HR Magazine, April 2001: An Offer They Couldn't Refuse

By Jonathan A. Segal Apr 1, 2001

HR Magazine, April 2001Vol. 46, No. 4

Promising employees the moon may get them in the door--but it may also land you in court.

Michael Corleone (Al Pacino): When Johnny [Fontane] was first starting out, he was signed to this personal service contract—with a big band leader. And, as his career got better and better, he wanted to get out of it. Now, Johnny is my father’s godson. And my father went to see this band leader. And he offered him $10,000 to let Johnny go. But the band leader said no. So the next day, my father went to see him—only this time with Lou Cabratsi. Within an hour, he signed a release—for a certified check for $1,000.

Kay Adams (Diane Keaton): How’d he do that?

Michael Corleone: My father made him an offer he couldn’t refuse.

The Godfather, 1972

Today’s tight labor market has shifted the very nature of recruitment. Once satisfied to “buy” talent, recruiters now spend significant time and effort “selling” the advantages of their employers to job candidates.

Sometimes recruiters make statements that guarantee—or seem to guarantee—advancement, salary increases, bonuses, job opportunities and the like. Making such offers is not necessarily unwise—if they are intentional and well considered. If making certain promises helps you attract the talent you need and better serves your company’s strategic interest, so be it.

In such cases, making applicants an offer they can’t refuse may be very wise indeed.

But legal problems can arise when there are misunderstandings about what employers are promising—or not promising.

This may be especially true in today’s labor market. In the past, employers usually limited job-related guarantees to candidates for executive-level positions. But today, employers are more likely to offer special provisions for lower-level positions as well. Many of these applicants may be receiving these promises for the first time in their careers and may be more easily confused because they have little relevant experience on which to draw.

This article suggests ways to help minimize misunderstandings regarding whether or not you intended to make a promise to job applicants; it also offers guidelines that can help limit the scope of your promises to what you intend.

To truly understand these options, we need to review the legal options available to employees who believe that promises made to them went unfulfilled.

Legal Costs

Even when employees assert no legal claim for what they perceive to be unfulfilled promises made in the hiring process, employers still incur a cost. Disappointed employees are less likely to be fully productive—and more likely to take their talents and contacts elsewhere.

Some employees, of course, become so disappointed that they seek legal action.

Employees can pursue unfulfilled employment promises under a variety of legal theories. While the legal titles may vary from jurisdiction to jurisdiction, these types of claims generally can be divided into three principal categories: oral contracts, promissory estoppel and fraud.

Oral contracts.The most likely claim employers will face is for breach of contract. In most jurisdictions, employees can allege breach of contract even in the absence of a written document. (See, for example, Lindsey v. University of Arizona, 754 P. 2d. 1152 (Ct. of Appeals, Arizona 1987), in which the court held the employer to an oral promise of employment for four years, even though no such guarantee was made in the offer letter.)

In such cases, employees must prove that both parties intended to be legally bound. Ordinarily, a jury will decide whether there was a meeting of the minds with sufficient specificity to establish an oral agreement. And, juries generally are made up of employees—not employers.

Promissory estoppel. Even if there is no legally enforceable oral contract, employers still may be bound under the theory of promissory estoppel. Under this theory, if employees rely--to their detriment--on statements made by an employer, the employer may be required to live up to the statements.

Here’s an example: An applicant is choosing between Company A and Company B. The salary at Company A is higher. However, the recruiter at Company B “assures” the applicant that her bonus at Company B will exceed her base salary. Relying on this statement, she takes the job at Company B.

When the bonus payment pales in comparison to the roseate picture created by the recruiter, the employee claims detrimental reliance—that is, based on the assurance/promise made by the recruiter, she passed on the other job offer, which came with a guaranteed higher base salary.

Fraud. Sometimes employees go one step further and allege that an employer made a promise it had no intention of keeping. In other words, the employee alleges misrepresentation in particular or fraud in general.

While fraud claims generally carry a higher burden of proof, plaintiffs’ lawyers have a strong incentive to meet this burden. Unlike breach of contract and promissory estoppel claims, employees may win punitive damages in a fraud claim.

For employers, the cost of such suits can be steep indeed. For example, in the case of Dowie v. Exxon Corp. (12 Conn. L. Trib. No. 29 (1986)), $10.1 million was awarded to an executive who was lured away from a competitor by misrepresented and unfulfilled promises of promotions, profit-sharing, bonuses, etc.

Recruiting Guidelines

Clearly, it’s in an employer’s best interest to avoid the problems that can result from unfulfilled employment promises. Employers should start by establishing general guidelines for recruiters.

First and foremost, the guidelines must state that recruiters are not permitted to make specific promises or predictions regarding applicants’ promotional opportunities, job security, long-term career potential, bonus potential or salary increases—unless authorized in advance, and in writing, by an officer or principal of the company who has the authority to make a binding commitment.

This very basic admonition will curb some of the more blatant promises recruiters may make. Of course, for the guidelines to be effective, they need to address not only what recruiters shouldn’t say, but also what they can and should say.

