Theme 1

Pre- Employment Issues

Theoretical Background and Articles

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Regulation and Governance of Employment
Relations in Pre-employment Phase
S Senthil Ganesh, Mousumi Padhi
This article looks at pre-employment issues in the
employment relationship with a view to provide a
conceptual framework for regulation and governance of
employment relations. It brings out the distinction
between a letter of intent and an offer letter. It looks at
different scenarios such as a deferred offer, alternate
offer, revised offer that the offer letter can be a precursor
to. It also argues that from the organisation’s
perspective these are risk management strategies
in the face of various circumstances. Different kinds of
misrepresentation on the part of employer and
employees to induce each other to enter into an
employment agreement are deliberated upon. The
role of labour market intermediaries in perpetrating
this is also highlighted. Further, it suggests steps that
can be taken to mitigate such instances and grounds
under which damages may be claimed upon
subsequent knowledge.
S Senthil Ganesh (ssganesh@gmail.com) teaches at Amrita School
of Business, Amrita University, Coimbatore and Mousumi Padhi
(mousumi@xshrm.edu.in) teaches at Xavier School of HRM, Xavier
University, Chandrasekharpur, Bhubaneswar.
102
R
esearchers have distinguished the employment rela-
tionship as the direct relationship between the employ-
ees and the firm rather than the traditional industrial
relations system, which focuses on institutional relationships
(Fox 1974; Barbash 1984; Williamson 1985; and Watson 1987).
One of the distinguishing features of employment relation-
ship, as analysed by Barbash (1984), is the degree to which the
behaviour of management and employees is determined by
market forces, which was not direct in the traditional indus-
trial relations system. Williamson (1985) has highlighted how
a contract in the labour market differs from a contract in other
markets in so far as determining a specific price ex ante for an
effort that has yet to be made. Further, it is argued that
employment relationship is given shape in a permanent system
of negotiations since a formal employment contract cannot be
expected to define the relationship between price and perfor-
mance in detail (Barbash 1984).
Thus, academicians and practitioners alike have discussed
extensively about the nature of the employment contract, its
provisions and issues arising out of its enforcement and non-
enforcement for both employers and employees. While there is
plenty of available literature on employment and post-employ-
ment issues, the thorny and contentious issues in pre-employ-
ment have largely been ignored. While the difficulties posed to
employers and employees by the presence or absence of claus-
es in the employment contracts commonly dies down as whis-
pers in the corporate corridors, certain pre-employment issues
might generate public outcry and outrage. One such instance
was in the case of deferred and alternate job offers by HCL
Technologies, a multinational information technology (IT)
services firm, in 2013 where protests by fresh engineers outside
its offices in India generated attention from the media as well
as the judiciary.
This inadvertent reticence on pre-employment issues high-
lights the need for defining and distinguishing concepts such
as intent of offer vs actual offer or employment contract, de-
ferred job offer vs or rescinded or cancelled job offer, and mis-
representation vs fraud. The intent of this article is to discuss
the above pre-employment issues with the objective to provide
a conceptual framework for regulation and governance of
employment relations.
Letter of Intent vs Offer Letter/Employment Contract
One of the contentious pre-employment issues is the thin line
of difference between a letter of intent (LoI) and offer letter.
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The enforceability of a LoI versus an offer letter is quite weak.
The option of hedging that a LoI gives to the employer to limit
the probability of loss becomes most apparent during an eco-
nomic slowdown. It thus becomes a risk reducing strategy
when the future is uncertain and the employee requirements
might vary widely depending on many contingencies such as
future sales position, in times of mergers and acquisitions and
in many other contingencies discussed later in the paper. For
instance, in the 2002 case of the Indian Institute of Technology
(IIT) Bombay due to the prevailing economic slowdown,
Infosys had to drop 1,300 students that it had selected to hire
(Bajoria 2002). The intent of offer that Infosys had made to the
students became its shield from legal wrangles. The ignorance
could not have been starker when the students claimed that
their offers were revoked at an inopportune time while the
Infosys spokesperson maintained that no offers were can-
celled as the letters to the students were mere intent of offers.
