You’ve found a great candidate for the role, after reading through piles of CVs and conducting interviews, and have offered the person a job.
But what happens if something comes to light that makes you change your mind? You might have done some reference checking and found out something about them that means they’re no longer the right fit for the position or the organisation. Or there might be some sudden pressure on your bottom line or you need to quickly change direction to meet new market demands.
If you’re in a position where you no longer require the job to be done or don’t want that person to do it, can you just get in touch and say, “Sorry, we’re going to have to withdraw that job offer”?
The short answer is no; rescinding an offer of employment after you’ve made it puts you in legal jeopardy. But, like a lot of matters of law, there’s some nuance to it.
So let’s have a look at the ins and outs of withdrawing a job offer, when you can do it safely and when you can’t, and what could happen if you get it wrong.
When you can safely withdraw an offer
Basically, the only time you can withdraw or rescind an offer of employment and not be on shaky legal ground is before the applicant has accepted it.
That’s because, under the Employment Relations Act 2000, the definition of employee includes “a person intending to work”, i.e. this person has been offered and accepted work as an employee.
If the candidate has accepted your job offer, a basic contract between you and the person has been formed and the employment relationship has started. This means they are entitled to the same rights and protections as any employee, even if they might not officially start work for another few weeks.
Withdrawing an employment offer at this stage is regarded as termination and you must follow fair and reasonable process. Not doing so opens your business up to a personal grievance claim for unjustified dismissal.
There is plenty of case law to back this interpretation, and fines and compensation upwards of $25,000 aren't uncommon. On top of the financial hit, there’s also the potential damage to your company’s reputation and attractiveness to other prospective employees.
What about background checks?
Part of a robust recruitment process is checking that a person is suitable and eligible to do the job. Steps like checking the prospective employee’s eligibility to work in New Zealand, contacting referees or other third parties, and (depending on the industry and role) doing criminal background checks or drug tests.
If something unsatisfactory about the applicant comes to light or the checks prove they have exaggerated or misrepresented information they provided during the hiring process, you may be able to legally rescind the offer.
But to do so safely, you need to be transparent from the start of the recruitment process that any offer of employment is conditional on you being satisfied with the results of these checks. That means telling the person up front and making sure they have it in writing, e.g. in the job offer letter.
At the same time, you should ask them to be honest about their background, qualifications, and experience.
Verbal acceptance
It may be that, in the course of your discussions, you verbally offer the prospective employee a job and they verbally accept it, but they haven’t signed a written employment agreement.
In this case, the agreement would still be binding, because, in the eyes of the law, an offer of employment can be accepted regardless of whether there are further details to be finalised, e.g. the job description or the formal employment agreement documentation.
The prospective employee might find it harder to prove they accepted the job offer without written evidence, but it’s not worth taking any risks. Don’t say or do anything that might lead the person to think they already have the job until you have done all your checks and have all the necessary paperwork sorted.
Tight times
There might be circumstances when something in the business changes which means you no longer require someone to perform the role or you can longer afford to take someone on (there may have been a sudden downturn in business).
Again, there have been cases in the Employment Relations Authority that confirm that once a person has been offered and accepted a job, withdrawing the offer (except under the circumstances outlined above) puts you at risk of personal grievance claims.
As we often advise, before you even advertise a vacancy you should take a step back and define your current and future business objectives, then ensure you have the right organisational design (the right roles performing the right tasks) to meet your goals.
What to do if they have accepted the offer
If you no longer wish to have a prospective employee start work for your business, and they have accepted your job offer (even verbally), you must follow the proper termination procedure.
That means you need to act in good faith and undertake a fair and reasonable consultation process before you make any final decision (the person has the same right to natural justice as any regular employee working for you).
In doing so, you should provide them with information relevant to the continuation (or non-continuation) of their employment and give them the opportunity to comment on it.
If the reason you want to terminate is due to business circumstances, run a consultation process and explain the circumstances, and provide the person with the information you're considering (and yes, this might include confidential or financial information). Give them time to consider your proposal and prepare a response, then listen to their feedback and make a fair and reasonable decision.
If the reason you want to terminate is due to unsatisfactory results from the pre-employment checks (drug test, physical fitness, references etc.), and your offer of employment was conditional on satisfactory results, then you don’t need to consult. We recommend sharing the results of the checks with the person (e.g. the drug test that showed a non-negative for illicit substances), explaining that you’re withdrawing the offer of employment as outlined in the documentation and wishing them well with their job hunt.
What if the employee decides they no longer want to start work?
It’s common for job hunters to apply for multiple positions at a time or for your preferred candidate to already have a job, so a person might initially accept your offer of employment but then change their mind.
Given that the law views them as an employee at this point, technically they are obliged to give notice, which may mean they start the job and work out (all or some of) their notice period.
In practice, however, it’s unlikely you’ll be able to hold them to it or want to. They aren’t going to become a permanent employee, after all.
Our advice
To hire and onboard new employees confidently and consistently, you need to have good systems in place, follow your procedures, and communicate clearly.
Be clear about whether the job offer is contingent on pre-employment checks from the get-go. Put it in writing for the prospective employee and make sure you complete all those checks before they begin work.
Talented people are valuable, especially in a tight labour market, but resist the urge to offer someone a job on the spot without doing your due diligence.
Before the new team member starts work, make sure they have a watertight employment agreement (and they have signed it). You don’t want to be in the position where the person arrives at work on their first day and you haven’t settled the terms and conditions in the agreement, or there’s ambiguity over what they have been hired to do.
If you want to see how things play out, use a valid probation period or 90-day trial period (if you’re a small business with fewer than 20 employees).
