With employee turnover at an all-time high, many employers in Canada are facing hiring and human resources issues like never before. Employers would be well-advised to consider the ways in which their actions at every step of the employment relationship, including those taken at the very beginning, can create or mitigate legal risks. 

For instance, many employers are of the view that, once signed, a written employment contract is prescriptive of the terms of the employment agreement with their employees. However, what happens when employers require employees to sign not only employment contacts, but also “offer letters”? Many believe that these offer letters, which often precede contracts, are not legally binding, but this may not be true! Read on to find out more about the difference between offer letters and employment contracts.

Offer letters

Having multiple documents that set out the terms of the employment relationship can create confusion. Sometimes offer letters drafted by employers contain terms that contradict the terms in separate employment contracts or include terms that these contracts do not cover (and vice versa). Some employers mistakenly believe that offer letters, even when signed by the employee, will automatically hold less weight than the employment contract (signed later) itself. 

However, a job offer is just that – an offer. Once the offer is accepted, such as by way of a signature by the individual accepting the offer, the terms of the offer become binding on the parties. 

Which document takes precedence?

In the event that an employee signs an initial “Offer Letter” containing terms and conditions of a traditional employment contract, a subsequent employment agreement signed by the employee may be unenforceable absent fresh consideration. Consideration is something of value exchanged for entering into the terms of employment. Usually an offer letter will be signed prior to the employment start date. In this circumstance, the job is the consideration for the employment terms. When an employee starts working and is subsequently asked to sign their “employment contract” often employers do not provide fresh consideration. Without consideration, a contract will not be binding. In these circumstances, only the terms set out in the offer letter would have legal weight. 

Advice for employers

We strongly recommend that employers stick with an employment contract or, if they choose to include an offer letter (especially one that employees need to sign), keep it simple with terms such as the names of the employer and employee, start date, position, and compensation. It is also critical to remember that any agreement signed by the employee is unenforceable if the employee starts working before signing the agreement and is not provided with fresh consideration – something extra, like a signing bonus or a raise – upon signing the agreement.