This was also the stance that the chief human resource officer
(CHRO) HCL Technologies took in his media release in response
to the protests by students. As reported by Ganesh (2013), the
CHRO mentioned that although the offers had been deferred,
“HCL is committed to all joinees and (we) have been releasing
openings for joining to candidates who graduated in 2012 and
received Letters of Intent (LoI).”
This naturally leads one to ask what makes a LoI different
from an offer letter or employment contract. An employer pro-
vides a proposal to a job candidate, that is, a LoI, which is
essentially provisional in nature. According to Section 2 of the
Indian Contract Act, 1872, a proposal is made by an employer
with the view to obtaining the assent of the job candidate for a
consideration. The acceptance of such proposal by job candi-
dates would not readily to lead to an employment relationship
as it may be subject to various conditions such as the job candi-
dates securing a degree from a college or passing a medical
test, etc. Thus, a LoI is a conditional offer which is subject to
certain qualifications and conditions and the contracting par-
ties are not bound by the terms and conditions of the agree-
ment unless and until the qualifications and conditions are
fulfilled by the candidate.
However, acceptance must be absolute and unqualified for a
job candidate and it should be communicated in a manner as
demanded by an employer. According to Section 6(1) of the Indian
Contract Act, 1872, the proposer, that is, the employer, is well
within his rights to revoke the proposal by communicating to
the job candidates various reasons, including non-fulfilment of
qualifications and conditions by the job candidates. To simplify,
job candidates are not employees until they join the organisa-
tion for work and a letter of intent does not certainly confer
them with the right to employment.
On the other hand, for an employment agreement to be
enforceable there must be a valid offer that should be definite,
unambiguous and certain. It should be distinguished from “a
mere declaration of intention” or “an invitation to offer.” An
employment agreement must have essential terms of the
employment such as title, description of employees’ job duties
and responsibilities, place of work, compensation and benefits,
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SPECIAL ARTICLE
term of agreement, manner and reason for termination, etc. A
well drafted employment agreement sets the expectation of
both parties, that is, the employer and the employee from each
other. It binds them firmly in the employment relationship and
minimises the possibility of a dispute at a later stage. In simple
terms, employment agreement is a contract between the em-
ployer and the employee which is enforceable in a court of law.
Deferred Offers and Alternate Offers
The other risk management strategy that organisations exer-
cise in case of economic slowdown is deferring job offers with
or without specifying a definite date of joining. A report by
Rao (2013) validates this trend: “Most IT firms and IT consult-
ing companies have deferred their joining dates by more than
six months, and several students, who were to start work from
the first week of August, have now been asked to join from
January.” Placement season in most engineering colleges
starts at the beginning of the final year, that is, from July and
goes on till November. Students who get offers are given join-
ing dates for July or August in the next year, after they gradu-
ate, but this in times of slowdown have been extended to Janu-
ary of the year after. In certain cases, this got further extended
without any mention of a specific joining date as in the case of
HCL Technologies.
Sometimes a deferred job offer is accompanied by material
changes in the initial offer such as reduced compensation or
change in profile. A revised letter of offer may state that “in
keeping with our annual compensation exercise, there has
been a revision in the compensation structure.” For example,
as reported in the Times of India by Rao (2013)
a company, which had offered an annual package of around `4.5 lakh
during presentation, brought the figure down to `3.95 lakh along with
the joining bonus when the actual offer was made. Students were
offered anywhere between `3.5 lakh and `7 lakh a year.
The legal tenability for this revision comes from a clause in the
LoI that states, “Your appointment will be governed by the pol-
icies, rules, regulations, practices, processes and procedures of
ABC company as applicable to you and the changes therein from
time to time.”
The change in profile option had been exercised by Wipro in
2008 when it offered an option to its engineering recruits to
join instead at its business process outsourcing (BPO) wing in
technical support services, in lieu of indefinitely delayed join-
ing at Wipro Technologies. Although this would tantamount to
new offer, it is open to debate whether an offer to start work
without delay at its sister concern could have been better than
delayed joining at Wipro Technologies? From the candidates’
perspective, they need to weigh the option of accepting a BPO
job, which many engineering candidates perceive as a stigma,
and the option of in-waiting to start work. Opting for the sec-
ond option would mean an opportunity cost with their study
loans to be repaid, delayed start in work experience, loss in
seniority, etc. This too at a point of time, when the candidate
would have been left with very little options as an engineering
graduate without a job and unable to pursue higher education
in colleges that would have closed admissions long before.
