You can rescind job offers, but be sure to minimize your legal risks and keep communication open.
Put yourself in this real-life applicant’s shoes: You receive a job offer that is too good to turn down. The job requires you to relocate to Eugene, Ore., and you and your spouse decide to move. You both resign from your respective employers. You put your dog to sleep because she is too frail to survive the trip. The moving van departs for Oregon, and you’re en route as well, when you get the news: There is no job.
The company is closing its Eugene plant, and your job offer has been withdrawn.
What’s more, you discover that the parent company apparently had decided to shut the Oregon plant months before you were offered a job there.
“You sue the company for misrepresentation,” says attorney Richard Busse, a partner with the Busse and Hunt law firm in Portland, Ore.
Busse represented the applicant. In arguing that the job offer had been rescinded wrongfully, Busse contended that the parent company, through its subsidiary, had misrepresented the facts in making the offer. He said the company kept hiring to maintain profits even as it was planning to close the plant.
The case, which went as far as a federal appeals court (Meade, et al. v. Cedarapids, dba El-Jay, 9th Cir., No. 97-35836, Jan. 12, 1999) and was later settled out of court for an undisclosed sum, illustrates some of the risks employers face in rescinding an employment offer.
Although it’s legal in most instances to withdraw job offers, the reasons for doing so should be sound, and the process should be carried out carefully—and with an eye toward relevant case law involving rescinded offers.
To help protect your company from such litigation, become familiar with the typical reasons for rescinding job offers, the types of situations that might prompt an applicant to sue, and some of the steps you can take to preserve your legal ability to say no to an applicant after you’ve said yes.
Reasons to Rescind
New information that changes your evaluation of an applicant is one of the most common reasons for rescinding a job offer, says Peter Petesch, a partner in the Washington, D.C., office of law firm Ford and Harrison.
Discoveries that could lead to the scuttling of a job offer include, among other things:
- Poor results of a credit check, a drug test or in certain instances a physical exam.
- The applicant's failure to appear for a drug test.
- The person's unwillingness to sign a noncompete agreement.
- Learning that the applicant has had a negative relationship with an important customer.
By stipulating on the application form that any offer of employment is contingent on acceptable outcomes of such tests and inquiries, a company can bolster its defenses against suits over job offer withdrawals for one or more of those reasons.
Another common and defensible reason for rescinding a job offer is a change in business plans after the offer is made. The reasons for the change might be a downturn in demand for the company’s products or services, the arrival of a new executive, or some unforeseeable factor that now makes it unwise to fill the position.
“For example, when the dot-com bubble burst a few years ago, a lot of employers had to withdraw job offers,” says Jathan Janove, a partner with the law firm Bullard, Smith, Jernstedt and Wilson, in Portland.
The Roots Of Applicants Complaints
Regardless of what led to a withdrawal, applicants may bring legal action based on arguments such as:
- Fraud. To prove fraud, an applicant must show that the company made a false representation, knew it was false and intended for the applicant to rely on it. An applicant who relies on a false representation and is harmed in doing so—as in the Oregon case—could have a powerful claim of fraud.
Here is another example of how a fraud case might work: In a case in New Jersey, a successful manager at an electronics firm decided to work for a competitor and submitted his resignation. Two executives at the firm he was leaving called him in, tore up his resignation letter, promised to rectify the issues that prompted him to look elsewhere and said he would get a large salary increase.
The headhunter who had found him the new job warned him that his current employer planned to replace him, but the company executives denied it and told him he had a job for life. Based on their assurances, he turned down the competitor’s offer. Four months later, he was fired.
He sued for fraud. The trial court dismissed the fraud count, but an appellate court reinstated it, saying he had enough evidence to go to trial—including the information from the headhunter and the executives’ denial that they were seeking to replace him. (Shebar v. Sanyo, Superior Court of N.J., App. Division, No. A 1544-86, June 10, 1987.)
- Breach of contract. To protect against breach of contract suits, be cautious about entering into a contract in the first place.
For example, be wary of offering applicants too much information, or information that is too detailed. By doing so, you may be entering into an employment contract.
That’s what happened in a suit involving the Washington State Department of Transportation. In that case, a supervisor told an applicant, “You’re our No. 1 choice, and I’m offering you the job.” The applicant responded “Great!” and was told to expect a fax the next day spelling out details such as starting date, pay and retirement benefits. Instead, the next day the supervisor called to rescind the offer based on reference checks.
The applicant sued for breach of contract. (Andrus v. Washington State Department of Transp., Wash. Court of App., No. 31859-8-II, Aug. 9, 2005.)
Despite the oral offer and acceptance, a state court of appeals found there was no actual contract because the supervisor’s statement contained no starting date, salary or benefits information. An enforceable contract requires, among other things, an offer with reasonably certain terms, the court said. If one or more terms of a proposed bargain are left open or uncertain, that shows that it’s not intended to be a binding contract—a relatively common interpretation of the law.
- Promissory estoppel. Under this theory, which can be the sole theory or a supporting theory for a case, a court may prevent one party from withdrawing a promise made to another party if certain conditions are met. In a job offer scenario, those conditions would look like this:
The principle is illustrated by a case involving a New Jersey company that offered to hire a freelancer as a regular employee. She was reluctant to relocate from Boston to New Jersey, so the company increased its salary offer, and she accepted.
- An employer makes a job offer with the expectation that an applicant will rely on it.
- The applicant gives up something of value based on the offer.
- The employer withdraws the offer.
Before her official start date, she went to New Jersey on a final freelance assignment, which did not conclude to the company’s satisfaction. Based on this performance, the company told her she would not be a good addition to the staff.
