Nine things you need to know about rescinded job offers

A labor lawyer explains how prospective employees can protect themselves from this specter.

What do you do when a prospective employer offers you a job but pulls the rug out from under you and rescinds the offer before you start work? What happens if you've sacrificed a good, stable job for one that doesn't materialize, or if you spent thousands of dollars to relocate? What recourse do you have, if any?

Most job seekers don't know the answers to these questions, according to Mimi Moore, a partner in the labor and employment group at Bryan Cave LLP. She says job seekers tend to be unaware of the specter of rescinded job offers: "People understand that a job may not work out, that the company might have to do a reduction in force, but they don't think of a rescinded job offer being a possibility," she says.

In fact, rescinded job offers are a growing reality in a weakening economy, and Moore expects to see an uptick in the coming months. "I think fewer job offers are going to be extended, and the ones that are will have a higher probability of being rescinded," she says.

The risk of having a job offer revoked is even greater for executives than for lower-level workers, says Moore, because executives are often hired so much farther in advance of their start date. An employer's needs can change between the time an offer is made to an executive and the time she starts, which can be six months later. By contrast, lower-level workers are usually hired to fill an immediate need.

Job seekers at all levels can protect themselves from being blindsided by a rescinded job offer by asking incisive questions about a prospective employer's hiring practices and by negotiating certain protections into offer letters and employment contracts. Moore elaborates on these details for employers and employees in this Q&A.

CIO: What do employees need to know about rescinded job offers?

Moore: An employer can rescind a job offer at any time. Absent a signed employment contract between an employee and an employer that provides for a specific term of employment and specific provisions for breach by either side, a job offer is essentially a contract for employment at will. Many people think once they have an offer, it's in writing, they sign it and return it, they think it's a contract. But really it's a contract for employment at will, which can be terminated at any time.

Candidates are not employees until they go to work. Even at that point, they're employees at will. After the first day of work, either party can end the relationship. Individuals don't have a right to a position [that's been offered to them].

Under what circumstances do employers rescind job offers?

Typically, job offers get rescinded in situations where employers, for one reason or another, do not have the need for a job that they predicted they'd have when they first offered the job to a candidate. A typical situation is an employer interviewing on a college campus, extending offers to college grads. By the time the college grad is supposed to start working, whether that is over the summer or in the fall, the employer no longer needs them because of either a downturn in their business or in the general economy.

Rescinded job offers typically occur in clumps of people. For example, a law firm believes it needs five new associates. It makes those hiring decisions in September or October, but people won't be starting for another year. The same thing goes for companies interviewing on college campuses. They're making hiring decisions far in advance of an actual start date. If there's subsequently been a change in their business or in the economy that results in there no longer being a need for an employee, they may rescind a job offer.

Higher-level candidates can see offers rescinded when a company decides to do a restructuring and to eliminate the position they've offered for economic reasons: The company decides it would be better to vacate a position they've offered to someone instead of terminating their employment, in order to save employees who've been working there for a long time.

Alternatively, job offers occasionally get rescinded when something [bad] is discovered about an individual or their references don't check out.

What can job seekers do to protect themselves from rescinded job offers?

If you're not in a position to have an employment agreement, you need to feel confident that there will be a job for you at your start date. Do as much research and ask as many questions to determine whether the company will revoke job offers. If there's a concern that your job won't be there, that should factor in to your decision to accept the offer. Get as much information as you can when you're making the decision.

From a more practical standpoint, candidates who are offered signing bonuses upon being hired should make sure that they will still be entitled to those bonuses if the job offer is rescinded. Negotiate to have that included in the job offer letter. Some people use that as protection: If they're getting a $10,000 signing bonus, they have some cushion from an economic standpoint if the job offer is revoked.

Similarly, if someone is going to be relocating from Seattle to Chicago, I would advise that person to make sure their relocation package will be covered, paid for and accepted even if the job offer ends up getting revoked or if the company determines after six months (or however long) that they don't need the person anymore.

Executives can ask for an acceptable amount of severance should the job be revoked prior to starting or should it go away during the first whatever many months provided they are not terminated for cause (embezzling, theft, sexual harassment).

People can try to negotiate some of those things like signing bonuses and relocation costs if in fact they feel the offer is a high risk [of being rescinded]. There are some employers who realize it is high risk in these economic times, and because they need certain employees, they're willing to take on some of that risk.

What questions should prospective employees ask a company to determine whether the job for which they're applying is at risk of disappearing?

How many people are currently in the department? How many people have been in the department over the past few years? Are they hiring more people? For what positions? Why?

Also ask, Is there a risk from the employer's perspective that this position may be eliminated or that this particular portion of the business may decline? If so, would there be a position for me elsewhere in the company?

I would also ask about the employer's track record of rescinding job offers. Have you had to rescind any job offers over the last two years? Why? If they had to rescind job offers, what, if anything, have you done for those individuals whose job offers were revoked? Some companies will provide a stipend for a period of time to candidates whose positions were eliminated so that they can look for another job. Some companies will help the person look for a new job. Some companies will delay the candidate's start date for six months (if it's production workers) or offer them part-time work for a certain period of time.

When in the process should prospective employees ask these questions?

After the offer has been extended and while the prospective employee is considering whether or not to accept the offer and during any negotiations regarding moving expenses/a signing bonus. I call this the "post-offer/pre-acceptance" period. Such discussions during the interview process would be odd, as well as a bit presumptuous.

If an employer rescinds a job offer, can the candidate sue the employer for damages?

There is a claim people can make for what's called detrimental reliance or negligent representation. The concept is that the employee relies to their detriment on a job offer. They move across the country or quit a job in reliance on an offer made by a company. People have over the years made that kind of a claim to sue for damages as a result.

Courts have been reluctant to enforce those claims for two reasons:

1) It's difficult to prove damages, and

2) Typically, the offer for employment is at will and once you start working, you can be terminated for anything so long as it is not illegal or discriminatory. The day you start, you are an employee at will.

There have been some courts over the years who have upheld those claims or enforced them, but they're few and far between. It's not something I would advise employees to rely upon.

How should employers handle rescinded job offers?

Most employers rescind job offers as soon as they become aware of an issue. From a legal perspective, the employer should notify the individual as soon as possible. For example, if one company is merging with another and through that merger the company believes it will need only 25 percent of the jobs it thought it would need, typically, the employer will notify those individuals it hired before the merger goes forward, when there is an obvious, known result for those individuals.

Employers should also do what they can to treat the individual as best they can. They should help the employee find another job inside or outside the company. They don't want to get a reputation of rescinding job offers because then they'll have trouble getting people to work for them. They need to consider the ramifications of rescinding job offers and do what they can to minimize the negative results of that. Most employers are cognizant of that. They're cognizant of the detrimental reliance theory even though it hasn't borne out in courts.

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