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New Offer or Only Revised Offer? Basics of Contract
To gain an insight into why this should be construed as a new
offer, one needs to look at the basics of contract. A contract is
an agreement enforced by law. To be valid it has to have per-
sons legally capable of making binding agreements, an offer or
promise, a consideration, an acceptance and a reasonable
amount of agreement between the persons as to what the con-
tract means, or consensus ad idem. The offer letter states the
terms under which the organisation is willing to hire the can-
didate. The acceptance of the candidate is to the terms cited in
the offer letter. The candidate offers to contribute his labour in
return for the consideration mentioned in the offer letter.
Thereby any changes to the offer that has already been agreed
would make it a new offer, which is subject to negotiation before
it is accepted. However, there is very little possibility that a job
candidate would be able to negotiate, especially during recession,
as the balance of power shifts to the employer. Considering
that acceptance must be unconditional and unqualified, the
candidates might choose to accept the lower salary or change
in profile knowing well that they are not in sellers’ market.
This leads us to the importance of consensus ad idem which
is why it is advisable that the candidate needs to seek clarifica-
tions to gain insight into what is on the mind of the employer.
More importantly, it is the duty of the employer to explain and
clarify the various terms and conditions. For example, the var-
ious restrictive covenants, the scope of activities covered by
them and duration might need to be explained. The accept-
ance of the candidate need not always be expressed in words
but may also be communicated through her/his actions. For
instance, turning up for work on the date of joining would sig-
nify the candidate’s acceptance of the employer’s offered terms
and conditions. Under Section 7 of the Indian Contract Act
1872, for the acceptance to be valid, it should be absolute and
unconditional. Therefore, counter offer which is a modifica-
tion and variation of the original offer or inserting conditions
by the offeree, denotes termination of the original offer. It is
necessary to distinguish between an acceptance and a counter-
offer; in the case of the latter the contract is only completed on
the acceptance of the counter-offer. Figure 1 represents the
temporal perspective of pre-employment issues arising after
the acceptance of intent of offer. The various scenarios have
already been discussed.
Risk Management Strategy: An Organisational
Perspective
Rescinding a job offer or deferring the job offer or reducing
salary or changing profile essentially work as risk manage-
ment strategy for the organisations in volatile, uncertain, com-
plex and ambiguous business environments. But not honour-
ing prior commitments to enter into employment relationship
could make a huge dent in the employer brand in times of criti-
cal talent shortage and organisations vying to get the best on
board. This is evident from the fact that none less than the
CHRO of HCL Technologies had to send out a media release as
response to the bad publicity the organisation was receiving
for being incommunicado about not specifying a joining date.
104
Figure 1: Pre-employment Issues after Acceptance of Intent of Offer
t=0 t>0 Cancellation
of offer
Intent of offer
Employer Deferred Job
offer
Scenarios
Reduced
salary
Applicant Acceptance of
offer
Change in
job profile
A deferred job offer or alternate job offer from the organisa-
tion’s perspective is better than having to revoke or withdraw
job offers because of reduced business opportunities. But could
the organisation have known about the slowdown in business
beforehand and not made the offers? The answer to this lies in
the business models of the organisations for revenue genera-
tion and project sourcing. Fundamentally it is about the capa-
bility to get more projects when one can show more number of
employees. For example in 2001, Infosys had a revenue of $40
million and $4 billion in 2008 (Infosys website 2016) accord-
ingly its manpower requirement had increased from 9,831 em-
ployees in 2001 (Infosys Annual Report 2001) to over 1,00,000
by 2009 (Infosys website 2016).
The recruitment cycle that organisations follow is also
reasoned as the major cause for cancelling or deferring job
offers. Vacancies for positions to be filled are forecast 18
months in advance. Campus offers are made to candidates 10
to 12 months ahead of their joining dates. Can organisations
accurately predict the business cycle and employee require-
ments 18 months in advance?
