There are many different factors that influence whether an offer letter or an employment agreement would constitute a binding contract. The offer letter or employment agreement can amount to a contract depending on whether it meets the requirements for a binding contract. The name of the document is irrelevant when determining whether it is a contract or not. Ideally, when engaging an employee there should be two separate documents provided to an employee: an offer letter and an employment contract. 

This article will look at what:

  • is contained in a letter of offer;
  • makes up an employment contract; and 
  • makes a contract.

Employment Letter of Offer

A letter of offer is typically a short document with very basic details outlining an intended employment engagement, including the:

  • position;
  • type of employment; 
  • company name; and
  • terms and conditions set out in the employment contract (which is often attached).

In the offer letter, the employer may request information such as: 

  • a TFN declaration form; 
  • a Superannuation Standard Choice form; or 
  • any documents that are necessary for the role.

The employer may also request that the employee signs and dates the attached employment contract and returns a copy to the employer. The offer letter itself does not usually contain the comprehensive terms and conditions that an employment contract would. 

An employment contract is preferable because it:

  • includes all the details of the terms of engagement with the employee;
  • allows either side to point to the relevant clause in the contract if any disputes arise; and
  • avoids disputes arising in the first place, as both parties are fully aware of their rights and obligations.

Employment Contract

An employment contract is generally a much lengthier document. It contains detailed terms and conditions of employment. For example, it will typically set out:

  • employee’s duties;
  • any probation period;
  • remuneration;
  • annual leave and personal leave;
  • confidential information obligations;
  • intellectual property obligations; and
  • any restraint of trade or non-compete clause.

The employer ought to ensure the employment contract is clear on what the employer’s rights and obligations are as well as those of the employee. If the business falls under a certain industry or the employee works in an occupation that is covered by a modern award, then the employer must adhere to the minimum requirements under the relevant modern award. Modern awards outline various entitlements, such as: 

  • whether the employee is full-time, part-time or casual;
  • minimum rates of pay;
  • overtime rates;
  • penalty rates; and
  • allowances.

What Makes a Contract?

A contract is a legally binding agreement between two or more parties. A contact is valid if there is:

  • offer and acceptance (i.e. the employer must have communicated the offer and the employee must have accepted the terms of the offer);
  • a common intention between the parties to create binding relations (i.e. the employer and employee have agreed to establish a legal relationship on the basis of all the terms set out in the letter of offer or employment contract);
  • something promised in exchange for the promise (i.e. the employer promises to pay the employee remuneration for their work);
  • legal capacity (i.e. both the employer and employee must have the legal ability to enter into a contract)
  • consent from both parties (i.e. neither the employer nor the employee may be coerced into consenting)

As the name suggests, a letter of offer is likely to be considered an “offer”. It may not yet be considered a contract with an employee until the above elements are also met. Once they are met, you will have a binding contract. It can be quite confusing for employees if they only receive a letter of offer with no terms and conditions attached. For many businesses, it is beneficial to attach a clear employment contract to the letter of offer. As with a letter of offer, an employment contract is only legally binding if the above elements are met.

You can also form contracts verbally if you satisfy the factors here. Ideally, however, businesses should enter written contracts with employees to avoid any uncertainty in the arrangement.

Key Takeaways

An offer letter or employment contract may be a contract, depending on whether it meets the elements of a binding contract. Employers should provide both an offer letter and an employment contract when engaging employees. Employers should make sure all rights and obligations for both employers and employees are set out correctly in an employment contract. If you need help with drafting letters of offer and employment contracts, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

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