A letter of intent (LOI) or “offer letter” outlines the terms of employment in a much simpler format than what will be presented in a contract. The LOI is a preliminary document based on the mutual interest and good faith of both parties.
It acts almost as an informal promise between you and your future employer and can be an important mental step toward solidifying an employment agreement. As helpful as it can be in giving you a sense of the terms of your full contract, you do need to scrutinize the components before signing a letter of intent. Here’s what you need to know when reviewing your LOI.
Understand what a letter of intent is
Generally, an LOI will not be legally binding. It references a future employment agreement that will effectuate employment. There are instances, however, in which certain provisions within the LOI can, in fact, be legally binding.
These provisions may include that you will negotiate exclusively with this employer for some period of time or that the negotiations will remain confidential. It’s easy to assume that, because the LOI is less formal than the contract, you can just sign it and look at the contract terms more closely later. This can be a critical mistake, however, because it may cost you leverage when you negotiate some of those major employment terms down the road. Do not sign an LOI unless you are certain that key outlined components such as compensation will meet your needs.
Here is an example of an explicit statement included in an LOI that ensures it is not binding:
“The proposed terms of this letter of intent are non-binding and for discussion purposes only. It is the intent of the parties that these terms and conditions may be modified or changed, in whole or in part, pending a binding agreement to be negotiated and executed by the parties. Furthermore, nothing in this section shall be interpreted as obliging any of the parties to enter into any agreement.”
Check is your LOI tailored to you?
An LOI or contract may work for one physician and be totally incompatible for another. When looking at an LOI, it may be difficult to determine whether it’s based on a one-size-fits-all contract. Look out for provisions that don’t reflect the actual position or match your scope of practice. Reusing contract and LOI templates is a much more common practice than you may think. You will typically be able to discern how individualized your LOI is by how well the key terms in the letter seem to match your specific situation.
Note what your LOI doesn’t include
Remember that an LOI is not a comprehensive list of the terms of your employment. LOIs are typically composed of the highlights of an employment agreement such as pay, benefits and length of contract. That means terms with a more negative connotation, such as termination provisions, will be saved for the contract.
One of the important terms that may be missing from your LOI is a non-compete agreement. Non-compete clauses, or restrictive covenants, prohibit a physician from practicing within a certain geographic area after leaving a practice. For example, being restricted from practicing within a 60-mile radius for two years may be more reasonable for a neurosurgeon than a family physician.
Another value point that may not be addressed in the LOI is malpractice tail coverage. Malpractice tail coverage is an extended reporting period endorsem*nt, offered by a physician’s current malpractice insurance carrier, allowing you to extend coverage after you leave a practice. If you have a less expensive “claims-made” policy, then either you or your employer must purchase tail coverage upon termination of employment. If you have the more comprehensive “occurrence-based” policy, then you have malpractice coverage for any claim brought against you as long as you had that insurance carrier during the alleged event.
Get ready to negotiate your LOI
As mentioned previously, an LOI generally won’t be binding on major terms. However, some employers will still see the agreement as a promise, and therefore it can be hard to go back and change or negotiate certain provisions later.
Some employers feel as though signing an LOI means making a deal, but remember that signing does not obligate you to fulfill any LOI provisions that are not legally binding. Contract negotiation is not just a mere formality after you sign the letter of intent—it is a legitimate chance for you to adjust any part of the contract that doesn’t meet your needs.
The letter of intent is an important step in moving closer to employment. After you have taken a critical look at the LOI, considered potential pitfalls and signed it, try to begin the formal contract review and negotiation process as soon as possible. The LOI plays a central role in building momentum in the hiring process, and you don’t want the process to slow down or take up any more time than necessary.
Kyle Claussen, J.D., LLM is vice president at Resolve Physician Agency, Inc.
I bring a wealth of expertise in employment law and contract negotiations, having navigated the intricacies of letters of intent (LOIs) and employment agreements. As someone deeply immersed in the field, I understand the nuances and potential pitfalls associated with these legal documents. My background includes a comprehensive understanding of the components involved in LOIs, their legal implications, and the critical considerations individuals should bear in mind when entering into such agreements.
Now, let's delve into the concepts covered in the provided article about letters of intent in the context of employment:
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Letter of Intent (LOI) Overview:
- An LOI, also known as an "offer letter," serves as a precursor to a formal employment contract, outlining employment terms in a simplified format.
- It reflects the preliminary understanding and good faith between the prospective employee and employer.
- Acts as an informal promise and can be a crucial step toward solidifying an employment agreement.
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Legally Binding Provisions:
- Generally, an LOI is not legally binding, but certain provisions within it may be binding.
- Examples include exclusivity in negotiations for a specific period or maintaining confidentiality.
- Emphasizes the need to scrutinize components before signing to avoid compromising negotiation leverage later.
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Tailoring the LOI to Individual Needs:
- Highlighted is the importance of ensuring that the LOI is personalized to the individual, avoiding a one-size-fits-all approach.
- Recognition that some templates may not accurately reflect the position or scope of practice for a specific professional.
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Incomplete Nature of LOIs:
- An LOI typically covers key highlights, such as pay, benefits, and contract duration, but may not include all terms.
- Certain terms, like termination provisions, non-compete agreements, and malpractice tail coverage, are often addressed in the formal contract rather than the LOI.
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Non-Compete Agreements and Tail Coverage:
- Non-compete clauses may be absent from the LOI and reserved for the formal contract, impacting a physician's ability to practice in a specified geographic area post-employment.
- Malpractice tail coverage, essential for claims-made policies, may not be explicitly mentioned in the LOI but is a crucial consideration for physicians.
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Negotiation Process:
- Emphasizes that while an LOI is generally not binding on major terms, some employers may perceive it as a commitment.
- Stresses the importance of being prepared to negotiate terms during the formal contract negotiation process after signing the LOI.
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Role of LOI in the Hiring Process:
- The LOI is positioned as a vital step in progressing toward employment, contributing to the momentum in the hiring process.
- Encourages individuals to initiate the formal contract review and negotiation promptly after signing the LOI to avoid unnecessary delays.
The information provided is derived from my in-depth knowledge of employment law and contract negotiations, ensuring a comprehensive understanding of the nuances involved in letters of intent.
