Offer Letter or Company Plan – Which One Governs?

“Whoever is careless with the truth in small matters
cannot be trusted with important matters.”

– Albert Einstein

ACTUAL CASE HISTORIES: Case History 1: Joseph signed an Offer Letter that said the following: “The Company will provide you and your family with health insurance coverage, subject to the terms provisions and conditions of the Company Health Insurance Plan.” Sounded good to Joseph.

After starting the job, though, Joseph found out that the terms of the Company Health Insurance Plan provided that “New employees and their families are not eligible for paid health insurance coverage until the employee has been on the job for six months.” So, the “terms and provisions” of the Plan essentially took away what the Offer Letter had seemed to provide Joseph and his family. Big disappointment, to say the least. In this case history, the Plan “overcame” or “superseded” what was in Joseph’s Offer Letter, or at least modified it to his and his family’s significant detriment. Ouch!

Case History 2: When Lemuel started his job, he was very interested in the company’s willingness to offer stock options to its employees. For this reason, he carefully reviewed the terms of his employer’s Stock Option Plan. It said quite clearly that “Company employees will receive a minimum of 1,000 stock options for each twelve months on the job, unless agreed otherwise.” Sounded great to Lemuel.

After a year on the job, Lemuel asked his Human Resources representative if he could get a written statement of how many stock options he had been awarded. To his surprise, he was told “You don’t have any.” When Lemuel insisted on an explanation, she responded, “Your Offer Letter stated clearly ‘Your compensation consists of a base salary, an annual bonus and health care coverage. No other compensation is being offered to you. To receive any additional form of compensation, you and an authorized representative of the Company and you must sign another document that provides that to you.”

So, the “terms and provisions” of Lemuel’s Offer Letter essentially took away what the Stock Option Plan had seemed to provide Lemuel and his family. In this case history, the Offer Letter “overcame” or “superseded” the Company’s Stock Option Plan. Ouch! Big disappointment, to say the least. Seems that the Offer Letter took away what the Stock Option Plan seemed to provide, by “overcoming” or “superseding” what was in the company’s Stock Option Plan.

Does your Offer Letter (or employment agreement) overcome everything that is said in any of the employer’s compensation and benefit Plans? Or do your employer’s compensation and benefit Plans overcome your Offer Letter (or employment agreement)? How can you tell? Perhaps, more importantly, what can you do?

LESSON TO LEARN: If they differ, which one – your offer letter or your employer’s plans – “govern and control?” It all depends, of course, on the wording of the documents – both offer letter and plan – and your willingness to take the time and effort to (a) read them carefully, and (b) ask for clarification, either on your own or, perhaps, with the guidance of an experienced employment attorney.

These days, with employers trying their very best to lower their “employment-related overhead costs,” we are seeing more and more of these issues, and sadly, most often only after someone has lost out on what they deserve.

But you can protect yourself, if only you are willing to try to do so by (i) reading carefully, (ii) thinking carefully and (iii) requesting clarification that even a 10-year old could understand.

That’s what we call wise “navigation and negotiation” of your employment relation, to ensure you get all you deserve, and don’t miss out on anything you do deserve.

Take it from me: unless you act to protect yourself, no one else will, especially your employer.

WHAT YOU CAN DO: Have you received an offer letter, or are you expecting to receive one soon? Do you believe you are entitled to any compensation or benefit that is provided under a company Plan, such as stock, stock options, severance, health care, disability insurance, life insurance, educational benefits, or otherwise? To avoid being deeply disappointed, here are seven things you can – and should – do to protect yourself:

1. Accept the fact that every word counts in an offer letter (or other agreement) or Plan. Quite simply, to properly review and understand any kind of document, you really do need to read each word, and even pay attention to all punctuation marks. At the same time, you need to continually say to yourself, “Do I really understand what this document, or these two documents, say?” It is like carefully examining each leaf on each tree, and making sure that you understand the shape and size of the forest, too.

Bear in mind, too, that what is “missing” from an agreement may be more important to you than what is expressed in the agreement. When clients call my office seeking review of a document, they often say “It’s just a few pages, so it will be an easy task and won’t take long” The truth is the exact opposite: in “short” documents, I have to say to myself, over and over, “What should be here that is not?” It is actually far more difficult to review the short documents.

By the way, please understand that an offer letter is a kind of agreement even if you are an “at will” employee.

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2. Watch out especially carefully for instances in which your offer letter is “subject to” the terms of another document, especially a company Plan. In my decades of experience, I believe at least 90% of offer letters mention, refer to, or are expressly “subject to” such Plans.

I know quite well how tempting it is to say, “I’m sure what the Plan says is fair,” or “I can’t believe I have to read a 35 page document.” Or even worse, “I’m sure such a large, well-known company would not do anything underhanded.” I’ve seen every size and kind of company do exactly what I am here trying to warn you about. Don’t forget singer Tom Wait’s famous lyric, “The large print giveth, and the small print taketh away.”

All documents must both be read, and in conjunction with each other, as if they are two halves of one document. You really need to be something of a “determined detective” to figure out what the combined document says. (Candidly speaking, nothing hurts my “bottom” more than this task, especially when, for example, an offer letter refers to multiple Plans, and I must sit for hours to review them for a client.

3. Watch out, too, for instances in which two documents (for example, an offer letter and a benefits Plan): (i) both seem to cover the same subject, (ii) or seem to contradict one another, or (iii) are both vague about a single point of interest or value to you. In Case History 1, above, Joseph’s offer letter and his company’s Health Plan both covered the subject: health insurance. The offer letter suggested – but was not clear – that coverage would begin promptly after employment begins. On the other hand, the Healthcare Plan said with clarity there was a 6-month wait.

