During the hiring process, ask each interviewer to tell candidates how the organization makes offers of employment. If your organization uses offer letters, state that an offer letter is the only way to communicate an offer.

The offer letter clarifies the terms of employment and should contain, at a minimum, the following information:

• Job title.
• Exempt or nonexempt status.
• Starting salary or wage.
• Work schedule.
• Full-time or part-time classification for benefits.
• Reporting date.
• Any conditions to which the offer is subject, such as:
• Post-offer medical exam.
• Post-offer drug test.
• Reference and/or background check.
• A statement of the at-will basis of employment.
• A deadline by which you expect an acceptance of the position by returning a signed copy of the Employment Offer Letter, otherwise the offer will be considered withdrawn.

• Employment Offer Letter

After you make an offer and the candidate gives notice, you can be held liable for losses suffered by the candidate should you subsequently withdraw the offer. Damages can include loss of earnings that would have been received at the candidate’s previous job through retirement.1

Take care to prepare an accurate offer letter. You may be responsible for promises made about the scope, compensation, security and working conditions even though the employment relationship is on an at-will basis.2

You may want to prepare a separate letter for employees hired on a temporary basis that clearly describes the limited duration of their employment in terms of either a specific time or a specific assignment. Do not fail to include at-will language in this letter, or your description of the temporary assignment can be misunderstood to be a contract for a specified period of time or until the completion of the assignment.

Though not a requirement, you may want to send a letter to candidates who were not hired so they know they are no longer under consideration. If you choose to do so, you are not required to state a reason for passing them over or to describe the qualities of the person selected.

Depending on the circumstances, employers may offer certain benefits when hiring, such as signing bonuses, educational tuition assistance, housing assistance and others to incentivize and retain candidates and employees. These benefits are sometimes offered under contracts in which the employer offers the benefit in exchange for the employee's promise to repay the employer if the employment ends before a specified term, sometimes referred to as “stay or pay” agreements.

• Effective January 1, 2026, California law limits employers’ ability to offer these benefits under this type of repayment agreement by making it unlawful to include in any contract entered on or after January 1, 2026, a provision or term that does any of the following if the worker's employment or work relationship with a specific employer ends:

• Requires the worker to pay an employer, training provider or debt collector for a debt.
• Allows the employer, training provider or debt collector to resume or initiate collection of or end forbearance on a debt.
• Imposes any penalty, fee or cost on a worker.

The law has some exceptions for repayment agreements, including the following:

• Contracts entered under any loan repayment assistance or loan forgiveness program provided by a federal, state or local governmental agency.
• Contracts related to tuition repayment for a “transferable credential” (degree that is not required for current employment and is transferable and useful for future employment) so long as the contract:
• Is offered separate from any contract for employment.
• Does not require obtaining the transferable credential as a condition of employment.
• Specifies the repayment amount before the worker agrees to the contact, and the repayment amount doesn't exceed the cost to the employer.
• Provides for a prorated repayment amount during any required employment period that is proportional to the total repayment amount and the length of the required employment period and does not require an accelerated payment schedule if the worker separates from the employment.
• Doesn't require repayment to the employer if the worker is terminated, except if the worker is terminated for misconduct.
• Contracts for enrollment in an apprenticeship program approved by the Division of Apprenticeship Standards.
• Contracts for discretionary monetary payments, including financial bonuses, at the outset of employment that is not tied to specific job performance, provided it meets the following criteria:
• The terms of any repayment obligation are set forth in a separate agreement from the primary employment contract.
• The employee is notified that they have the right to consult an attorney regarding the agreement and provided with a reasonable time period of not less than five days to seek the advice of counsel before executing the agreement.
• Any repayment obligation for early separate from employment is not subject to interest accrual and is prorated based on the remaining term of any retention period, not to exceed two years from the receipt of payment.
• The worker has an option to defer receipt of the payment to the end of a fully served retention period without any repayment obligation.
• Separation from employment prior to the retention period was at the sole election of the employee, or at the election of the employer for misconduct.
• Contracts related to the lease, financing or purchase of residential property.

Employers that offer these types of benefits and programs should consult with legal counsel about the new law's impact on their practices and programs moving forward to help ensure compliance with the law.

Arbitration Agreements

Employers and employees often agree to resolve legal disputes outside of court by entering into arbitration agreements, often at the time of hire. Previously, employers could require employees to agree to arbitration as a condition of employment.

Arbitration is generally faster and less expensive than civil litigation, which can take several years from start to finish. Many employment disputes are arbitrable as long as the agreed upon arbitration procedures meet certain minimum requirements. In some cases, however, a court may refuse to enforce an arbitration agreement if the court finds it to be “unconscionable”, which means the substantive terms of the agreement and the circumstances of its formation, i.e. how the agreement was presented to and signed by the employee, are too one-sided and unfair.

