An offer letter is a formal communication from the employer to the prospective employee covering the terms and conditions relating to his employment, to establish a professional relationship.  

 

An offer letter is said to be accepted when the prospective employee agrees with the terms and conditions and provides an executed version to the employer.

 

We have highlighted some of the relevant clauses which should form part of the offer letter issued by the employer to the prospective employee:

 

1. Job description: 

 

The job title along with the joining date, brief roles and responsibilities of the prospective employee should be captured. The employer should crystalize the roles and responsibilities of the employee to the extent required to be honored by him during his employment. The clarity is needed to avoid any dispute which could arise due to ambiguity in the job description. The roles and responsibilities, as listed, will also form the basis of evaluation of the prospective employee for calculation of bonus and other perks by the employer.

 

2. Compensation: 

 

The details such as break-up of salary structure, bonus, probation period, and employment tenure, as per the job requirement. 

 

3. Benefits: 

 

A summary of benefits including but not limited to the social security benefits (including gratuity, pension and provident fund contribution), health insurance, life insurance, educational assistance, disability coverage, etc. can be specified. It will assist the prospective employee in forming a decision to join the employer as per his or her requirement.

 

4. Terms and Conditions: 

 

Owing to the dynamism of the employer, any specific condition as may be expected from the prospective employee should be listed. Such conditions can relate to the: (a) manner of usage of assets including laptop and data card of the employer, and (b) internal as well as external communication norms followed by the employer.

 

The conditions specific to the grade of the prospective employee can be captured. An offer letter of a senior grade employee can cover terms relating to stock options, severance pay, investment restrictions, etc.

 

The list of standard documents, including but not limited to educational certificates, degrees, diplomas, reference letters, proof of residence, etc. can be sought from the prospective employee for verification or any other reasonable purposes.

 

5. Policies: 

 

An undertaking to the effect that the prospective employee will comply with all the policies and procedures put in place by the employer, and the employee must provide confirmation of understanding to any new policies and procedures introduced during his/ her employment. The policies of the employer may include provisions related to prevention of sexual harassment at workplace policy, loans or advances policy, travel policy, leave policy, prohibition on insider trading policy, work from anywhere, etc.

 

6. Confidentiality: 

 

The confidentiality clause forms an integral part of the offer letter. It binds the prospective employee to observe strict confidentiality with respect to the information obtained during the course of employment. It, inter alia, lists down the: (a) information which will be treated as confidential information, (b) events which will amount to disclosure of confidential information, and (c) duration (i.e., both during the employment and post-termination of employment) for which the employee is bound to observe strict confidentiality.

 

The prospective employee should execute privacy and confidentiality standard agreements, such as a non-disclosure agreement,  written accession to employer's privacy policies, etc. It is important to strictly enforce this clause to avoid dispute over any privacy breach.

 

7. Non-compete: 

 

a. The prospective employee shall devote all his working time and skill in the employer’s service and shall not accept any other work without the prior written consent of the employer.

b. During the course of employment, the prospective employee should not, directly or indirectly, or beneficially, by himself or in association with any person, engage in any activity that would conflict with, interfere with, prevent or impede, in any manner, the due performance of his duties as an employee.

c. The prospective employee should notify the employer about the receipt and value of all pecuniary or any other type of benefit whatsoever that the employee may have received, directly or indirectly, from any third-party including suppliers of goods and/or services of the employer.

d. The prospective employee should not have any interest or control in the management of any business competing with the business of the employer. An example of such businesses can be specified by the employer to avoid any confusion.

e. The prospective employee should be required to disclose all their interests and concerns in any other company, entity, body corporate, etc. The employee may, for investment purposes, upto a threshold, hold only shares, debentures or other securities (not carrying the right of control) in any company whose shares are listed on a recognized stock exchange.

 

Such restrictive covenants must be reasonable in nature to avoid disputes with the employee. Further, such restrictive covenants are only enforceable during the term of employment. Post-termination restrictions on employment are not enforceable in India.

 

8. Termination: 

 

The modes of termination followed by the employer include: (a) voluntary termination, i.e., resignation by the employee, and (b) involuntary termination, i.e., termination (with or without cause) by the employer. Termination with cause (i.e., due to misconduct, serious breach, negligence etc.) will terminate the employment of the employee: (a) immediately, and (b) without notice, damages or compensation. The termination clause in the offer letter intimates the prospective employee about the exit options.  

 

9. Exit Consequences:

 

Before undertaking an exit, the employee will be required to hand over all the materials (whether originals or copies and in hard copy or electronic form) in his or her possession, including, but not limited to any files, reports, analyses, charts, records, materials, drawings, computer hardware or software, entry passes, keys, mobile telephones and other electrical devices, credit cards, etc. The employee should not retain any copy of any materials or other information.

 

The knowledge of the above will, inter alia, give a sense of responsibility to the employee with respect to the materials belonging to the employer, in his or her possession. In certain cases, the prospective employee may be barred from carrying on a competing business for a mutually agreed duration of time and shall not solicit other employees working under the employer, from their employment.

 

10. Legal status of offer letter: 

 

Post execution of the offer letter, the employer can execute an employment agreement stating the detailed terms and conditions of employment. Once the employer, after receipt of the executed offer letter, executes an employment agreement with the prospective employee, the subsisting offer letter will cease to remain in effect.

 

Alternatively, the offer letter can be final and binding in nature and constitute an employment agreement in itself. The legally binding nature of an offer letter may depend upon the intent of the employer and the prospective employee.

 

11. Restricted Transactions: 

 

The prospective employee can be prohibited from undertaking transactions, including, but not limited to: (a) financial transactions amongst the employees, (b) utilization of employer’s funds into any other activities, unless permitted by the employer, and (c) utilization of employer’s assets, demo assets, free samples, etc. for any personal purpose.   

 

12. Expiry Date:

 

The offer letter should clearly state the time period within which the prospective employee should accept the offer. Failure to accept the offer on or before the specified date shall lead to the expiration of the offer. This will indicate the willingness of the employer to hire the candidate, and availability of other desired candidates for the offered job position. 

 

13. Closing:

 

The offer letter should end with a positive note such as: (a) a request to acknowledge the offer letter, (b) the desired expression to hire the employee, and (c) an expression to contact the human resource team of the employer for clarifying any doubt(s).