Not surprisingly, having once burnt its hand in 2002 by
revoking intent of offer, Infosys delayed its campus recruitment
process in 2012 (News18 2012). It is worth noting that in 2008
Infosys in fact honoured all the offers it made despite the slow-
down. With Nandan Nilekani, the famous alumnus of IIT
Bombay, heading Infosys in 2002, it would have been a consid-
erably hard decision for Infosys to revoke the job offers at IIT,
Bombay then. There can be endless discussion regarding the
possibility of some better options. But could Infosys have
afforded to let its employer image appear partisan by favour-
ing only IIT Bombay when business was slow, or for that matter
promote philanthropy over organisational profitability and
stability? Would it not have been far more unjust to hire some-
one who could not be assigned work? Does the duty as an
alumnus supersede the duty towards the shareholders and
stakeholders, including employees?
This brings us to the issue of the role of alumni in place-
ments and more so in times like these when certain quarters
raise questions of their social responsibility. But as Milton
Friedman held, is not the first and foremost social responsibil-
ity of a business to make profit? Not surprisingly, therefore it is
a challenge to balance the interests of shareholders, custom-
ers, and current employees vis-à-vis future employees, that is,
APRIL 29, 2017 vol liI no 17 EPW Economic & Political Weekly

the job candidates to whom the intent of offers have been
issued by the firms.
Force Majeure or an Avoidable Casualty?
It may help to appreciate the conditions under which such
employer-led aberrations happen. While the most common
reason is an economic slowdown as it can be gleaned by look-
ing at the timings in the examples cited above suggest. There
could also be political, economic reasons beyond the control-
ler of the employer which may be sporadic and far more diffi-
cult to predict. For example, the sub-prime crisis of 2007–09
or the 9/11 strike where in New York city alone 4,30,000 job
months were lost and there were $2.8 billion in lost wages over
three months following the strike (Wikipedia 2016). The
circumstances where a manufacturing firm had to cancel job
offers because of ban in mining activities by the Supreme
Court of India is another case in point of circumstances bey-
ond the control of the employer. Apart from these extraneous
factors, there is a fair chance that if organisations delay their
campus recruitment cycles, they may have a reasonable idea of
the future economic scenario. But if organisations deem the
recruitment process to be a signalling mechanism to the market
about their economic soundness and therefore continue mak-
ing job offers, despite a challenging environment, can they be
said to be misrepresenting facts? Could they have been ignorant
about a slowdown in business?
This brings us to one of the most important pre-employment
issues about misrepresentation. While misrepresentation on
the part of candidate and aspirant employee is well known, there
is caginess with regard to employer-led misrepresentation. Des-
pite the fact that the cost to company (CTC) in the offer letter is
inflated and take-home pay is much less, little can be done be-
cause the letter is carefully worded. For example, riders with re-
gard to employee stock ownership plans (ESOPs) are well known.
Employment Misrepresentation
Misrepresentation is defined as a positive assertion of an infor-
mation that is not true, but the person making it believes it to
be true (Section 18, the Indian Contract Act, 1872). It is done
without an intention to deceive though it gives an advantage
to the person committing it. Employment misrepresentation is
a false statement of fact made by one party to the other before
or at the time the employment contract, which materially in-
duces the formation of the agreement. Simplified it means cer-
tain facts are presented by one party to the other, which is not
part of the contract but induces the party to enter into the em-
ployment contract. There are numerous kinds of employer
misrepresentation job candidates may face during the recruit-
ment process with an objective to induce the candidate to
accept the employment offer. Some of the common misrepre-
sentations are terms and conditions of employment, training,
probation and confirmation, seniority and promotion, equal
opportunity and non-discrimination, job security, employee’s
salary increases, incentives/commissions, income potential,
social security (insurance, unemployment compensation,
pension, etc) expatriate assignment, employer’s financial
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SPECIAL ARTICLE
conditions (for example, revenue, profitability, etc), future
business prospects (sales growth, industry growth), etc.