For example, a court found the technology used to provide an arbitration agreement (electronic onboarding process prior to first day of work) — as well as the technology the employee used to receive it (viewing the arbitration agreement on a smartphone) — substantially impacted the fairness of the agreement. The unfair circumstances of the agreement’s formation, coupled with unfair substantive terms within the agreement, rendered the agreement completely unenforceable.3

In another recent case, the employer’s arbitration agreement had several one-way provisions — like for preliminary injunctive relief and specific notice periods — that benefited that employer and not the employee. Combined with the company’s “take-it-or-leave-it” arbitration agreement in the employment application, the court found the agreement was sufficiently unfair and could be voided.4

Using technology to complete new hire tasks can more efficiently onboard new employees; however, it should be utilized in a manner that still considers compliance. Technology and expediency were significant contributing factors to the invalidation of this arbitration agreement, and employers who utilize electronic systems for onboarding should always consider how the law impacts these systems.

Arbitration agreements are contracts and, although they provide benefits to employers that utilize them, they must comply with contract law — which requires enough fairness in both the agreement’s formation and its terms.

To avoid unconscionable terms, employers are strongly encouraged to utilize legal counsel for both creating the agreement and conducting an audit of how the agreement is presented to new hires.

Federal Law

The Federal Arbitration Act (FAA) broadly allows arbitration in many circumstances and sometimes preempts state laws that try to put restrictions on the ability to arbitrate disputes. The FAA, however, does not allow mandatory arbitration of claims involving allegations of sexual harassment or sexual assault. This means that, in the employment context, employees bringing claims involving sexual harassment or sexual assault who are subject to an arbitration agreement cannot be compelled to arbitration on those claims — even when the agreement encompasses such claims. Instead, employees can elect to pursue these claims in court.5

In two separate cases, both courts held that, when an employer is facing a lawsuit that has at least one qualifying sexual harassment claim, the entire case must stay in court and can’t be moved into arbitration pursuant to an arbitration agreement, even when there are several other different claims like wage and hour violations or whistleblower retaliation. This means a single workplace harassment complaint can undermine an employer’s entire pre-dispute arbitration agreement.6

• In another case, a court held that sexual orientation harassment is sex harassment under FEHA, so the employee was not required to submit their claims to arbitration under the FAA’s exemption for sexual harassment claims. And all the employee’s claims were exempt from arbitration — not just their sexual harassment claim. 7

California Law

Though the FAA broadly provides for the ability to enter into arbitration agreements, California law has trended towards restricting their use. California attempted to effectively ban mandatory arbitration agreements in 2020, prohibiting employers from requiring an applicant or employee to, as a condition of employment, sign arbitration agreements about employment- related disputes under the Labor Code or the Fair Employment and Housing Act (FEHA).

The Ninth Circuit Court of Appeals, however, issued a decision invalidating the law, finding that California’s law is preempted by the FAA because the threat of criminal and civil penalties in the state law is intended to have a deterrent effect on mandatory arbitration agreements—even though an agreement would still be enforceable.8 Therefore, the burden on formation of arbitration agreements in this context is severe and violates the FAA’s national policy favoring arbitration.

Under California law, consumers or employees subject to an arbitration agreement have remedies if the drafting party (the business or employer) breaches an arbitration agreement. California law states that if the employer doesn’t pay the costs associated with beginning or continuing arbitration within 30 days after they’re due, then the employer is in material breach of agreement, in default of arbitration and waives its right to compel arbitration. The law requires timely invoicing of the party who is supposed to pay the fees, with copies of those invoices to be provided to the other party so everyone is aware of the deadline.

In the case of a failure to pay timely fees, the employee may either withdraw the arbitration claim and proceed in court, or compel arbitration in which the employer is required to pay reasonable attorney's fees and costs. An employer who breaches an arbitration agreement may be subject to monetary and other sanctions.

• When looking at claims for failure to pay timely fees, California Courts of Appeal largely interpreted the law as imposing an inflexible mandate requiring arbitration agreements to be waived whenever a business failed to pay its arbitration fees on time, regardless of the reason for or length of the delay. The California Supreme Court, however, recently said the law should be interpreted to result in an automatic waiver of arbitration only when “nonperformance is willful, grossly negligent, or fraudulent.”9 While the California Supreme Court’s ruling relaxed the analysis for arbitration agreement breach and waiver, employers should still do their best to make timely fee payments avoid the risk of waiving arbitration and incurring penalties.

• Employers should consult with legal counsel when considering use of arbitration agreements, as this area of the law continues to evolve.

1. Toscano v. Greene Music, 124 Cal. App. 4th 685 (2004)