Many employers think that withdrawing a job offer before someone starts work is a low-risk decision.
A recent decision of the Employment Appeal Tribunal suggests otherwise. It held that rescission of a conditional offer of employment constituted a breach of contract, even though the employee had not actually started work, and that the financial consequences could be substantial.
The case of Kankanalapalli v Loesche Energy Systems Ltd is a timely reminder that an offer of employment, even one labeled “conditional”, can amount to a binding contract when the candidate accepts it.
What’s going on?
The candidate was offered a role as a project manager, subject to satisfactory references, the right to evaluate the work, and successfully complete a six-month probationary period. The offer letter referred to key terms such as salary and start date, but did not specify the notice period. The employer also agreed to contribute to the transport costs.
The candidate accepted the offer by email and filled out the initial new paperwork, including providing the referee’s information and the necessary right to work documents.
A few weeks later, the employer withdrew the job offer due to the delay in the work. The bidder brought a claim for breach of contract, citing withdrawal of bid and failure to pay any notice fee.
What did the Employment Tribunal and EAT decide?
The Employment Tribunal dismissed the claim. It concluded that the job offer was conditional and that the employer had not received references or fulfilled the right to vet the job (which required original documents). So the contract had not been formed.
The EAT disagreed. The key question was the nature of the conditions attached to the offer and whether:
- “Conditions precedent”, that is, conditions that must be fulfilled before any contract is formed) or
- “Subsequent conditions”: where the acceptance of the offer results in a binding contract, but if the conditions are not satisfied, the contract is terminated.
The conditions were put together in the gift book, and one (passing the test period) could only be satisfied after the work started. As there had been no attempt to distinguish between the different circumstances, this prevented the EAT from finding that they could be pre-existing conditions.
The application letter included important terms, both parties had assumed the contract was binding, and the employer had begun the onboarding process. As a result, the employer did not have an unlimited right to withdraw the offer for reasons unrelated to the subsequent conditions.
Finally, as the offer letter was silent on the period of notice, the EAT had to state the period of the relevant notice. Considering the size of the role, the relocation requirement, and the lengthy interview process, it was concluded that three months’ notice would be a reasonable period, which the employer had to pay.
What does this mean for your business?
The case highlights a number of practical steps employers should take when performing duties:
- Labeling an offer as “conditional” is not sufficient by itself and will not prevent a binding contract from being formed or breached if the contract is withdrawn. If you intend for certain conditions to be met before there is a contract, those conditions need to be clearly defined, with pre-contractual conditions listed separately from post-implementation conditions, such as probation.
- Always include a notice period in the offer letter, which includes both the probationary period and the standard post-probation notice period after successful completion of the probationary period. If you’re not, the Employment Tribunal will issue one, and it may take longer than you’d expect.
- Before revoking any offer, take legal advice to confirm whether the offer was conditional or unconditional. Depending on the size of the role and the implied or implied notice period, a successful breach of contract claim can mean significant compensation and significant administrative time.
- Finally, it is worth reviewing your current offer letter templates to ensure that important terms are included and that the conditional nature of any offer is clearly and appropriately expressed.
A little extra care at the offer stage is less expensive than defending a claim if a job application is withdrawn.
