- Breach of contract claims. Breach of contract claims can be difficult for employees to assert if the employer uses disclaimers that the relationship is “at will.” This means either party can walk away from that arrangement at any time in the future.
- Guarding against claims of discrimination. The risk associated with a discrimination claim may be lessened if the employer was generally aware of some of the applicant’s protected-class memberships before it extended the initial offer.
- Remain prepared. While employers can be fully justified in making difficult and unfavorable business decisions, it may be a good idea to be prepared to explain those justifications later on in the event the decision is challenged in a discrimination claim or other type of case.
- Utilize an empathetic approach. Channeling compassion and empathy in the process might be helpful. In contrast, sowing unnecessary animosity may exacerbate legal risk.
The most recent reports from the Bureau of Labor Statistics show better-than-expected hiring numbers in May 2022. But some company leaders are publicly anticipating that this may be a “calm before the storm” as inflation persists and fears loom of an overall economic slowdown.
Recent headlines have hinted that some employers are slowing the pace of their hiring or are planning for reductions in force.
Rescinding pending job offers is another potential option for employers seeking to moderate their headcounts. Some tech companies have reportedly rescinded some offers issued in the past few weeks and months.
Like many other business decisions that are adverse to employees, rescinding an offer is not without legal risk, and there are a few potential considerations that employers should keep in mind when rescinding an offer.
Breach of Contract Claims
One risk is that the employee might bring a claim alleging the employer breached a contract with the employee. In essence, the employee would argue that the employer promised a job to the employee, the employee committed to performing the work, and the employer shirked its promise by walking away from the deal.
Breach of contract claims can be difficult for employees to assert, however, if the employer used disclaimers that the relationship would be “at will.” The ubiquitously known phrase “at-will employment” refers to the concept — developed by judges hundreds of years ago — that when one party offers to another a contract that is intended to last for an indefinite period of time, then either party can end the contractual relationship at any time, for any reason (or no reason), with or without any prior notice.
The same contractual principle generally applies to employment relationships: if neither the employer nor the employee agreed that the employment relationship would last for a particular period of time — like a month, a year, etc. — then either the employer or employee can end that relationship without incurring any damages for not performing the contract going forward. In essence, an at-will employment arrangement is a kind of day-by-day contract where the employer pays the employee in connection with each day of work performed, but either party can walk away from that arrangement in the future.
Courts in many states generally presume that an employment relationship is at-will unless the employee comes forward with evidence that it is not. For example, a written employment contract promising employment for a period of a month or a year might nix the at-will employment relationship. If the employer’s offer letter, job posting, or other documents presented to the new hire have an “at-will disclaimer” explaining the at-will nature of the relationship, then that should dispel any notion that the employee was promised something else.
Sometimes, it can be helpful for those disclaimers to identify the one or few leaders at the company who have authority to enter into a contract altering the at-will relationship and promise a definite period of employment (e.g., the CEO), and how such a contract must be formed to be valid (in a signed writing, perhaps). That can help avoid confusion by putting new employees on notice that their direct managers do not have the contractual authority to promise employment for a definite period of time or to alter the at-will employment relationship.
So, did the employee receive or sign an offer letter, and what did it say? Did the employee see an at-will disclaimer at any other point in the hiring process? For employers who withdraw offer letters, those documents may reduce the risk and liability associated with a breach of contract claim.
Federal and state anti-discrimination laws generally prohibit covered employers from failing to hire an individual due to his or her membership in a protected class. So, declining to hire someone due to the person’s age, race, gender, or another protected class could be the basis for a complaint of discrimination filed with an administrative agency or a civil action.
Rescinding a job offer could trigger that failure-to-hire risk. But, of course, employers may take back job offers for legitimate business reasons, including business downturns, so long as they do not illegally discriminate.
The risk associated with a discrimination claim may be lessened if the employer was generally aware of some of the applicant’s protected-class memberships before it extended the initial offer. For example, if an applicant interviewed for the job face-to-face and the decision makers formed perceptions about the person’s race, gender or age, then it may be harder for the prospective hire to argue later on that a job offer was rescinded due to membership in those protected classes.
Lawyers and judges actually have a name for this concept: it’s called the “same actor defense.” The basic premise is that if someone hires a candidate fully aware of the candidate’s protected-class membership, then it is less likely that the person would end that employment relationship due to protected class membership. That defense can be used to ask judges to dismiss cases before trial, or in arguments in front of juries.
But what if the hiring manager wasn’t aware of the candidate’s protected class membership at the time of hiring, but a discussion about it has arisen since the offer was extended? For example, after an offer is extended, new hires with disabilities might broach the subject of what accommodations might enable the person to enjoy equal access to the work environment. Or, an employee who is expecting a baby sometime soon might mention that for planning and scheduling purposes.
That’s a common fact pattern in failure-to-hire discrimination suits, and understandably: the candidates don’t necessarily see, from their perspective, the legitimate business reasons why an offer must be rescinded. All they know is that they received a job offer, brought up a protected-class related subject, and then saw that job opportunity whisked away. The EEOC has even brought at least one lawsuit against an employer in a case with facts like that, and the dispute resulted in the employer paying a $150,000 settlement.
Employers may want to be mindful and delicate about these discussions in the process of rescinding offers. Another helpful step can be to prepare documentation showing the timeline of intervening events between when the offer was made, and when it was pulled back. For example, emails from a higher-up company leader about reversing hiring decisions, key documents reflecting the decline in business, or evidence that other offers were also rescinded could be relevant and helpful in defending such a decision later on.
Of course, other evidence might be used to establish that an employer’s reason for rescinding an offer was a pretext to cover up an illegal motive. If similarly situated individuals outside the employee’s protected class will still receive an offer around the same time as those who will not, why is that? What was the business justification for distinguishing some offers from others? It may be that the positions and needs of the company differed, or that some candidates were more qualified than others.
Overall, while employers can be fully justified in making difficult and unfavorable business decisions, it may be a good idea to be prepared to explain those justifications later on in the event the decision is challenged in a discrimination claim or other type of case.
The practical steps that employers take to convey an adverse decision can be important. Channeling compassion and empathy in the process might be helpful. In contrast, sowing unnecessary animosity may exacerbate legal risk.
Sharing bad news is often best done verbally, one-on-one. A follow-up written communication to memorialize what happened is common too. Employers might think carefully about how to humanize those communications that rescind a job offer.
After all the work that goes into sourcing and recruiting candidates, no business leader relishes in rescinding job offers or the other difficult steps that employers must take when business slows down. While virtually any adverse decision can also come with legal risk, employers may weigh that risk in deciding on the best course of action for the overall health of the business in the long term.