Letters of Intent and Preliminary Contracts in Recruitment Processes: A Comprehensive Guide

Welcome to this detailed guide on the application of letters of intent and preliminary agreements in recruitment processes.

In this guide, you will gain insights into:

The definitions of letters of intent and preliminary agreements, along with the distinctions between these two forms of declarations of intent.
The rationale behind employing letters of intent and preliminary contracts within the framework of recruitment processes.
Various scenarios where such letters and contracts prove beneficial, elucidating the specific advantages they offer to both the candidate and the employer.
The feasibility of incorporating contractual penalties within letters of intent and preliminary agreements.

This guide is designed to answer these questions and more, offering valuable insights into this aspect of recruitment. I invite you to delve into its contents.

Disclaimer: Not Legal Advice

Please note that this article is not intended as legal advice. It is crafted to impart foundational knowledge and practical tips for those who are navigating the realm of letters of intent and preliminary contracts in recruitment for the first time. The term “guide” in the title is indicative of the useful and informative nature of this document.

For decisions that carry legal implications, I strongly urge you to seek consultation from a qualified legal professional.

Distinguishing Between Letters of Intent and Preliminary Agreements

Our guide begins with a critical examination of the differences between a letter of intent and a preliminary agreement. These represent distinct categories of declarations of intent, each bearing its own set of implications. A thorough understanding of these differences is crucial for effectively navigating their usage in recruitment contexts.

Letters of Intent and Preliminary Agreements – Document Titling

The title of a document often leads to unnecessary confusion, especially when dealing with letters of intent and preliminary agreements. Let’s begin by clarifying what a document title signifies. Typically found at the top of the document, the title is usually displayed in bold and a larger font size.

However, it’s crucial to understand that the document’s title does not necessarily define its nature. For instance, a document titled “Letter of Intent” might actually encompass the terms of a preliminary agreement. Conversely, a title reading “Preliminary Agreement” might pertain to a letter of intent. Sometimes, a document titled “Promise” may not constitute a promise, letter of intent, or preliminary agreement at all. It’s also possible for a document to lack a title entirely.

Therefore, when you encounter a title on a document, regard it merely as a preliminary indicator of the document’s content, not as a definitive statement of its nature.

What truly determines a document’s classification is its content and the intentions of the parties involved in signing it. In cases of legal disputes over the nature of the document and its consequent legal implications, the matter is typically resolved by a court’s interpretation.

Letter of Intent – What Is It?

In this section, we delve into the nature of a letter of intent, highlighting its distinction from preliminary agreements.

A letter of intent is a declaration made by one or more parties. This means it can be signed by a single individual or multiple people. It expresses an intention to engage in work, employment, or cooperation.

Both natural persons (individuals) and legal entities (such as corporations) can sign a letter of intent. When a legal entity is involved, the document is typically signed by a natural person who has been authorized, such as through a power of attorney, to represent the entity. A common example is the President of a company’s Management Board.

Importantly, a letter of intent does not create any legal rights or obligations between the signatories or those mentioned in the document. This means that:

If a party who has signed a letter of intent decides not to proceed with an employment or cooperation agreement, the other party cannot legally claim any rights based on the letter.
Practically, the letter serves more of a psychological purpose, signifying intent without bearing legal consequences.

Example of a Letter of Intent

‘I hereby declare my interest in employment at Element as an ATS System Sales Specialist.

Jan Kowalski

London, 14/04/2022′

Preliminary Employment Contract

Having discussed letters of intent, we now turn our attention to preliminary contracts. This section begins with an exploration of the preliminary employment contract, followed by an examination of the preliminary cooperation agreement in B2B relations.

A preliminary employment contract must encompass the following elements, as specified in Article 29 § 1 of the Polish Labour Code (Labour Code):

Type of work, including position, function, or scope of activities.
Place of work.
Work remuneration corresponding to the type of work, detailing the components of the remuneration.
Working hours.
Start date of employment.

Furthermore, the contract should include:

The candidate’s declaration to undertake work under the conditions specified above.
The employer’s declaration of commitment to employ the candidate under the previously mentioned conditions.

Given these stipulations detailed in the Labour Code, a preliminary employment contract:

Contains precisely defined information.
Must be mutually signed by both the candidate and the employer.
Establishes an obligation for both parties to enter into the promised contract at a future date.

What exactly is a promised contract? It is the formal agreement that the parties agree to execute as outlined in the preliminary agreement.

Preliminary Employment Contract – Example

Element hereby declares its commitment to employing Jan Kowalski under the terms and conditions outlined below. Similarly, Jan Kowalski agrees to accept employment under these terms and conditions.

