Your employment contracts are not the place for a scavenger hunt

Can an offer letter be an employment contract? How about an employee handbook? Yes, they can be, but it is much better to not have that be the case. As shown by a recent Milwaukee case, without drafting the terms of a formal employment contract, there can be needless confusion and expensive litigation.

In the Milwaukee case, an employee sued for a breach of contract. However, he had not received a formal employment contract that listed the rights and obligations of the employer and employee. As a result, the basis and terms of his contract had to be determined by the courts. Since no one document provided the full terms of the contract, a judge had to gather them from the employment application, an offer letter, and an employee handbook.

The employee’s application provided evidence there was some contract. The application stated, “I understand if I am hired, I will be given a contract for a specific period of time. By signing that contract, I agree to honor the length of that contract and … [understand the employer] reserves the right to terminate a contract for just cause reasons as stated in the … handbook.”

The offer letter was likely the formal contract because it stated, “Summer employment was not part of this contract.” However, an offer letter is too short a document to use as the formal contract. An offer letter is meant to quickly list the key characteristics of the employment offer, such as salary, general work responsibilities, title, and expected start date. It is not the place to list exceptions or limitations on an employee’s rights, especially when such terms are spread across two other documents.

In this case, the employee’s offer letter never clarified that the “just cause” standard – mentioned in the job application and then defined in the employee handbook – did not apply to him. This omission resulted in the employer needing to convince a trial court and then the appellate court that the handbook provision clearly did not protect this type of employee.



While the employer could have remembered to use the offer letter to exempt excluded employees from just cause protection, the main problem remains: The employer is using an offer letter to create a contract, but the boundaries of the contract are scattered through two other documents. What would happen if in the future the employer dropped the just cause standard from the employee handbook but failed to remove the reference from the job application? This would create another legal question and possibly another lawsuit to answer whether there is a just cause standard in that workplace. The employer would have to perhaps prove that it intended to drop the just cause standard, rather than the change being the result of perhaps an editing mistake in the handbook.

Even assuming such problems do not arise, an employee handbook is simply not the place to describe the relevant terms of a contract. The handbook is meant to describe existing workplace policies and guidelines, not give shape to them or to contract obligations.

If your organization wants an employment contract, create a document that, among other things, contains all the essential definitions, exclusions, obligations, and terms within it. In addition, make sure the contract does not rely on an external document or multiple external documents for clarification. Lastly, get each covered employee to sign the agreement; this way, at least there should be no question of who is covered by the contract.

Sign up for the free IB Update – your weekly resource for local business news, analysis, voices, and the names you need to know. Click hereIf you are not already a subscriber to In Business magazine, be sure to sign up for our monthly print edition here.