Employers Rescinding Job Offer Must Document or Risk Bias Claims

Businesses mulling whether to revoke employment offers in response to inflation and rumblings of a looming recession may have to tread carefully to avoid running into severe legal and reputational consequences.

Coinbase Global Inc., Meta Platforms Inc., and Twitter Inc. are just some of the high-profile employers that recently have rescinded job offers at the same time that a growing number of companies are announcing layoff plans or dialing back recruitment efforts.

Federal law allows employers to rescind job offers for almost any reason as long as it’s not based on an applicant’s race, gender, or other protected factors. Some typical reasons include a failed drug test or background check, or a change in business needs.

Employment attorneys say they haven’t seen a massive wave of employers withdrawing job offers as a cost-cutting strategy. But they urge businesses considering whether to pull an offer to proceed with caution because they could expose themselves to litigation if a job applicant can prove they’ve suffered economic or emotional harm as a result.

Applicants may bring discrimination claims if they’re a member of a protected class that was disparately impacted by job rescission and believe they were targeted for reasons other than budget constraints, said Sara H. Jodka of Dickinson Wright. Employers should document their reason for rescinding an offer, she said.

“If it’s an issue with the job no longer being available, they need to make sure they have the documentation to prove that” to shield against any bias claims by an applicant, Jodka said.

Greenwald Doherty LLP partner Devora L. Lindeman said companies must have a “legitimate” nondiscriminatory business reason, which must be documented before an offer is pulled.

“That reason has to arise between the time they made the offer and they’re rescinding it,” Lindeman said.

“If the company is seriously considering layoffs and other cost-cutting measures, it might be better to issue a hiring freeze to hold things at the status quo so you’re not handing out offers you’d have to rescind,” she added.

Promises Enforced

Outside the discrimination context, an applicant could allege a breach of contract claim to seek damages, attorneys said.

“If you have an employee and they quit a job in reliance on this other offer—worse, if they sold their home or made steps to move or relocate—that can actually build up some significant damages for the employer in the event there’s a contract at play,” Jodka said.

A spurned candidate also could assert a promissory estoppel claim—a doctrine of contract law that allows a party to obtain damages due to the consequences of an unkept promise. Employees can obtain punitive damages and attorneys fees under this claim if they can prove the employer’s action was done with malice.

“These cases, though, usually don’t go that far” because employees would get a new job elsewhere “and the employer need only be responsible for damages between the time” the applicant was out of work, Jodka said.

To avoid legal issues, she said the initial offer letter should clearly indicate that the offer is conditional and it should not include any formal contractual agreement setting out the terms and conditions of employment.

Brand-Conscious

On top of the litigation risk, employers could face a possible hit to employee morale at their company and cause serious damage to their brand, which may also affect future hiring efforts.

Employers are advised to communicate effectively and be transparent with candidates when informing them that the offer is no longer available.

“The company doesn’t have to give the employee the whole picture, or the nitty-gritty of the finances. But whether they do say it should obviously be truthful,” Lindeman said.

“If you decide to hire for the role six to eight months later, then document what has changed,” she added. “And it would probably be nice to reach out to that person and ask if they’re still interested.”

Companies like Coinbase and Twitter have paid severance to those whose job offers they rescinded. This compensation, which employers are under no legal obligation to offer, may provide financial support to candidates who, for instance, incurred significant out-of-pocket moving costs after accepting an offer, said Foley & Lardner partner Kate Beattie.

“An employer can always provide a settlement agreement or monetary compensation in exchange for the release of claims from the individuals,” Beattie said.

Stefanie Camfield, a human resources consultant at Engage PEO, said employers must be “brand-conscious” at all times because how they handle rescinding an offer “often determines the candidate’s reaction and whether they will pursue legal action.”