Are you Hiring or About Join a Startup? Offer Letters- The Do's and the Don'ts

It is a wonderful feeling when you feel the right time has come to give shape to your idea and start up a business. While your whole entrepreneurial focus

is on implementation and operational aspect, logistical issues often take a back seat. Very often this can prove to be a grave error of judgment which can bog down the new entrepreneurs, jeopardizing time or even business - all due to lack of proper guidance (good consultants come with hefty fees tags!).A few questions that will put the statement in perspective are:

• Once your venture picks up steam and you find things getting busy, do your partners do what they are supposed to do in their roles; If not, can you replace them and get a new partner?
• Are your vendors reliable and is there a way you can legally bind them to be so?
• Can you safely pitch your business before a third party without the fears of your idea getting copied?
• Do your newly recruited employees show the professionalism that you expect or they seem to be on perpetual leave?

Platforms such as EasyLaw, in an effort to help the start-up community, provide quite affordable options for documents which are important and required.

'Offer letters' are one of those must- have documents which is not only a prerequisite for startups/small businesses when they hire someone but saves one

from a lot of unforeseeable eventualities.What is an offer letter?

 Most of us have come across an offer letter at one point or the other and in the excitement of a new job, we never really did get to understand the intricacies of this document. That this document could well be a legal deed transferring some rights and casting some obligations may have never crossed our minds.

Generally speaking, this is a document to be offered by the employer laying down the terms of work and remuneration that the company can offer to the prospective employee. This letter includes details like the salary package, department, designation, grade and number of days entitled for leave. The candidate reviews, responds with counter proposals or alterations in terms, and signs acceptance.

Legally speaking,  in a contract of employment, it becomes essential to formulate a tenable contract through the process of offer and acceptance which are the essential ingredients of a contract. It falls under the purview of section 3 to 8 of Indian Contract Act, 1872. The offer letter is the preliminary step (apart from the application stage) in this process offering employment terms and seeking their acceptance.

Need for an offer letter

An offer letter gives a written verification to the employee laying out the offer, as well as its terms so that the prospective employees have proof and confidence of a new job enough to leave their existing company or to not accept any other offers.

In addition this is a written documentation that can be upheld in a court of law with respect to the terms of conditions that both the employee and the employer had agreed to at the time of joining.

Legal Validity of an offer letter

An offer letter is both a policy document and a legal contract.

The employer/company envisions certain policy which it believes should govern the organization to help it grow and flourish. While some of these policies may be statutory mandated by labour laws, others could just be a figment of hubris, say asking all employees to offer flowers at his deceased mother's portrait every morning which will not stand the scrutiny of law. As per Indian Contract Act, a legally valid contract should be legally enforceable in nature and spirit.

Legal implications when an employee signs an offer letter

When an employee signs an offer letter and reverts to the employer, he signifies his acceptance of the terms of working. Legally, the employer is bound to shoulder the compensation/salary promised and the employee is bound to observe the work timings and observance of the notice period apart from other terms. The Indian courts in their wisdom have often struck down the negative covenants in offer letters. For e.g., where an offer letter duly signed and accepted by the employee to remain with the company for the next five years was contested, the courts have ruled against it unless the employer was able to demonstrate considerable and direct expenditure of company resources and funds on training and preparing the employee.

Basic information that should be part of an offer letter

An offer letter should convey the following information:

• Date of joining
• Annual salary
• Notice Period
• Designation
• Working hours and days ( as applicable)
• Termination of employment
• Leaves, Insurance ( as applicable)
•   Restrictions after terminations : Confidentiality, Firm Property, code of conduct

The key clauses that should form part of an offer letter are: 

• Position offered.
• Reporting structure
• Date of joining
• Annual CTC
• Location

One of the most important things for a startup is to get its processes right. Hiring the first employee is something of a coming of age for a venture and both the employee and the employer should know what they're signing up for.

These useful insights into the Dos and Don'ts of an offer letter was given by EasyLaw (www.easylaw.in) an online legal & business services company assisting entrepreneurs and start-ups with a range of solutions from incorporating their companies to drafting of all important business and legal documents.

This is a shortened version of the article. Click Here to read the full article.