A letter of intent (LOI) issued by an employer to a potential candidate, as the name suggests, indicates only the employer’s intention to issue an offer of employment. It is a common misconception that an LOI is an offer, which, once accepted, becomes a binding contract. Recently, while addressing concerns about onboarding, Capgemini clarified that the candidates selected on-campus had been issued only LOIs, which per se, were not offers of employment, and Capgemini’s onboarding would be based on its staffing requirements.
While determining the legal implications of an LOI, a Division Bench of the Hon’ble Supreme Court in the matter of South Eastern Coalfields Ltd. & Ors. vs. S. Kumar’s Associates AKM (JV) held that an LOI indicated merely a party’s intention to enter into a contract, and no binding relationship was concluded thereby unless an unambiguous agreement was clear from the terms of the LOI. Therefore, it is crucial to draft an LOI precisely to avoid any confusion and mitigate potential risks of claims arising therefrom.
Five key points for employers to keep in mind while drafting an LOI are as follows:
- The intention of the document to be an LOI and not an offer of employment should be explicitly and unambiguously mentioned in the LOI.
- The LOI should clearly mention that if the employer has decided to employ a candidate, an Offer Letter will be issued to the candidate within a certain time frame. If the candidate does not receive an offer within the specified time frame, the LOI will be deemed to have expired without any further act, deed, or formal decision by the employer or any other person.
- The LOI should not bar the potential candidate from accepting jobs with other employers on the assumption that the LOI has established an employer-employee relationship between the parties.
- The language of an LOI should be significantly different and distinguishable from that of an offer letter. The LOI may have certain basic details of the intended job role and the approximate cost to company (CTC) that the candidate could expect if he/she were offered employment within the specified time frame. The offer letter, on the other hand, should be more detailed, and should set out the exact CTC and salary breakup, benefits, job description, expected joining date, and other terms and conditions of employment.
- The language of the LOI should not create any contractual rights and obligations on either party, which could potentially be interpreted to establish an employer-employee relationship between them.
This blog is authored by Minu Dwivedi and Shreya Chowdhury.