As a result of a recent decision of the US District Court for the Southern District of New York, employers should review their offer letter templates to ensure that the offer letters clearly supersede any prior oral or verbal promises regarding employment terms and conditions, including compensation. John Broyles v. J.P.Morgan Chase & Co. (March 2010). In the Broyles case, the plaintiff employee alleged that, when offered employment, he had been orally promised a bonus based on a percentage of his trading profits. The formal offer letter subsequently signed by plaintiff, however, stated only that he would be eligible to participate in an incentive plan under which payment of incentive compensation is at the complete discretion of the firm. The offer letter also stated that it contained the entire understanding of the parties regarding the terms and conditions of the offer of employment and superseded any prior verbal or written communications. In addition, the offer letter stated that it could only be modified in a document signed by the parties referring specifically to the offer, and that no employee or officer of the firm was authorized to make any oral promises to plaintiff about an incentive award. In granting summary judgment to the employer, the Court rejected the claim for breach of an oral agreement because the offer letter stated that it contained the entire understanding of the parties and superseded any prior communications.

Suggested Action

Employers should review their offer letter and employment agreement templates and, if not already contained therein, consider including language that the offer letter contains the entire understanding of the parties and supersedes any prior oral or written communications - often referred to as a "merger" clause. To help defeat claims based on subsequent, alleged promises made to employees, employers should also consider including (i) a provision prohibiting any modification of the terms and conditions contained in the offer letter unless in writing and signed by a specified officer of the company and (ii) a statement that no officer or employee of the company is authorized to make any promises regarding terms and conditions of employment except for the specified officer and that he or she must do so in writing signed by him or her. Employers need to be careful, however, not to supersede agreements and/or policies that the employers may want to survive or to apply to the employment relationship - e.g., standalone confidentiality, restrictive covenant agreements and/or arbitration agreements and employee handbooks.

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