In Australia, it is important to understand the difference between an offer letter and an employment contract. While they might look similar, they serve distinct legal purposes and carry different implications.
For employers, confusing the two can lead to unexpected legal obligations. For employees, it can mean misunderstanding their rights.
This article, prepared by our employment law team, will help you navigate these documents, avoid common pitfalls, and understand their legal significance.
Key Takeaways
- Offer letters are usually conditional and may become binding if all essential terms are present and accepted
- Employment contracts are enforceable legal agreements once signed and provides comprehensive legal protection
- The Fair Work Act 2009 (Cth), National Employment Standards and modern awards overlay any contract terms
- Clearly drafted documents reduce the risk of costly disputes and wrongful termination claims
- The Federal Court’s decision in Walker v Citigroup Global Markets Australia Pty Ltd illustrates when an offer letter can amount to a contract
Distinction Between Offer Letters and Employment Contracts in Australia
When a new job is on the horizon in Australia, it’s common for employers to send an initial letter (an offer letter) that outlines the broad details of the prospective role before any formal contract is signed.
Even though both an employment contract and offer letter may touch on matters such as salary, start date and role title, they carry different legal consequences.
Understanding the distinction is key for employers to avoid unintended liability, and for employees to protect their rights before leaving another job.
Offer Letters
An offer letter is usually the first formal document sent to a candidate after a successful interview. It typically outlines:
Job title
Start date
- Basic salary or hourly rate
Conditions like background checks or visa approvals
An offer letter can sometimes be mistaken for a fully binding employment contract as they often include all essential terms such as remuneration, role, location, commencement date and, occasionally, probation.
While offer letters are meant to confirm intent, they can become legally binding contracts if they include all the key terms and the candidate accepts – especially if they resign from another job in reliance on the letter.
Remember: Unless clearly marked “subject to contract”, an offer letter might be treated by the courts as a valid employment contract – even if a formal contract is never signed.
Employment Contracts
An employment contract is a binding legal agreement that formalises the terms and conditions of employment, enforceable under contract law.
It typically addresses:
- Detailed duties and reporting lines
- Confidentiality and intellectual property clauses
- Termination notice and redundancy entitlements
- Probation periods
- Leave entitlements and award compliance with the National Employment Standards (NES) under the Fair Work Act 2009 (Cth) (Fair Work Act)
- Restraint of trade or non-compete provisions
- Dispute resolution mechanisms
Once executed, any breach can trigger conventional contractual remedies including damages, injunctions and, in rare cases, specific performance.
Importantly, no clause (however artfully drafted) can lawfully undercut minimum entitlements imposed by the Fair Work Act, NES, modern awards or applicable enterprise agreements. Where inconsistency arises, the statutory or award provision prevails.
Learn more about key employment contract clauses in our article.
Key Differences Between an Offer Letter and an Employment Contract
Feature | Offer Letter | Employment Contract |
Legal Status | May be binding if accepted | Binding once executed by both parties |
Detail Level | Generally only basic terms (job title, start date, salary, probation) | Comprehensive terms including duties, termination, confidentiality, IP and dispute resolution |
Timing | Issued early in the hiring process | Executed after (or concurrent with) offer acceptance |
Purpose | Express the employer’s intention to hire, often subject to conditions | Create a formal employment relationship with enforceable rights and obligations |
Enforceability | Conditional; risk rises if essential terms are included and employee relies on the letter | Enforceable under contract law; remedies include damages, injunctions or specific performance |
Risk of Misinterpretation | High where wording is not clear | Lower if drafted comprehensively and consistently with workplace laws |
Real-World Case: When an Offer Letter Became a Binding Contract
Walker v Citigroup Global Markets Australia Pty Ltd [2006]
In this case, Mr Walker received a detailed offer letter listing his salary, job title, start date, and probation terms. He accepted the offer and resigned from his previous role.
Citigroup later withdrew the offer, claiming internal restructuring.
The court ruled that the offer letter contained all essential terms of a contract. Mr Walker’s resignation showed acceptance and reliance. Citigroup’s withdrawal was treated as a breach of contract, and he was awarded compensation.
Lesson: An offer letter can create enforceable obligations, even if a full contract was planned but not signed. Always use clear, conditional language in preliminary documents.
Best Practice for Employers
To reduce risk and legal exposure:
- Use language like “subject to contract” or “not legally binding” in offer letters
- Avoid including all essential terms (e.g. detailed salary and start date) unless you’re ready to commit
- State clearly that employment is conditional on signing the full contract
- Send the final contract promptly to avoid confusion
- Align all contracts with awards, enterprise agreements, and the Fair Work Act
We help businesses across Australia draft, review and manage legally sound employment agreements. Whether you’re onboarding staff, navigating awards, or responding to disputes, we’re here to help.
Learn more in our guide for employers on the Fair Work Act.
Best Practice for Employees
To protect your rights:
Don’t resign from a current job until you’ve signed a full employment contract
Ask for written confirmation of probation, salary, leave entitlements, and termination clauses
Ensure the contract reflects minimum entitlements under applicable awards or the NES
Clarify if the offer is conditional or binding before making decisions
Frequently Asked Questions
Can an offer letter be revoked after it has been accepted?
Yes, but revocation may constitute breach of contract if the letter contained all essential terms and was accepted by the employee (and they act on it)
Is a verbal job offer legally binding in Australia?
Potentially, if the offer is sufficiently certain and the employee relies on it; however, proving terms is more difficult
Should probation periods be included in the offer letter or the employment contract?
Best practice is to reference the probation period briefly in the offer letter and set out full details in the contract
What happens if a contract term conflicts with the Fair Work Act or a modern award?
The Act or award will prevail and the inconsistent contract term will be unenforceable to the extent of the inconsistency
Are electronic signatures valid on employment contracts?
Yes, under the Electronic Transactions Act 1999 (Cth) provided that the method identifies the person and indicates their intention to sign
