Legal

The pitfalls of withdrawing an employment offer

21 Feb 2019 By Andrea London and Joshua Shuardson-Hipkin

What are the potential ramifications for an employer who makes an employment offer and then rescinds it? Andrea London and Joshua Shuardson-Hipkin report

As reported in the media recently, Spanish banking giant Santander took the controversial decision to withdraw an employment offer it made to then-head of investment banking at UBS, Andrea Orcel. 

The case highlights the potential ramifications that can arise when an employee does not accept such a withdrawal. Indeed, despite never actually starting his new position with Santander, Orcel is now questioning the legality of Santander’s actions and demanding a substantial payout from the Spanish bank for breach of contract. 

Santander announced in September 2018 that it intended to appoint Orcel as its new chief executive. A ‘contractual letter’ was agreed between Orcel and the bank which would result in his total remuneration being around €50m. Santander then withdrew the offer. The reasoning for this is unclear, although it appears Santander underestimated the costs of the deferred awards and benefits Orcel had accumulated, and appointing him as CEO had therefore become ‘unaffordable’. 

Recent changes in the Spanish political environment also seem to have influenced the situation, the suggestion being that the bank was fearful of “increasing public and political backlash”. It follows that both Santander and Orcel are now gearing up for a high-profile legal dispute over his alleged contractual entitlements. 

With the current political uncertainty, some UK employers may wonder what consequences will follow where an offer of employment is made and later withdrawn. 

What is the position in this country? 

There have been many scenarios in England where an employee has received an employment offer which is then withdrawn, the employee then having left a good position for, effectively, nothing. 

Where an employee decides to pursue the matter, the starting point lies in contract law, namely that where a set notice period is agreed, the employer may only terminate the contract in line with that notice period. Even where an employee has not yet started their role, the courts generally take the view that the contract was formed when an offer has been accepted by the employee. 

McCann v Snozone Limited (2015) provides useful guidance on the approach generally taken by UK courts. Mr McCann was liaising with a recruitment agency to assist him with his job search. He attended a number of interviews and during follow-up conversations with the agency, was made a verbal offer from Snozone, which he accepted. Snozone later denied that a formal offer had been made and McCann brought a successful claim for breach of contract. Even though no notice period or salary had been agreed, the tribunal found he was entitled to a reasonable contractual notice period of one month. Based on an expected salary of £28,000-£30,000, McCann was awarded £2,708. 

It is essential that employers tread carefully when making offers for employment, even verbal ones. It is critical that any offer made is ‘subject to contract’. If not, and the offer is accepted by the employee, there is a risk the employee may be successful in a breach of contract claim. It follows that if Mr Orcel were to proceed in bringing his claim in the UK, the damages arising could be substantial. 

Damages arising from a breach of contract are not necessarily limited to salary for the period of notice only, but are meant to place a claimant in the same position as if the contract had been properly performed. 

A withdrawal of an (accepted) job offer therefore exposes an employer to claims for additional losses an employee may have sustained, which flow from the breach and are not limited to their notice period. These could include future losses, where equivalent employment is not quickly obtained, or loss of bonuses to which the employee may have been entitled had they remained.

Can an employer claim damages if the employee withdraws?

Tullett Prebon Group Ltd v El-Hajjali (2008) is a good example of how an employer can protect itself from the danger of an employee withdrawing from an offer post-acceptance. In this case, the employer secured compensation for the damages that occurred as a result of the proposed employee’s breach of the employment contract, by virtue of the inclusion of a liquidated damages clause in the pre-contract signed by the parties. 

As the employer was able to quantify its losses under this clause, and such were deemed to be a genuine pre-estimate of loss, the employer was able to recover substantial damages. Such a clause could arguably work both ways, for either the employer or the employee.

Employers must take precautions when making job offers, especially to senior employees, which could lead to a substantial damages for breach of contract claim if such an offer is then withdrawn. While Orcel’s case is in the extreme, it serves to demonstrate how costly a poorly managed recruitment process can be. 

Andrea London is a partner and Joshua Shuardson-Hipkin is a solicitor at Fletcher Day

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