supreme Court, however, reversed the intermediate appellate ruling, overruled the 1922 decision, and held that the offer letter established only an employment 'at-will' relationship between the parties. As an 'at-will' employee, the plaintiff could be terminated at any, and for any, reason. The court in this case observed that it is common business practice to express an employee's salary in annual terms in offer letters, and such an expression does not constitute a traditional employment contract under New Jersey law. (Bernard v. IMI Systems, Inc., 1993.)

A leading labor-law firm comments that this case illustrates an important lesson in preparing job-offer letters. Each state has its own law on whether offer letters constitute binding contracts. Some jurisdictions consider offer letters to invest contractual rights in employees. The employer in the Bernard case had to litigate its defenses all the way to the New Jersey Supreme Court to establish that its offer letter was not a contract.

Employers should take great care in drafting offer letters to prevent potential claims or lawsuits by employees. Since some employees have argued in litigation that stating an annual salary is a promise of employment for one year, the offer letter should quote a salary in smaller units, such as weekly or monthly amounts. If the offer includes salary increases after a certain period of time, the offer letter should make clear that any future increases do not constitute a guarantee of continued employment.

The Bernard case demonstrates the importance of offer letters, job-application forms, and employee handbooks in preventing employee-initiated lawsuits. The labor law firm advises that employers should have their employment-law counsel audit those documents.

Many producers' contracts with Life companies carry similar pitfalls. Many are 'at-will' as to termination, meaning that either party may terminate the agreement with or without cause. At termination, too often Life agents lose all their renewal commissions and other benefits. Furthermore, the Life companies often can lay claim to the P/C producer's insureds and can send agents to those insureds to solicit business. In effect, under those contracts, the companies can take your insureds away from you, not only for Life, but for other lines as well.

Read Life contracts (and those of Life associates) very carefully about these and other conditions.