• Lindsay Spiller

A Startup’s Guide to Offer Letters and Employment Agreements

Updated: Oct 9


OFFER LETTERS


Generally, California law does not require specific employment contract terms to be in writing, unless the employee(s) are compensated by commission. In fact, most startup workers are hired without formal employment contracts. An employee in California whose compensation includes commission, however, must receive a written employment agreement stating the method for computing and paying the commission.


Moreover, California requires employers to communicate to their employees their rate of pay, regular payday, and other wage information at the time of hiring. Though this information need not be included in an offer letter or contract, startups should record the employment relationship by having the employee sign an offer letter including the key terms and conditions of employment, such as an employee’s:

  • Title or position

  • Reporting relationship

  • Start date

  • Term of employment (if applicable)

  • Rate and frequency of pay

  • Manner of pay (such as salary, wage, or commission, including whether the employee is exempt or nonexempt from California and federal minimum wage and overtime requirements)

  • Hours of work, including whether the employee will be working full-time or part-time and whether the employee can continue working with another employer during the initial stages of the startup

  • Eligibility for benefits (usually detailed in a separate policy or plan)

  • Conditions of employment, including:

  • Form I-9 compliance,

  • successful completion of background and reference checks (if used),

  • confirmation that their employment does not violate a non-compete or restrictive covenant with another employer, and

  • signing a confidentiality agreement

  • At-will confirmation

  • Job Description (if available)

  • Employee’s acceptance of offer letter terms and conditions


Other Rules for Employers to Consider Regarding Offer Letters:


  1. Employers generally may make prospective, unilateral changes to an at-will employee’s terms and conditions of employment, such as wages or bonus payments, unless it is a contract or collective bargaining agreement.

  2. If an employer makes a job offer to a current employee for a commissioned position, the employer must provide a written commission agreement.

  3. Employers must appropriately document independent contractor relationships in written agreements in accordance with California Labor Code §2776(a) which governs business-to-business contracting relationships.

  4. Startups must be aware that it is challenging to properly classify an individual as an independent contractor under California law and the repercussions for misclassification are costly.


EMPLOYMENT CONTRACTS


While many startups and small businesses use offer letters for all their employees, formal employment contracts are reserved for more senior executives and management personnel. In addition to the content in offer letters, executive employment agreements may include:

  • Employment for term of years

  • Notice of termination or garden leave (garden leave is when an employee leaving a job via resignation or termination is instructed to stay away from work during the notice period, while still remaining on the payroll)

  • Severance benefits if the executive is terminated without good cause

  • Bonus compensation

  • Profit-sharing or equity grants

  • Accelerated vesting provisions if there is a change in control


[Article contributed by Hannah Noëlle Johnson, Legal Intern at Spiller Law]



 

Spiller Law is a San Francisco business and entertainment law firm. Feel free to arrange a free consultation by resorting to the Schedule Appointment link on our website. For other questions, feel free to call our offices at 415-991-7298.


 

The information provided in this article is for general informational purposes only and should not be construed as legal advice or opinion. Readers are advised to consult with their own legal counsel for specific advice.

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