Misrepresentation could be categorised as negligent or wil-
ful misrepresentation. In case of negligent misrepresentation,
usually the employer or the employer’s representative make a
false statement based on her/his assumptions without verifying
the fact, merely to induce the prospective employee to accept the
employment contract. It would be perceived as negligent mis-
representation by job candidates if employers perform acts,
after acceptance of job offer by the candidates, such as rescind-
ing the job offer, changing the original joining date, deferring
job offer without any specific joining date, delay in informing
joining date and reducing salary. However, lack of communi-
cation from employers or failure to update frequently about the
changes in employment status would force the employees to
perceive such acts as act of wilful misrepresentation. The can-
didates are most likely to perceive the following acts of em-
ployers as wilful misrepresentation as they are totally detri-
mental to the interests of the candidates and mean high uncer-
tainty and anxiety for the candidates. Such acts may include
frequent changes to joining date, changes to original joining
date and subsequent cancellation of job offers, delay in joining
date and subsequent change in job profile, delay in joining date
and subsequent screening tests to provide the offer letter, etc.
Although there is no legal precedence for the award of dam-
ages to job candidates seeking future wages since revoking an
employment agreement before first day of work causes no legal
harm to either party, it is possible for job candidates to seek
compensation for damages, using detrimental reliance or neg-
ligent misrepresentation when their offers are rescinded after
acceptance (NACE 2001). If facts have been represented known
by the maker to be untrue, made with the intent to induce the
other party to act on it, and on which the other party relies to
his/her detriment can the party do something? To clarify,
what are the options for a candidate who relying on the prom-
ise made by the company resigns from his/her current job,
shifts location, incurs transport charges and is denied employ-
ment because of extraneous circumstances that may make it
impossible for the employer to provide employment? For ex-
ample in the 1997 Alaska case of Kathleen Rice case, Rice
made an oral agreement to accept a position as executive di-
rector of the Alaska Democratic Party. Rice accepted the offer,
resigned her position with the Gore vice-presidential cam-
paign, and moved to Alaska. After she moved to Alaska she
was informed that she would not get the job, she then filed a
suit. The trial court awarded Rice $28,864 in damages and
$1,558 for misrepresentation. Therefore, employers have start-
ed to videotape interviews as a precautionary measure, so that
later on the employee cannot claim detrimental reliance by
quoting promises that were not made by the employer in the
first instance. But if done without the knowledge of the em-
ployee, the ethical nature of the behaviour is under question.
Thus, in our view, job candidates stand a fair chance for get-
ting damages when they suspect wilful misrepresentation by
employers. Figure 2 (p 106) provides the conceptual frame-
work for negligent and wilful misrepresentation.
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Figure 2: A Conceptual Framework for Negligent and Wilful Figure 3: A Conceptual Framework for Negligent and Wilful
Misrepresentation by Employers Misrepresentation by Job Candidates

Change in Deferred job Delay in joining Overstatement

Cancellation Overstatement Overstatement
original joining offer without date and reduced of qualification of experience of salary and
of job offer
date specific joining date salary benefits

Negligent Negligent
misrepresentation Lack of misrepresentation
Applicant’s Lack of
communication Employer’s
perception perception communication
Wilful Detrimental
misrepresentation reliance Wilful
Detrimental
misrepresentation
reliance
Compensation
Compensation Frequent Change in original Delay in joining Delay in joining for
changes joining date date and damages Suppression Suppression Suppression
for date and
to modified and subsequent of of of health
damages change in job subsequent
cancellation of qualification experience information
joining date offer profile screening test

This brings us to the question: can there be negligent mis-
representation on the part of the employee as well? Can the
employee present facts about her/his qualifications, work ex-
perience negligently? A case to brood over may be the case of
Scott Thompson who had to quit following allegations misrep-
resenting qualifications regarding his computer science degree
in his resume. The all-pervading phenomenon of resume pad-
ding also plays out in the case of celebrity chef Robert Irvine
who lost his television show on the Food Network in 2008 after
embellishments were discovered regarding past work he had
done with Britain’s royal family and for the White House
(Brooks 2012).