She sued under the theory of promissory estoppel, pointing out that she had given up her apartment in Boston, found one in New Jersey, hired movers and given up her Boston clients.
Because she had neither received the company manual nor filled out a W-2 form, the court ruled she was never employed by the company. And even if she had been an employee, her employment would have been “at will,” meaning she could have been fired at any time and for any reason or no reason.
Nevertheless, the court found that employment at will is subject to a duty of good faith and fair dealing, and that the freelancer therefore could be entitled to damages because she relied, to her detriment, on a statement that she would be hired, giving up her business and clients in Boston and spending money to move to New Jersey. (Peck v. IMedia, Superior Court of N.J., App. Division, No. a134-95, Aug. 6, 1996.)
- Discrimination. To prevail on a claim that an employer withdrew a job offer for discriminatory reasons, an applicant must first show that he applied for and was qualified for the job, that an offer was withdrawn despite the applicant’s qualifications, and that the employer continued to hire others from outside the protected class afterward.
The employer may then show a legitimate, nondiscriminatory reason for its decision—such as behavior exhibited during the application process—and the applicant may rebut by showing that the employer’s given reason is really a smokescreen for discrimination.
That was the situation with a company in Boca Raton, Fla., whose recruiter offered a job to an applicant who performed well on its competency tests. Before accepting the job, the applicant asked the recruiter if he would be free to observe the Jewish holidays. The recruiter told him he would have no problem with religious leave.
But when the recruiter told the applicant’s prospective supervisor that she had made the offer, he said he had met the applicant at a job fair a few months earlier and had found him to be rude and aggressive. The supervisor told the recruiter to rescind the offer because the applicant’s personality would not be compatible with the workplace.
The recruiter called and told the applicant a “white lie”—that, unbeknownst to her, the position had already been filled. A few days later, the applicant saw the company’s ad in the paper for the same position, and he sued the company for religious discrimination.
When the applicant’s claim got to court, the company prevailed because it showed that the prospective supervisor had no knowledge of the applicant’s religion. “[A]n employer cannot intentionally discriminate against an individual based on his religion unless the employer knows the individual’s religion,” the court said. (Lubetsky v. Applied Card Systems, 11th Cir., No. 01-17203, July 12, 2002.) )
State statutes. Some statesincluding California, Colorado and Nevadahave laws that impose criminal or civil penalties on employers that offer work under false pretenses.
How to Protect Your FirmYou may not be able to shield your company from every legal action that may arise from decisions to withdraw job offers, but you can at least make your defense as strong as possible. These areas merit your attention:
- Communication. Make sure that recruiters or interviewers communicate with HR and other managers throughout the process. In the case involving the decision to close the plant in Oregon, recruiters were said to be in the dark about the parent company’s plans. In the suit alleging religious discrimination and involving the applicant’s prospective manager, the recruiter offered the job before talking to the manager.
“Make sure the recruiter, or whoever is making the offer, doesn’t jump the gun,” says Janove. “You don’t want them to say ‘you’re hired’ before you do your reference check or your drug test.”
“Make sure the parent communicates with the subsidiary,” agrees Richard F. Liebman, a partner in the Portland law firm Barran Liebman LLC and the attorney who represented the employer in the trial court phase of the Oregon case. He adds: “Have one person take control of the hiring process. Have HR sit in on the interviews and author all the letters.”
- Disclaimers. "One of the best ways to prevent your organization from liability for withdrawing a job offer is to have a policy explaining that an offer can be rescinded,” says attorney Petesch. “It can be stated on your application and in your handbook, giving some of the reasons for rescission, such as falsification of the application, negative information from references, failure of a security clearance—whatever conditions make sense for your company. Transparency is important. Make sure that applicants understand your process.” (See “Make Contingencies Clear” on page 90.)
Adds Liebman: “Make sure that your offer letter states that the employment is at will, and have applicants sign an acknowledgment.”
- Timing and technique. Other critical elements in avoiding liability over rescinding job offers are the timeliness and the manner of your withdrawal.
Don’t delay, experts say. The further along in the process—the longer the time between offer and withdrawal, and the greater the changes in the applicant’s life because of the offer—the more liability, says Janove.
“Be as transparent as possible—don’t sugarcoat your reasons,” says Linda Burwell, a partner in the Detroit law firm Nemeth Burwell PC.
Recompense And Reputation
To some degree, the decision on whether to compensate applicants for costs incurred between the time you make and rescind a job offer depends on the strength of the applicant’s case against you.
If you and your attorney believe that the person might be able to prevail in court, consider offering compensation and reimbursement as an alternative to an expensive and time-consuming court battle.
“The settlement could be very modest compared to what a court might award,” Liebman observes. Have the person sign a release freeing you of all further liability.
Your company’s reputation in the aftermath of withdrawing a job offer is another matter. Will it suffer?
“It could,” says John Challenger, CEO of Chicago-based outplacement firm Challenger, Gray & Christmas. “The most common situation would be when candidates come out of colleges and business schools, companies offer them employment in the winter with summer start dates, and something changes in the meantime, so the company first delays and then withdraws the offers.
“That harms a company’s reputation, with both the school and the candidates as well. Word gets around, on the Internet and the job boards.”
Petesch adds: “If there’s a pattern out there, it could scare away applicants. Becoming a defendant is also very negative for the employer’s reputation.”
Diane Cadrain is an attorney and writer who has been covering workplace legal issues for 20 years. She is a member of the Human Resource Association of Central Connecticut. Labor and employment attorney Corbett Gordon of the Portland, Ore., firm Fisher & Phillips LLP assisted in the reporting for this article.