The Basic Concept of Offer Letter and Contract of Employment

INTRODUCTION

When it comes to hiring new employees, one of the most typical questions often asked, especially by small business owners, is whether to use an offer letter or a contract of employment. The objective of both the offer letter and contract of employment is to establish the terms and conditions of employment in writing. However, each has a different function and understanding them can help you utilize the right document in the right situation.


Does Getting an Offer Letter Mean I Have the Job?

No. Receiving an offer letter does not imply the beginning of a working relationship. A working relationship starts when the offer has been accepted and communicated. The offer letter, as the name implies, is an offer of employment from the company to the potential employee. An offer letter is the company’s formal notice that they plan to hire you. An offer letter is also the employer’s commitment to appoint a prospective employee under the terms and conditions that are necessary for the position.

The offer letter notifies the prospective employee of the broad expectations, it contains the start date, salary, position, and basic job description, if the offer is accepted. 

Your acceptance gives the offer letter a legal flavour. You have the job, only after you have accepted. 

As the prospective employee, to communicate your acceptance, you are required to provide the employer with an acceptance letter―or letter of acceptance―indicating that you have accepted the offer as well as the terms of such employment. This is like the basic principles of contract; Offer and Acceptance. Acceptance is the offeree’s (employee’s) reciprocal action to the offeror’s (employer’s) offer; it is the offeree’s act of compliance. 

The fundamental components of any agreement or contract are the offer and acceptance, without which there is no contract. But once the offer has been accepted and communicated, it becomes a legal contract.

In Obaike v. B.C.C Pls (1997) 10 NWLR (pt. 525) 435 at 447 the court held that: 

“…to decide whether the parties have reached an agreement, it is usual to inquire whether there has been a definite offer by one party and acceptance of the offer by the other. In deciding this the court adopts an objective test.”

The objective test highlights the formation of employment―from the time of announcing a vacant position to the time of making an offer to a prospective employee. This process is significant in that it demonstrates the intent to form a legal connection, as indicated by the progression of the process to the last stage when an offer was made.

The Court of Appeal held in the case of Pablo Amaran v. ETF (2014) LPELR-22859 (CA) that: 

” …when an offer is made, it must be accepted first before a contractual agreement can come into being…when an offeror makes an offer and the offeree adds conditions or varies the terms of the offer, there is no acceptance of the offer, and the offeree now becomes an offeror of the new terms and negotiations begin again. If the original offeror accepts the new terms as offeree, then a binding contract arises, otherwise there is no acceptance and there is no agreement binding on parties.” 

From the two cases above, we see the importance of the offer letter and the acceptance letter.


Contract of Employment

According to Wikipedia, a contract of employment is a type of contract used in labour law to attribute rights and responsibilities between parties to a bargain (agreement). 

A contract of employment is usually time-limited and is provided when an employer hires someone for a certain duration ― like a freelancing position or a contract role for a specific project. A contract of employment is frequently used to establish a short-term partnership.

Unlike the less detailed offer letter, specifics of employment are contained in the contract of employment. It is more extensive, detailed, and sophisticated. It usually contains compensation, duties, benefits, circumstances of termination, non-compete, and confidentiality clauses are the most common clauses in the contract of employment.

Section 91 of the Nigerian Labour Act defines contract of employment as: 

“any agreement, whether oral or written, express or implied, whereby one person agrees to employ another as a worker and that other person agrees to serve the employer as a worker.” 

Section 7(1) of the Act also states that 

“not later than three months after the beginning of a worker’s period of employment with an employer, the employer shall give to the worker a written statement specifying, name of employer or group of employers, names and address of the worker, the place and date of his engagement, nature of employment, if it is fixed-term (when the contract expires), working hours, holiday pay/ leave and any special condition or clauses of the contract.” 

In essence, the prospective employee can be given an offer letter, and after the same has been accepted by the employee, a working relationship has already commenced. If the employer intends to give a contract of employment, then it must be given not later than three (3) months into the job.  


CONCLUSION

It is clear that the contract of employment is like the offer letter in some respects, but it differs in others. When accepting or offering a job, understanding the differences and similarities can help you manage your expectations. Both specifies the parties’ roles and responsibilities. Understand what you are agreeing to as an employee.

funmilola oparinde

Funmilola T. Oparinde, Esq.

Legal & HR Administrator

funmilola.oparinde@dexnovaconsulting.com



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