An example of negligent misrepresentation would be where
a candidate fails to check the result and claims to be a topper
in his/her batch although in reality someone else is the
topper. The student making this may have every reason to
believe so based on his/her performance in the examination
or his/her past performance. In his/her overconfidence he/
she fails to check the result and misreports the result to the
recruiter in campus recruitment. An example of wilful
misrepresentation would be where a candidate suppresses in-
formation regarding health, experience or qualification. For
example, a candidate applying for the post of human resource
manager might not reveal his/her previous experience as a
sales executive or an additional qualification in Masters of
Education that he/she might have. In contrast, a candidate
may also overstate qualifications, experience or salary and
benefits. For example, a candidate may report his/her experi-
ence of 11 months and six days as one year. Figure 3 illustrates
the conceptual framework for negligent and wilful misrepre-
sentation by the job candidates.
Fraud or Fraudulent Misrepresentation
Scholars have recognised the legal confusion arising of the
term fraud with reference to its meaning and its usage because
of the indefinite and indiscriminate usage of the term fraud.
Fraud being more serious in nature necessitates a distinct
treatment. Section 17 of the Indian Contract Act, 1872 defines
fraud as acts committed by a party to a contract with an inten-
tion to deceive and induce the other party to enter into the
106
contract. Fraud is clearly committed for some kind of gain by
the party committing it. The act further elaborates that it is
the suggestion of a fact that which is not true and also one
does not believe it to be true. This is what distinguishes fraud
from wilful misrepresentation as it has been identified with
intentional and deliberate misrepresentation.
It is to be noted that while in other countries wilful misrep-
resentation is equated with fraudulent misrepresentation, the
Indian law clearly distinguishes misrepresentation from fraud,
each meriting discussion under different sections of the Indian
Contract Act, 1872. While wilful misrepresentation is a sup-
pression of fact or overstatement of fact, the act clarifies that
fraud is an active concealment of facts by either party. A candi-
date can commit fraud by fudging mark sheets, producing false
experience certificate and/or false salary slips. The employer,
for example, can commit fraud by fake websites, cooked up
balance sheets (for example, a start-up recruiting an experienced
executive from an established organisation in the industry),
fake offer letters, etc.
In misrepresentation, the aggrieved party can rescind the
contract. While the contract is not void it is voidable at the
option of the aggrieved party. It is worth mentioning that
fraud is a far more serious offence than wilful misrepresenta-
tion and may invite criminal charges and imprisonment.
Fraud is not just restricted to employer and employee in the
pre-employment phase but may also involve third parties.
This becomes apparent in cases where impersonators pose to
be from a particular organisation and make fake offers to
unsuspecting candidates and ask them to pay up an initial
deposit. Not surprisingly, the increased occurrences of such
incidents made one of the big four consulting firm recently
spend `50 lakh to warn aspirants against such frauds
(Economic Times 2013).
Risk Mitigation Strategy by Employers
to Deal with No Shows
While slippages from the employers’ side manifest as issues of
deferred job offer or revoked offer, changed and considerably
reduced offers, there are also instances where candidates
may defer joining and finally may not join. Organisations are
APRIL 29, 2017 vol liI no 17 EPW Economic & Political Weekly

not new to the practice, that there could be quite a few drop-
outs on the joining day from those who have accepted the
offer. One of the oft-cited reasons is that of personal reasons
and inability to relocate to the place of posting. In other
instances, the no-show would be because of a better offer.
But as Shivraj Agarwal, from ABC Consultants tells Sengupta
(2013) that “in times of plunging economy, candidates accept-
ing a job offer may back out fearful of the last in first out
syndrome.”
Notwithstanding the many reasons, as with lapses from the
employer’s side, this too has its costs. A refusal by a candidate
to join after accepting the offer may throw the organisation’s
plans topsy-turvy. It may also set the organisation back by
thousands of rupees of lost executive time spent in the selec-
tion process, unfilled vacant position, time to be further used
in starting the selection process again. The costs vary with the
position of the job in the organisational hierarchy. While it
may cost the organisation one weeks’ time of lost effort if
someone from the junior levels accepts but does not join, it
may mean three months of lost effort for senior levels. Naveen
Coomar, VP-HR, Impetus Technologies, Inc concurs (Times of
India 2010) that though this is an unethical practice, there is
not much an organisation can do at this stage and “this is a
reflection of social reality to some extent too.” Sandeep K
Krishnan, vice president (human resources and corporate de-
velopment) Acropetal Technologies, seconds this when he
states in a report in Times of India (2010) that “no-show
becomes an issue because in an open market, there are not
many ways to curb this.” What compounds the problem is that
“in India, it is not considered unethical to accept an offer and
not join,” he reiterates.
