Beware: Rescinding Job Offers Can Prompt Legal Consequences

Rescinding a candidate's job offer can lead to an array of legal consequences for employers.

To limit your organization's exposure to such liability, experts said, be proactive and carefully craft your offer letters.

HR professionals will likely have to rescind a job offer at some point in their careers. It might be because of budget cuts, because the candidate failed a drug test or as the result of a last-minute decision by the hiring manager. Revoking an employment offer is not illegal in most cases, but the decision should be given a full legal review before contacting the candidate.

"While most employment is employment at will that can be ended by either party at any time and for any reason other than an illegal one, the existence of a written offer of employment may create support for the argument that there is a 'contract' of employment which outlines specific terms and conditions that cannot be revoked or changed," said Maria Greco Danaher, a shareholder in the Pittsburgh office of employment law firm Ogletree Deakins.

"Once an offer of employment is made—especially one that has been documented by letter or other writing—it is important to understand how to un-ring that bell without creating a legal cause of action for the almost-employee."

Know the Risks

Promissory estoppel—the legal doctrine that supports a harmed party in enforcing promises made—is the most obvious claim for damages that a spurned candidate can produce.

"It is asserted in circumstances in which there may be no formal written contract, but where there has been a promise significant enough to cause someone to act on it to his or her significant detriment," Danaher said. "This could occur when, based on an offer of employment, someone quits a lucrative job and relocates geographically for new employment, only to find out that the offer of new employment has been withdrawn."

That's why the ideal time to rescind a job offer is before a candidate accepts it, said Melissa A. Silver, legal editor for XpertHR USA, an online HR compliance service based in New Providence, N.J. 

Employers may also find themselves defending against other claims, including:

• Misrepresentation. The rejected candidate may claim fraud if the reason for the offer withdrawal is a corporate restructuring, budget cuts or an office relocation and the disruption was known by the employer before the job offer was made.
  
• Discrimination. The withdrawal of an offer may trigger a discrimination claim against an employer if the unsuccessful candidate is in a protected class, owing to, for example, race, national origin, religion, age, disability or gender.
  
• Breach of contract. Candidates may consider the offer letter or offhand verbal or written statements from company representatives to be an employment contract. Statements like "Looking forward to having you on the team!" can be used against the employer in a breach-of-contract lawsuit if the job offer is later withdrawn.
  

Getting the Offer Letter Right

To avoid the offer letter being interpreted as an employment contract, clearly state that the individual will be employed at will. "If an at-will employment relationship is intended, the offer letter should not state any length of time for which a salary will be paid or promise any future compensation," Silver said. "The employer should also avoid making any statements that the individual has job security."

If a judge determines that the offer letter is worded like a contract, promising a certain salary for a certain length of time, employers could be liable for paying the candidate that amount.

HR should not be extending job offers until all possible pre-employment screening information has been received. But some steps, such as background checks, drug tests and physicals, can't take place until after the offer is made. To avoid legal complications, a job offer letter should be clear that the offer is conditional and not a promise.

Danaher explained that written employment offers should clearly explain any conditions precedent to the actual employment and should require an applicant to sign a copy of the letter, indicating an understanding of those conditions. "If the agreement has to be revoked, there is documented support that the applicant understood and accepted the possibility of that circumstance," she said.

There are two ways to think of conditional offers, said Sharlyn Lauby, nationally known speaker, HR blogger and president of ITM Group Inc., a South Florida-based talent management consulting firm. "I've worked places where the candidate would accept the job and just never show up for the drug screen or supply the background check info," she said. "They had moved on. I've also had candidates not pass the drug screen. So we moved on."

HR must ensure compliance with any applicable federal, state and local notification requirements if a job offer is withdrawn because the candidate failed to satisfy a conditional requirement such as a background check or drug test, Silver said. For example, HR must send the candidate an adverse action letter if the employer withdraws an offer of employment due to the results of a background check under the Fair Credit Reporting Act.

Finally, avoid using descriptive language in the offer letter that might imply promises to the employee, such as "flexible work environment" or "many years to come." These statements could be misconstrued as contractual language.

Breaking the News

Experts agree that applicants should not only be verbally informed of a rescinded job offer but also notified in writing to eliminate any misunderstanding. "If there are no specific federal, state or local requirements that apply to the reason for the withdrawal, HR should communicate the withdrawn offer in writing with a way to track and confirm the applicant has received it," Silver said.

Lauby said that while working for a previous employer—an airline—all recruiting efforts were immediately put on hold in the wake of a well-publicized crash.

"We called every candidate. It wasn't the right time to be onboarding new hires," she said. "While candidates were disappointed because they were out of a job, they understood our position and appreciated hearing it directly from us. When we were ready to start recruiting again, we contacted those candidates. Some had found jobs, but others did come to work for us."