How to Rescind a Job Offer

Rescinding a Job OfferYou’ve been searching for your next great hire and finally find her.  You’ve made the offer and she’s accepted it.  Everyone’s excited!

Then something happens, and, unfortunately, you have to rescind the job offer.  Maybe it’s because of some information you find out about your new hire, or perhaps it’s because of a change in your business, or that someone else has surfaced who’s an even better fit the job.  Whatever the reason, you’ve changed your mind.

How do you rescind a job offer?  And what are the consequences of doing so?

The right way to craft a job offer:

Job offers themselves obviously should be made after all of the appropriate pre-employment steps have been taken, such as reference checks, education verification, and so on.  But some steps might need to take place after the offer, such as drug tests and pre-employment physicals.

Therefore, to be safe, a job offer should be made conditional on certain things happening, in order to avoid any legal complications.  And to be really safe, make your job offer in writing.

The initial job offer can be verbal, but it should always be followed up in writing in order to avoid any post-offer misunderstandings.  It’s never good when a new employee starts their new job, opens up their first paycheck, and says with surprise, “I thought I was being paid $20 per hour, not $20,000 per year!”

Oftentimes there are steps to the hiring process that cannot reasonably or safely occur prior to the offer.  For instance, you cannot ask all of your job applicants to submit to a criminal background check.  This is something you would conduct on job seekers that you intend to hire, conditional on them passing the test.  However, should the background check reveal a recent conviction for a crime, in violation of your policies, you would then rescind the offer.

When rescinding a job offer is discriminatory:

Situations in which businesses get in trouble have to do with protected classes. Here are some examples of situations in which a company rescinding a job offer would land them in hot water for discrimination:

You make an offer to an employee for a position that involves wearing a uniform.  Upon hiring the employee, she informs you that she is a Muslim, and will need to wear her hijab to work.  You then rescind the offer, letting her know that this doesn’t work well with the company’s uniform.  You are sued for religious discrimination.

During the job offer an employee informs you that they have epilepsy, but it’s under control and shouldn’t be an issue.  You become concerned about how this might impact your health insurance rates and rescind the offer.  You are sued for discrimination under the ADA.

Another example that we’ve actually encountered more than once is when a company makes a job offer to a female, who then informs her new employer that she is pregnant — only to find that the job suddenly disappears.  The employer could then be sued for discrimination under the Pregnancy Discrimination Act.

How to rescind a job offer:

Assuming that you might have to legitimately rescind an offer, for purposes that are not illegal, there are certain steps you need to make during the offer process.

  • In your offer letter, state the conditions of the offer.  Let the employee know if it is conditional on the signing of a non-compete, background check, credit check, etc.
  • Include information about benefits, duties, and pay, being careful to avoid any wording that indicates that the position will last for a specific amount of time (such as “annual pay”).
  • Avoid descriptive language that might infer promises to the employee, such as “flexible work environment,” “family friendly,” or “many years to come.”  Keep in mind that your employee may very well count on these phrases as part of the benefits being offered in the actual offer.
  • All offer letters should state that the relationship is “at will.”
  • Unless you truly intend to create a binding employment contract, do not use the term “employment contract” in your offer letter.

The risks of rescinding a job offer:

Even if a job offer is rescinded for non-discriminatory reasons, an employee may still have some cause of action against your company.

If they have resigned from another position, thus losing their income, they may have suffered damages.  In Washington state, they are eligible to receive Unemployment Benefits in these circumstances.  The benefits come from the state’s funds, and are not charged back to any employer’s account.

Beyond this, an employee may even sue over a rescinded job offer if they have suffered damages.

  • Fraud:  If an employer knows that a job will not exist due to market conditions or changes in the business, but proceeds to make a job offer anyway, and an employee suffers damages by relying on it, the employee may be able to prove fraud.
  • Breach of contract:  Another avenue for a lawsuit would be under breach of contract.  If an actual contract between both parties has occurred, an employee could sue for damages under a breach of the contract.
  • Promissory estoppel:  The last theory of law that can come into play in these situations is promissory estoppel.  If an offer is made with the expectation that an employee will rely on it, the employee gives up something of value based on the offer (such as their current job), and the offer is then withdrawn, the employer can be sued.

The wrap-up:

We know that most of the time job offers are made in good faith with the best of intentions.  But everyone is human, and stuff happens.  For many reasons, job offers can get rescinded.

It’s best to be very clear with potential employees, keep the communication accurate and current, make sure that supervisors and managers are up to date on the company’s status, and protect your business with well worded offer letters.

As the saying goes, “For every promise, there’s a price to pay.”

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