To mitigate losses against such occurrences, Sengupta
(2013) reports that organisations such as Phillips Carbon
Black have inserted a penalty clause in the offer letters. The
clause in the offer letter states that “candidates have to pay
5% of the offered salary if they accept the offer but don’t join.”
Taking into account the cost involved in searching for top lev-
el positions, the amount of penalty may be much higher for a
senior executive. It is interesting to note that the candidate is
not the only one penalised, few organisations have terms
built into their contracts with recruitment firms, who have to
then bear the cost if a candidate they have provided, back-
tracks. It is only natural, though not common, that organisa-
tions transfer the risk to the third party which is expected to
do a complete job of providing candidates for a position. This
penalty may extend to recruiters having to provide a replace-
ment candidate free of cost, if a candidate backtracks. In the
absence of any other mechanism through which the employer
can figure out that a certain candidate may not show up on
the scheduled joining date, the above clauses act as deterrent.
Figure 4 illustrates the risk mitigation strategy by employer in
case no-show.
Although Naveen Coomar claims that “This can be judged
through gauging the interest level of candidates during the HR
rounds. Constant touch and periodic interactions with the can-
didate could help towards identifying and anticipating whether
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SPECIAL ARTICLE
Figure 4: Penalty for Not Joining as a Risk Mitigation Strategy by Employers
Staffing agency
/CMI
Intent of offer
Penalty for
not joining
Employer
Employment
contract
Applicant Acceptance of offer
the candidate will show up on the joining day or not.” Whether
this method could reliably predict or not but it leads one to the
importance of achieving consensus ad idem by the employer
and employee during the selection process.
However, penalty for not joining as a risk mitigation strate-
gy may not be appealing and palatable to all job candidates as
rightly pointed out by a reader in Economic Times
Wait a minute here Philips, let aside the legal validity of this clause
which I very much doubt, you guys forget that free market is as ap-
plicable to you as it is to employees. You do things like this and no one
will even apply to you guys. Remember skilled labour is not unlimited.
You can not run with stupid clauses like this and hope to attract best
talent or for that matter any talent at all. Besides, what will you do if
the candidate joins and files resignation next day. You cannot sue him
for not joining, he joined after all.
Yes recruitment costs are high and finding the right candidate costs
time and resources and you suffer losses if people do not join. You
know the correct term for it? It’s called Risk. Learn more about it be-
fore you decide to do something stupid. (Kumar 2013)
Suggestive Regulation
While there have been some checks that have been devised to
curb impropriety from the employees’ side, can some guide-
lines be there to check employer behaviours? In the inevitable
circumstance when an employer has to revoke or defer job
offers, while the US has recommendations by the National
Association of Colleges and Employers (NACE) on Principles for
Professional Conduct, a body on these lines is conspicuous by
its absence in India. In the absence of a similar body, employers
may well go by the same recommendations to mitigate direct
and indirect damages.
The overlying principle in the recommendations being, that
if conditions change that require employers to revoke their
commitment to candidates, they need to pursue a course of
action that is fair and equitable to the candidate. In the first
instance, alternatives that do not require revoking job offers
need to be considered such as changes in job responsibilities,
reduced salary or reduces workweeks, changes in job locale
and delayed stating dates. In the worst case that an offer must
be revoked, the candidate may be reimbursed for expenses
associated with employment such as travel, relocation, etc.
Short-term financial assistance may be provided and career
advisory services may also be provided to help secure alternate
107
SPECIAL ARTICLE
employment. In the event that the start date gets delayed by
more than three months, short-term financial assistance and
regular contact with the candidate may keep the candidate
well-disposed towards the employer.
A careful reading of the first suggestion of considering
alternatives to revoking job offers reveals that organisations
have been doing this as reflected in Wipro’s alternate offers,
HCL Technologies and Infosys’s deferred joining dates in 2012.
