A candidate can receive an offer for employment in different ways. Some employers will provide an “offer letter” which sets out the basic terms, followed by an employment contract with more detailed terms. For some, there is no separate “offer letter” and the candidate is just asked to sign an employment contract instead. There are also situations where the document is called an “offer letter” but it contains detailed terms just like a contract.
Putting aside labels, what is important is whether a binding employment relationship has been created. That is determined through the usual contractual principles of offer, acceptance, consideration, intention to create legal relations, and the absence of vitiating factors.
What happens when an employee signs an offer letter, starts employment, but is then given an employment contract with different terms?
This unique situation arose in Tadjul Maulud bin Zoor and CRSM Construction (M) Sdn Bhd (Award No. 260 of 2022, 14 February 2022).
Brief Facts
- After an interview, the Claimant was offered the position of Project Architect at the Company. The Claimant requested a Letter of Offer to be issued to him so he can secure early release from his previous employment.
- The Company issued him a Letter of Offer which the Claimant signed on 13 January 2020. The Letter of Offer contained only basic terms of employment such as his commencement date, starting salary, and position.
- The Claimant commenced work, but in July 2020, the Company issued him an Employment Contract that intends to replace and supersede the Letter of Offer.
- The Claimant disagreed to the terms in the Employment Contract. The Employment Contract stated:
-
- that his employment was for a specific construction project (Ampang 3rd Avenue) and for a fixed term (1 year).
-
- there would be automatic termination of employment if the construction project is completed early or if construction is suspended.
- The Claimant refused to sign the Employment Contract.
- The Company then terminated the Claimant’s employment with one month’s notice. The reason stated in the termination notice was that parties could not agree on the Employment Contract.
- The Claimant alleged unfair dismissal.
Court’s Findings
- A job offer letter is an offer of employment from the employer to the prospective employee and is not the actual commencement of employment. Where an employment contract is issued after the job offer letter, the employment contract will supersede the job offer letter.
- In the new employment contract, parties may intentionally agree to exclude or contradict what was provided in the job offer letter. In the event the employment contract does not mention some of what has been agreed in the job offer letter, it is assumed that the employment contract takes into account what was already provided in the job offer letter. This is unless the employment contract specifically states it has the intention of cancelling all that was agreed between the two parties.
- From the evidence, the Company’s standard operating procedure was to issue employment contracts with detailed terms, and not an offer letter first. However, the Claimant requested that the Letter of Offer be provided so he could obtain an early release. The Claimant always knew he would have to execute an Employment Contract to secure employment with the Company.
- The Court held that the Letter of Offer was never intended to be a complete agreement, as it merely summarized the main terms. Other material terms agreed by the parties during the interview was meant to be formalised through an Employment Contract.
- The Letter of Offer was silent on many employment terms such as annual and medical leave, bonuses, etc. Therefore, the Letter of Offer cannot stand on its own. It was therefore reasonable that the Letter of Offer is followed by an Employment Contract to incorporate all the relevant contractual terms.
- From the testimony of witnesses, the Court noted that the Claimant fully knew of the disputed terms during the interview. For example, he knew he would be assigned to the Company’s Ampang 3rd Avenue construction project. The Claimant was also made aware during the interview that the nature of the Company’s business depended totally on projects awarded by the Malaysian government, and as such the tenure of his employment would be on a fixed term basis and/or contingent on completing the project. This applied to every employee in the Company and not just the Claimant.
- The Claimant’s refusal to sign the Employment Contract therefore justified the Company’s termination of his employment. The Court dismissed the Claimant’s claim of unfair dismissal.
Key Takeaways
This dispute arose because there was a purported inconsistency between the Employment Contract and the Letter of Offer. Here, the Claimant alleged that material terms (eg: the nature of his employment as a fixed term contract) were not stated in the Letter of Offer but suddenly incorporated in the Employment Contract.
The Court was not convinced by the Claimant’s argument as the evidence showed that the Company informed him of these terms during the interview, and that the Letter of Offer was always intended to be brief as it was only issued to allow the Claimant to apply for an early release.
Employers who use a “two-document” process for recruitment (ie: Letter of Offer, followed by an Employment Contract) should be mindful that disputes can arise if there is an inconsistency between the two documents. As a best practice, if a two-document process is used, employers should ensure that both documents are provided to employees before commencement of employment. This way, if there are any disagreements about the terms, it can be resolved before the candidate starts work. Employers do not then have to deal with the awkward situation of an employee who has already started work but is refusing to sign an employment contract.
Employers should also consider whether it is even necessary to have two documents to record the employee’s terms of employment. It is acceptable to just provide the employment contract to the candidate upon making a job offer, without the need to prepare a separate “offer letter” first with summarised terms.
***
This article was written by Donovan Cheah. Donovan has been named as a Recommended Lawyer for Labour and Employment by the Legal 500 Asia Pacific 2017, 2018, 2019, 2020, 2021 and 2022, and he has also been recognised by Chambers Asia Pacific and Asialaw Profiles for his employment law and industrial relations work.
Donovan & Ho is a law firm in Malaysia. Our practice areas include employment law, dispute resolution, tax advisory and corporate advisory. Have a question? Please contact us.