Working Conditions:

Position: ATS System Sales Specialist
Location: Remote
Salary: PLN 6,000 gross
Working Time: Full-time
Start Date: April 1, 2023

Signatures:

[Signature of the person representing Element]
[Signature of Jan Kowalski]

Preliminary Employment Contract – Legal Obligation

As previously mentioned, a preliminary employment contract obligates both the candidate and the employer to finalize the contract. Failure to fulfill this obligation—such as not proceeding with the employment contract—entitles the aggrieved party to seek compensation for incurred damages.

What constitutes these damages?

For the candidate, the damage is primarily the loss of income they would have earned from the employer.
For the employer, the damage mainly involves the value of the work the candidate did not perform due to the non-conclusion of the employment contract.

In disputes, the determination and quantification of compensation fall to the courts. It’s important to note that courts typically apply moderation in assessing damages, adjusting the amount to fit the specific situation. This often leads to a reduction in the claimed damages, largely due to excessive demands or the court’s tendency to favor the employer’s position over the candidate’s.

However, there is no standard formula for calculating damages. Each case is unique, and the final decision depends on the specific circumstances and the judge’s interpretation.

Preliminary Cooperation Agreement (B2B)

A preliminary agreement for cooperation in a B2B context (providing services) is subject to less stringent regulations compared to a preliminary employment agreement. Notably, such contracts are not governed by the Labour Code, as they do not pertain to employee-employer relations, but rather fall under the jurisdiction of the Civil Code.

Considering this, a preliminary cooperation agreement should typically include:

The scope of activities to be performed as part of the collaboration.

Details of remuneration and the method of payment.

The agreed-upon date for the commencement of cooperation.

Signatures from both parties involved in the contract.

As evident, the preliminary cooperation agreement shares similarities with the preliminary employment agreement in terms of the fundamental elements. The minimum scope of information provided ensures clarity about the conditions that will be detailed in the final agreement and under what terms the cooperation will be executed.

It’s important to note that the preliminary cooperation agreement can be expanded to include more specific details, such as the duration of the services or the standards for work execution. In cases where it is beneficial to outline more comprehensive terms of the planned cooperation, these details can be incorporated into the preliminary agreement.

Like the preliminary employment contract, the preliminary cooperation agreement also establishes legal obligations between the parties. Failure by one party to finalize the agreement entitles the other party to seek compensation.

In adjudicating compensation claims, courts apply similar principles as with preliminary employment contracts. However, in B2B relationships, courts may perceive both parties as equal counterparts, potentially leading to a more balanced assessment of penalties.

Preliminary Cooperation Agreement (B2B) – Example

Element and Jan Kowalski hereby agree to collaborate under the terms specified below, wherein Jan Kowalski will provide services for the development of programming code necessary for the Element ATS system.

Terms of Cooperation:

Scope of Services: Development of programming code for the Element ATS system.

Working Hours: Eight hours per day on business days.

Service Commencement Date: April 1, 2023.

Remuneration: PLN 16,000 gross.

Signatures:

[Signature of the person representing Element]

[Signature of Jan Kowalski]

Addressing Missing Information in Preliminary Contracts

What happens if a document intended to serve as a preliminary contract (either employment or B2B) lacks essential details, such as the nature of work or the start date of employment?

In situations where parties fail to agree on missing information, the resolution often requires judicial intervention. A court will review the document’s contents and the intentions of the involved parties, possibly including questioning the parties and any witnesses. Through this examination, the court will establish the document’s true nature and the specific obligations it entails.

It’s crucial to note that the absence or ambiguity of certain information does not automatically negate the legal validity of the document. While such uncertainties can complicate reaching a consensus and implementing the document’s provisions, the court ultimately plays a critical role in clarifying doubts and determining the respective rights and obligations of the parties.

Applicability of Contractual Penalties in Letters of Intent and Preliminary Agreements

Letters of Intent:

Contractual penalties are not applicable in letters of intent. This is because a letter of intent, by its nature, does not establish a binding obligation. Consequently, any contractual penalty stipulated for non-fulfillment of obligations is unenforceable, given the non-obligatory nature of these documents.

Preliminary Employment or Cooperation Agreement:

In contrast, contractual penalties are applicable in preliminary contracts, whether for employment or cooperation. These types of agreements commit the parties to enter into a final contract, thereby creating an enforceable obligation. Hence, a contractual penalty clause can be included and enforced in cases where there is a failure to fulfill this obligation.

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Maciej Michalewski

CEO @ Element. Recruitment Automation Software

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