Rescinding a job offer: HR’s best practice approach

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On a bad day, HR is referred to as the ‘hirers and firers’ – and while that sentiment is flawed from the get-go, there’s also an in-between job that HR will inevitably be tasked with at some point or another: rescinding the job offer.

HR may need to rescind a job offer for a variety of reasons. For example, internal factors could mean the budget for a particular role is suddenly cut, or perhaps it’s determined that the role in question could be spread across already existing employees. External factors could include the candidate failing a background check or falsifying information on their application.

According to one HR expert who has rescinded job offers for candidates failing drug screens, criminal records checks, organisation restructuring, and failure to accept job offer in specified time period, the first step is to advise the company’s legal representation or the HR director prior to communicating to applicants. “For example, you want to be sure the job offer was not communicated or implied ‘guaranteed’ to the applicant. This can become a legal matter especially if the applicant resigned from an existing employed position or forfeited other job offers,” Mike Power from Kompass Performance Partners said.

Legal factors to be mindful of may include:

Discrimination: Anti-discrimination laws protect all qualified candidates as far as race, background, religion, age, disability and gender. If an employer rescinded a job offer based on any of these categories and hired a person outside of the protected categories, the rejected applicant may take the matter further.

Misrepresentation of the position or company: If an individual quits his or her job for a promised new job, only to discover the company is moving offices and is rescinding their employment offer on their first day of work, the applicant may be able to prove that the intended move was known by the employer before the job offer was made. As a result, the individual may seek compensation.

Breach of contract: A breach of contract occurs when an employer or employee violates a signed employment contract, which outlines the terms of employment as well as the company policies. If the potential employee can prove that the employer violated the employment contract, for example, the employer attempts to enforce work hours outside of what was agreed upon and then rescinds employment because the employee won’t work those hours, they may be in breach of the contract.

Case study

In a high profile case brought against Citigroup, an applicant was headhunted from a competitor and offered assurances that he would be employed – when the firm reneged on the offer, the jilted would-be employee sued and won almost $4m in damages.

The case, Walker v Citigroup Global Markets Australia Pty Limited (formerly known as Salomon Smith Barney Australia Securities Pty Limited) [2006] FCAFC 101, involved a highly paid stock broker working for ABN AMRO Morgans (now RBS Morgans). After being headhunted for a move to Citigroup, the employee obtained assurances that he would have employment and requested the intended move be kept confidential. However, the move was leaked and the employee resigned from ABN AmroMorgans. Citigroup then decided not to offer employment, and sought to terminate the employment contract before the employee had commenced work.

In the subsequent legal proceedings, the arbitrator found Citigroup was liable for breach of contract under the Trade Practices Act for misleading representations.

Citigroup claimed they should be allowed to terminate the employee’s employment contract on four weeks’ notice, and contended this should be the extent of their liability. However, this was not accepted as it was held that the employee would have had continued employment with his former employer had he not resigned. Citigroup had offered employment for at least 10 months, and it was also likely the employee would have received bonuses had he continued employment. For these reasons Citigroup was found liable for 16 months’ wages plus a bonus less 25% for contingencies totalling almost $4m.

HR takeaways

Termination provisions will not allow an employer to dismiss an employee, if the contract anticipates a longer employment. The case reinforces the importance of carefully managing every statement made in employment negotiations.

Critically, when parties alter terms in one part of a contract, this may have large flow on effects in other parts of the contract. It is not enough to reach an agreement and then send the contract off to the solicitors – if the potential employee acts on a representation that they will be offered employment, the employer may be liable for any damage the employee suffers if the employment offer is altered or withdrawn. These risks can be easily managed providing letters and contracts are carefully drafted.

  • MM on 16/04/2013 4:56:22 PM

    In many cases of rescinded job offers, the company will offer a compensation payment to the person affected ("sorry for the inconvenience caused"). However this payment is not a payroll payment (person is not an employee, so can't be receiving an employment termination payment) - proper tax advice also needs to be taken and this is usually overlooked.

  • PT on 17/04/2013 7:44:26 AM

    Hello MM, you are incorrect with your above statement, the compensation should have normal PAYG withheld, please refer to the below ATO guide, http://www.ato.gov.au/individuals/PrintFriendly.aspx?ms=individuals&doc=/content/00227664.htm

  • MM on 17/04/2013 3:49:12 PM

    PT - no point in getting into a slanging match here, but the long, long list of income on the ATO list you refer to does not cover a rescinded job offer payment when the person has not yet started employment.
    They are not an employee - so they can't be getting salary and wages nor an employment termination payment. And while you might say this is compensation for lost income, that ATO category only covers, income protection payments, sickness and accident policy payments and workers' compensation payments.

  • Poor HR Guy on 19/04/2013 3:57:41 PM

    The HR takeaway for me is I'm in the wrong job. Stockbrokers earn a lot of money!!

  • IK on 25/09/2013 1:57:05 AM

    This has just happened to me! But in the most hack-handed manner. I believe the HR department to be at fault. I received a contract of employment and after two months of nonsense from HR they say that they've decided they will not 'progress my application'. From this it sounds like they can't just do that!!

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