When Your Executive Job Offer Is Rescinded, What Legal Remedies Do You Have? was originally published on Ivy Exec.
By Robert A. Adelson
As a successful C-level or senior executive, you are often presented with new opportunities. When the right one comes along, you negotiate terms, accept the executive job offer, and give notice to your current employer.
But what happens if, before you start or soon after you start, the new employer rescinds the offer?
The reason may be an economic downturn, a change in management or ownership, or some other unforeseen event. It might even be the result of a mistake or miscalculation on the part of the new employer. Whatever the reason or lack thereof, you are stuck. And the impact on you can be severe. Your former position may no longer be available. You may have declined other opportunities, made financial plans, or otherwise relied on the promised new role. The new employer may claim that because you never started work, or because the job would have been at will, they owe you nothing.
But that is not always true. Even without a signed executive employment agreement, you may have legal rights if you reasonably relied on the employer’s promise and suffered harm when the offer was rescinded. This article discusses how the legal doctrine of promissory estoppel or detrimental reliance, recognized by courts in many states, can give senior executives a remedy for redress when the employer does not live up to its side of the bargain.
🔹 Applying Promissory Estoppel When Your Job Offer is Rescinded
It is always best to get the terms of an employment offer or promise in writing. Without a written agreement, enforcement becomes more difficult. You would have to provide evidence to support your claim of what the employer had promised. You may also face the Statute of Frauds bar to enforcement of your claim – which generally requires certain agreements to be in writing to be enforceable.
For example, under Florida law, an agreement that cannot be performed within one year must be in writing and signed by the party to be charged. In LaRue v. Kalex Construction and Development, Inc., a Florida court refused to enforce an alleged oral employment agreement because the executive was promised a 25% ownership interest if she worked for the company for three years. Since the agreement could not be performed within one year, the court held that the claim was barred by the Statute of Frauds.
However, courts in some states, including California, Massachusetts, Pennsylvania, Illinois, Oregon, Ohio, Minnesota, and New Jersey, have been willing to apply the doctrine of promissory estoppel to overcome the Statute of Frauds where the Restatement (Second) of Contracts, Section 139 applies. Under Section 139, a promise may be enforceable if the employer should reasonably have expected the executive to rely on it, the executive did rely on it, and injustice can be avoided only by enforcing the promise. Thus, if an executive relied, to his or her detriment, on an employer’s promise, these courts may prevent the employer from denying that promise and may enforce it as if it had been written and signed.
Most C-level job offers are for at-will employment. For that reason, some courts have held that an employer may withdraw an at-will job offer at any time, for any reason or no reason at all, even after the executive has accepted the offer but before employment begins. In those states, both the Statute of Frauds and the at-will employment doctrine may limit or bar the executive’s claim. However, as stated above, some state courts have been willing to apply promissory estoppel, often relying on Section 139 of the Restatement of Contracts, to avoid an unjust result.
Also note that promissory estoppel is an equitable remedy. That means the executive seeking relief must come to court with “clean hands.” If the offer was rescinded because of the executive’s own fraud or misconduct, such as falsifying a resume, the claim may fail.
Absent such misconduct, you may have a promissory estoppel claim if the employer made a clear and unconditional promise, you reasonably relied on that promise, acted in reliance on it, and suffered harm as a result. Unlike a discrimination claim, you generally do not need to prove wrongful motive by the employer. Even if the employer had a legitimate business reason for withdrawing the offer, such as loss of funding or internal turmoil, the claim may still be viable if you can establish the required elements of reliance and harm.
🔹 Damages That Can Be Claimed
If you resign from an existing position in reasonable reliance on a promised new job that is later rescinded, damages may include the compensation you would have earned had you remained in the former position. This may include base salary, bonus compensation, and, in some cases, equity compensation that was reasonably likely to vest.
The key issue is whether the damages can be proven with reasonable certainty. If you had been employed for several years, had strong performance reviews, and had a history of receiving annual bonuses or equity awards, a court may be more willing to find that the claimed losses are not speculative. By contrast, damages that are too uncertain, remote, or based only on hope or expectation may be more difficult to recover.
You also have a duty to mitigate damages. This means you must make reasonable efforts to find comparable new employment. If you quickly obtain a new position at similar or better compensation, the damages claim may be reduced substantially. However, if you can only secure a new role at lower salary, bonus, equity, or overall compensation, that shortfall may become part of the damages claim.
Damages may also include out-of-pocket expenses incurred in reliance on the withdrawn offer. These could include relocation costs, temporary housing, a broken lease, costs from selling a home, or other expenses that would not have been incurred but for the employer’s promise. If those losses were reasonably foreseeable and directly tied to your reliance on the withdrawn job offer, they may be included in the claim.
In some cases, executives have recovered substantial damages, including one Washington state case involving an award of more than $1 million. In another matter involving my client, local counsel in New Hampshire brought a promissory estoppel claim after the employer failed to provide the promised written agreement and equity documents. The case settled for more than $100,000, despite the employer’s belief that no obligation existed because no final agreement or equity documents had been signed.
🔹 Other Situations Where Promissory Estoppel May Apply
Promissory estoppel remedy may also apply in other cases where an employer does not honor other oral promises to the executive, on which he or she relied. For example,
- Employer promised a full executive employment contract and equity documents, and termination occurs before those documents are delivered and signed,
- Executive accepts a job offer on the condition that he or she can attend a life cycle event and gets terminated after attending that event,
- Executive gives up a lucrative position to join the new company on the promise of important responsibilities and leadership, with termination before that promise is ever kept,
- Executive gives up other job offers to leave the employer on the promise of new executive employment terms that are never fulfilled.
Consult an Executive Employment Attorney
While some major verdicts and settlements have been obtained by C-level executives using promissory estoppel against employers who failed to honor their promises, the doctrine is not universally upheld in the courts of all states. So, it is best to get your executive contract clear and in writing, but when you have not done that, consult with an experienced executive employment attorney, and promissory estoppel may still give you a remedy.