In Case History 2, above, the Offer Letter contradicted Lemuel’s Company Stock Plan. It said, “You get salary, bonus and health insurance, and nothing else.” It applies only to Lemuel, and the Plan applies to everyone. The company has a good reason to take the position that he signed the Offer Letter, so Lemuel is out of luck.

Take it from me: whenever two documents cover the same subject, there is likely to be an important difference between the two. It’s your job to find those differences; make it something of a game, a challenge, a goal to make the interpretation one that is in your favor.

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4. If you identify a problem or a vagueness in your documents, it’s then your job to “navigate to safety” by requesting that the most beneficial terms for you are both (i) clear in their effect, and (ii) clear that they are controlling over inconsistent language found elsewhere. Sometimes it feels awkward or seems “pushy” to ask for a change in the terms or conditions found in an offer letter (or employment agreement.) Don’t be afraid to ask. So long as you ask respectfully and ask for something that is reasonable, there really is no downside. And the best rationale is that “Well, that is what I was led to believe was the proper interpretation.” Besides, by asking for clarity, you are preventing a future problem, and foresight is a very desired and rewarded trait when hiring a new employee.

5. Generally, you are much more likely to have a change made when asking for a change to your offer letter, and not in a Company Plan. Simply put, employers will never change wording of a Plan for just one employee. Let’s say your offer letter says that you are entitled to a 10% commission on all you sell, but the Commission Plan says, “The Company will assign you a percentage commission when you and your manager decide on a territory. Maybe your territory has been decided on? Maybe the offer letter is wrong, maybe the Plan is incorrect. Which one governs and controls?

One thing you can do to get clarity is to request that a sentence be added to your offer letter that says something like, “Even though the Company Commission Plan provides that a commission percentage will be decided, this offer letter confirms that is it has been decided that I will be entitled to 10% of all I sell.” That is specific and clearly “governing.”

Perhaps an even better request would be to ask that your offer letter be amended to include the following: “In the event the commission percentage set forth in this Offer Letter, and the commission percentage determined by the Commissions Plan differ, I will be entitled to the higher of the two.”

An effective, broadly written provision that we often ask be inserted to ensure that a client gets what the client has been promised, reads this way: “In the event of conflict, contradiction or inconsistency between the terms of this Offer Letter, on the one hand, and the terms of the Company Commission Plan, the term of this Offer Letter will supersede, govern and control.”

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6. Remember this rule of legal interpretation: “Specific overcomes General.” Over the centuries, courts and legal scholars have created certain “rules of construction” to be used when attempting to discern the true meaning and intent of documents. These rules are based in common sense, although common sense does not seem too common these days.

One such rule of legal interpretation is that “Specific overcomes General.” So, for example, if one document says, “Your job duties include, among others, that you will prepare monthly, quarterly and yearly financial forecasts,” and another document says, “ Your job duties include all of those commonly performed by a financial analyst,” the former one – which is more specific – governs and controls the latter one.

Bear this rule in mind, and always seek clarity, specificity and commitment in your employment related documents.

7. When it comes to your job and career, it may be wise to have any document you sign, or another document mentioned in it, reviewed by an “experienced eye.” I am not urging you to unnecessarily spend money on lawyers’ fees, but it is often the case that “an ounce of prevention is worth a pound of cure.”

I, myself, have even learned – the hard way – not to sign anything I don’t fully understand, including immigration papers, patent applications, and any other document that are used in areas of law other than employment law. “A wise man knows what he knows not.”

In Summary . . .

It is often the case that an offer letter will provide that it is “subject to the terms and conditions” of a Company Plan. It is also common that an offer letter, on the one hand, and a Company Plan, on the other hand, may conflict, contradict or be inconsistent with one another. Clarity and certainty are needed to avoid disappointment and conflict. Keep an eye out for such difficulties, and be prepared to request clarity on any point important to you.

P.S.: If you would like to speak directly about this or other subjects, Mr. Sklover is available for 30-minute, 60-minute, or 120-minute telephone consultations, just [click here.] Evenings and weekends can often be accommodated.

SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. Negotiation and navigation of work and career issues requires that you think “out of the box,” and build value and avoid risks at every point in your career. We strive to help you understand what is commonly before you – traps and pitfalls, included – and to avoid the likely bumps in the road. For those who receive an offer letter that either “is subject to” or inconsistent with a company Plan, you need to get things clarified, to “protect, defend and preserve” what is in your and your family’s interests.”

Always be proactive. Always be creative. Always be persistent. Always be vigilant. And always do what you can to achieve for yourself, your family, and your career. Take all available steps to increase and secure employment “rewards” and eliminate or reduce employment “risks.” That’s what SkloverWorkingWisdom™ is all about.

*A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.

Please Note: This Email Newsletter is not legal advice, but only an effort to provide generalized information about important topics related to employment and the law. Legal advice can only be rendered after formal retention of counsel, and must take into account the facts and circumstances of a particular case. Those in need of legal advice, counsel or representation should retain competent legal counsel licensed to practice law in their locale.

Sklover Working Wisdom™ is a trademarked newsletter publication of Alan L. Sklover, of Sklover & Company, LLC, a law firm dedicated to the counsel and representation of employees in matters of their employment, compensation and severance. Nothing expressed in this material constitutes legal advice. Please note that Mr. Sklover is admitted to practice in the state of New York, only. When assisting clients in other jurisdictions, he retains the assistance of local counsel and/or obtains permission of local Courts to appear. Copying, use and/or reproduction of this material in any form or media without prior written permission is strictly prohibited. All rights reserved. For further information, contact Sklover & Company, LLC, 45 Rockefeller Plaza, Suite 2000, New York, New York 10111 (212) 757-5000.

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