For example, when it comes to the potential for growth within a job, recruiters should focus on the job itself and not the individual applying for it. Instead of saying: “You will do ...,” the recruiter should say: “We hope that, over time, the job will develop into ....”

Similarly, when it comes to promotional opportunities, recruiters should be instructed to speak in terms of “possibilities” and not “probabilities.” Possibilities are much less likely to be legally enforceable than are probabilities.

These are only two examples of substantive areas that should be covered in the guidelines. The guidelines also should include parameters for dealing with benefits, bonuses and other issues likely to arise in the recruiting process.

Of course, no recruiter will remember verbatim what he or she says to every applicant in every interview. Moreover, regardless of what recruiters says, applicants may hear something entirely different. But when recruiters have and follow written guidelines, they can testify credibly about their general practices.

The guidelines should be helpful even if a jury finds that your company failed to fulfill specific promises made by a recruiter to an applicant. Where an employer proactively attempts to avoid misunderstandings in this area, it is less likely that a jury will award—or a judge will sustain—punitive damages.

Finally, it is important to make sure that these guidelines are given both to internal and external recruiters. When using external recruiters, consider requiring that they defend, indemnify and hold your company harmless with respect to any claims for unauthorized promises arising out of the recruiting process.

Application for Employment

While written guidelines are desirable, they are not sufficient. There are other steps employers should take to protect themselves from breach of promise claims.

One key step is to make sure that all applicants complete, sign and date an application for employment, which should include certain legal certifications.

In particular, the application should state that applicants, if hired, will be employed at-will. So there is no question that the individual understood (or should have understood) what at-will means, the term should be defined (i.e., either the employer or the employee can terminate the employment relationship at any time, for any or no reason, with or without prior notice).

At-will language in the application makes it harder for discharged employees to claim that they were promised employment for a specified period of time and that their subsequent discharge contravened that prior promise.

In addition, applications should state expressly that, because employees are employed at-will, they are “not guaranteed employment in general or any specific job in particular for any specified period of time.” This additional language will be helpful in defending against a wrongful demotion claim based on promises allegedly made in the hiring process.

Finally, the application should state that no manager or other representative of the company--except an officer or principal--has the authority to enter into any agreement for employment in general or any job in particular for any specified period of time, or to make any promises upon which applicants may rely regarding compensation, promotional opportunities or any other term or condition of employment. The application also should state that all agreements will be captured in writing.

This language, which often is omitted from applications, makes it more difficult for employees to prove that a recruiter made binding oral promises, and increases the likelihood that a promissory estoppel and/or failure to promote claim would be dismissed on a motion for summary judgment.

Of course, no matter how good the application, it has value only if it is completed and signed. In many organizations, the higher the position, the less likely it is that applicants will be asked to complete such forms. Yet senior-level employees have not only the leverage to extract what may be perceived as promises, but also the resources to bring a claim when those perceived promises are not fulfilled.

In other words, many employers fail to use applications where they are most needed.

Employers that are concerned about requiring a potential CEO to sign the same application given to the mail room clerk should consider creating a truncated Executive Application. This form can be tailored to ask for the information needed for senior-level positions and can still contain the necessary legal certifications the employer desires.

Job Descriptions

During the interview process, employees frequently are given job descriptions. But at many organizations, job descriptions change as frequently as organizational charts.

This doesn’t mean that we shouldn’t use job descriptions. But it does mean we should define the tasks broadly enough to allow for substantial change.

In this context, outcome-oriented (as opposed to task-oriented) job descriptions are desirable. When a job description requires employees to do whatever it takes to achieve certain outcomes, it becomes more difficult for them to argue that certain tasks are “beneath” the job for which they were hired.

It is also to an employer’s benefit to address the issue of change head on in the job description, particularly with respect to more senior positions. For example, consider the following language:

“We are a dynamic organization in a rapidly changing industry. Accordingly, the responsibilities associated with this job will change from time to time in accordance with the Company’s business needs. More specifically, the incumbent may be required to perform additional and/or different responsibilities from those set forth above.”

When job descriptions state that an applicant’s job responsibilities may be different from those specifically described, it is more difficult for applicants later to claim that the job they were given did not match the one for which they interviewed.

Offer Letter

Offer letters are perhaps the most important document you can use to protect yourself against unmet expectations. While the law does not mandate a written offer letter, such a letter can clean up the record in terms of what was said and what was heard in the interview process.

While the offer letter can and should be used to preserve an employer’s rights, employers also may wish to use the letter to outline the commitments they are prepared to keep. Doing so not only may be necessary to attract talent but also may work to an employer’s benefit in litigation.

When specific commitments are put in writing, the implication is that no agreement was reached about an issue that was not put in writing. For example, assume the offer letter guarantees a bonus for the first year of employment. The negative implication is that no bonus is guaranteed after the first year of employment.

In other words, guarantees in the offer letter may cut both ways. A guarantee can be argued to be not just the minimum but also the maximum to which the employee is entitled.

