What's the difference between a "contract" and a "letter agreement"?

June 10, 2004 8:55 AM

FreeLegalAdviceFilter: What's the difference between a "contract" and a "letter agreement"?

I was recently asked to sign a non-disclosure agreement which had many unusually sharp, pointy teeth. I'm not going to sign it, for a variety of reasons which would be obvious if I posted it here, but one thing in particular got me wondering:

Most NDAs I've seen have been in the form of a traditional contract, to be signed by both sides, and which describe the arrangement as between the Disclosing Party and the Receiving Party.

This one, though was a "Letter Agreement", to be signed only by me, which was set in terms of an arrangement between the Company and You (i.e. me) -- and which covered only restrictions and obligations on my part, none on the company.

So is it just that this was a particularly one-sided contract? Or is there something inherently lopsided about the form of a letter agreement? If I eventually end up signing a modified version of this NDA, should I push for it to be a more traditional contract instead of a letter agreement, or does that part not really matter?

posted by ook to law & government (6 comments total)

(US law, I should say; and the agreement specified New York jurisdiction, if that makes any difference.)
posted by ook at 8:59 AM on June 10, 2004

I've seen both, ones where both parties sign what I've heard referred to as a bilateral agreement, where both parties agree to keep information disclosed to them as part of thier dealings with each other confidential. Ie, the individual keeps company info confidential, company keeps employment or personal information confidential. The letter one you are describing sounds like more like the unilateral/one sided confidentiality agreement. You agree not to disclose company information, but they don't have to keep anything you give to them confidential.

IANAL, but the bilaterals I've seen were mostly for two companies negotiating a business deal will often use the bilateral kind, and employee/employer NDAs take the form of the letter where only the employee/contractee signs. I'm in Canuckistan, so I'm not sure what difference that might make (including making my comments useless to you) - just going from the experiences I have had. I'm not sure what kinds of impacts one form has over another has for contract breach.
posted by Cyrie at 11:21 AM on June 10, 2004

There is nothing objectively different between a letter agreement and a contract. Letter agreements are a subset of contracts.

Basically, a contract is anything that is an offer and acceptance with some form of consideration. Letter agreements are just one form of a contract. Put in another way, if you have a valid letter agreement, then you have a valid contract, by definition.

That being said, agreements signed subsequent to an employment agreement are peculiar. Some people have to sign NDA's, covenants not to compete, or waivers of intellectual propety rights. When companies require employees to sign these, they have to be careful because the agreements can very easily become invalid. Some factors which might render such an agreement voidable: if it lacks consideration; is a contract of adhesion ; is overly broad; or is against the public policy of the state.

As to your last question, the state jurisdiction is important. Contract law is governed by a state's substantive law, so the requirements for NDA's in New York could be different from Texas. I, myself, don't practice in New York, so I cannot comment on New York law. I can tell you that, generally, NDA's are enforceable and valid assuming they are not overly broad or unconscionable.

So if you are concerned with the limitations extant in the NDA, I recommend not signing it and contacting a lawyer in New York if your concern extends that far.
posted by Seth at 11:22 AM on June 10, 2004

That's just what I needed -- thank you!
posted by ook at 1:22 PM on June 10, 2004

Seth - How is that letter of adhesion mentioned above a valid contract if one party (the company) doesn't really have to do anything - i.e. makes no promise and/or has no specified performance? Or is his continued employment with them the "promise"?

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posted by falconred at 5:39 PM on June 10, 2004

IANAL... Yeah, falconred, there has to be "consideration" for the contract to be legally valid. Perhaps the employer than says the "consideration" is that you get to keep your job. Maybe they're right.
posted by trharlan at 7:36 PM on June 10, 2004