Whatever commitments are included in your offer letters—and, clearly, these will vary depending on the company and the position to which the commitments relate—there are some general guidelines you should consider following:

  • At-will employment. Offer letters should parallel the application for employment in stating (and defining) that employment is “at-will.” If an offer letter clearly states that the employer is not guaranteeing employment in general or any position in particular for any specified period of time, it makes it difficult for individuals to go to court with an argument to the contrary based on promises allegedly made after the application was signed.

    But what happens if a top-notch applicant balks at being at-will? Should employers consider limiting their ability to cut the cord if they determine they have made a hiring mistake?

    In many respects, this is a false conflict. What the employee really wants is income protection, and an employer can offer severance without relinquishing its at-will rights. Further, the severance may be conditional on the employer terminating the employee before a certain date and/or the employee executing a general release.

    For example, your offer letter could include the following language:

    “As explained and defined above, your employment is at-will. However, if the Company terminates your at-will employment before [insert date] for reasons other than your misconduct, you will be eligible for [insert #] weeks’ severance pay, provided that you sign a General Release prepared by the Company at the time of your termination.”

    Individual severance agreements can be negotiated, even if the employer has a formal severance plan. Of course, if the employer has a formal severance plan, the employer needs to focus on whether the individual severance agreement is in addition to or in lieu of the severance to which the employee otherwise might be entitled under the severance plan.

  • Salary and pay increases. It is better to mention salary in terms of weekly pay rather than annual pay. Depending on the jurisdiction, a discussion of annual pay could suggest, in combination with other statements, that you are guaranteeing employment for at least one year. If you offer applicants a minimum pay increase—something many job seekers demand these days--make it clear that they will receive the increase only if they are employed at the time they would become eligible for it.

  • When future events are described in the offer letter (whether it be a pay increase, a bonus entitlement or some other occurrence), it is even more important to include the at-will language. In the absence of at-will language, employees may be able to argue credibly that they were guaranteed employment at least until these events occurred.

  • Benefits. When discussing benefits, recruiters will speak appropriately in generalities--“you get four weeks of vacation.” Of course, the applicable policy or plan includes qualifications that limit an employee’s eligibility for these benefits.

    Ideally, recruiters will make clear (in accordance with the guidelines given to them) that the employee’s eligibility for benefits is subject to the eligibility requirements and other terms, conditions and restrictions in the applicable policy or plan document. To be safe, however, such qualifying language should be included in the offer letter as well.

    However, there may be times when an employer may offer a particular applicant benefits beyond those set forth in its policies or plan documents--or provide standard benefits without a waiting period. Employers that negotiate special deals with respect to insured benefits must first obtain approval from the insurance carrier. Because an employer can’t unilaterally change the terms of its contract with the carrier, unilateral changes create the risk of self-insurance.

    That is, if the employer offers insurance to an employee who is not yet covered by the policy, the insurance company may disclaim coverage for that employee’s claims. If this happens, the employee could seek reimbursement from the employer, based on the employer’s representation that there was coverage.

  • Bonuses. For executives and sales employees, bonus payments are frequently a key part of their overall compensation. There also is considerable litigation in this area.

  • The risk of litigation can be minimized if the limitations on eligibility are set forth in the offer letter. If the bonus is pursuant to a plan, reference the plan and make clear that its terms control. Similarly, if the bonus is entirely discretionary, state this expressly in terms of both the existence and the amount of the bonus.

    Some applicants won’t settle for a bonus that is entirely discretionary. They will want a guarantee.

    Even if the plan is discretionary, an employer can state in the offer letter that a particular employee is guaranteed a particular bonus. For example, consider the following language:

    “The Company guarantees that your bonus payment for calendar year [insert year] only will be no less than [insert $], provided that you work the full calendar year. If you or the Company terminates your at-will employment during calendar year [insert year], then your guaranteed bonus will be prorated based on the number of full months of employment completed prior to your termination.”

    The key is to make clear the limited nature of the guarantee in terms of dollars and duration.

  • Conditions. If the offer is subject to any conditions, include these in the letter. Employees who are not hired because they fail to meet these conditions—and prematurely give notice to their previous employers—will have a hard time blaming you for their impulsiveness.

    Possible conditions include satisfactory references and criminal or credit checks, as well as signing confidentiality, non-solicitation or non-compete agreements before commencing employment.

Existing Employees

While employers need to be creative in their efforts to attract new employees, this should not be at the expense of existing employees. Employers should consider how the deals they cut with new hires will affect existing employees. In the absence of a credible justification, treating new hires more favorably than existing employees sends the wrong message to the workforce. If existing employees feel undervalued or otherwise taken for granted, they too may look for offers they can’t refuse.

Author’s note: This article should not be construed as legal advice or as pertaining to specific factual situations.

Jonathan A. Segal, Esq., is a partner in the Employment Services Group of Wolf, Block, Schorr and Solis-Cohen LLP, a Philadelphia-based law firm. His practice concentrates on counseling clients, developing policies and strategic plans, and training managers to maximize employee retention and minimize exposure to litigation and unionization.

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