What needs to be additionally done is the provision of career
centres and short-term financial support. It is worth noting
that LG Electronics compensated `70,000 to each of the
25 candidates whose job offers were revoked during 2012
due to unforeseen and compelling business circumstances.
The positive gesture from LG Electronics was much appre-
ciated by the candidates whose job offers were revoked
(Pagalguy 2012).
Placement Committees and Interns
It may not be fair if the entire buck for issues arising during the
pre-employment phase is passed on to the employer and the
candidate. A discussion on pre-employment issues would not
be complete without considering other bodies that are in-
volved in the pre-employment process apart from the employ-
er and the candidate. One such body is the placement commit-
tees of the various technical and professional institutes. As a
risk mitigation strategy, it may be worth considering an
advancement of placement season to later months or following
EPWRF India Time Series
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108
a just-in-time placement process rather than starting place-
ments one year before the candidate has to join. There is every
likelihood that offers made closer to the date of joining would
be based on actual need and better forecasts. This may
ameliorate the phenomenon of deferred job offers or offers
with no specific joining dates.
While quite some deliberation has gone into the role of
employer and candidate in misrepresentation, little has been
discussed with regard to the role of educational institutions
as labour market intermediaries in misrepresentation in areas
related to industry internship and final placements. Main-
stream media in India, especially business newspapers, pro-
vide fluffy content for their readers in the front pages such as
“In X institute the entire internship placement was over with-
in two seconds” (like Xiaomi Mi4i sale through ecommerce
websites), “It is raining Pre Placement Offers in Business
Schools,” and “Firms wage a war for talent by offering 30 to
40 percent increase in internship stipend.” In reality it serves
as unpaid advertisement for these institutes to market them-
selves as the best labour market intermediaries even as a
large section of students opt for internship without any sti-
pend and few students are asked to search for internship on
their own.
A close interaction with summer interns over the years by
the authors suggests that it is not rare that summer interns get
profiles which are very different from the ones promised dur-
ing the campus interviews. Some interns also complain that
Features
Presents All-India
and state-wise
annual data from
1980 onwards.
Structured in six
major sections :
• Demography
• Health Status
• Infrastructure
• Human Resources
• Health Education
• Health Finance
APRIL 29, 2017 vol liI no 17 EPW Economic & Political Weekly

they were given jobs which did not contribute to any learning
and they were asked to perform the day-to-day operational
work (for example, searching internet for data, making cold
calls, running errands, etc) which were not related to their
area of specialisation. When interns highlighted the misrepre-
sentation and protested, there were occasions that they were
threatened by the managers that both the students and their
colleges would be blacklisted by the firms forever. The irony is
that many institutes turn a deaf ear to students’ complaints
about quality of summer internship profiles as they tend to
depend on the same firms for final placements.
It becomes imperative to discuss internships as well in the
pre-employment scenario as interns are free labour for some
firms which otherwise would have to recruit employees and
pay them to perform such activities. It is estimated that firms
in United States save almost $2 billion annually by employing
unpaid interns (Perline 2012). Not surprisingly, unpaid intern-
ship is increasingly becoming a global trend. Nearly 50% of
the internships offered in US are unpaid internships and 92%
of journalist-interns were unpaid (Economist 2014). In short,
interest groups such as Interns Anonymous, Internocracy, and
Intern Aware insist that there is a greater need to recognise
the illegality of unpaid internships as they not only exploit
those who do them but also exclude those who cannot afford
to do them. In 2013, New York Court District Judge concluded
that the Fox Searchlight, the producer of Oscar award winning
film “Black Swan,” received the benefits of unpaid work by the
interns, which otherwise would have required paid employ-
ees. His decision was based on the Department of Labor’s
(DOL) six point test for an internship to be unpaid legally, so
that the interns would not be treated as employees within the
meaning of the Fair Labour Standards Act.
The DOL’s six point test emphasises that (i) the training
should be similar to the one which would be given in a voca-
tional school; (ii) the training should be for the benefit of stu-
dents; (iii) the students would work under the close
supervision of employees and they do not displace regular
employees; (iv) the employer should not derive any immedi-
ate advantage from the work of students; (v) the students are
not necessarily entitled to a job at the conclusion of the train-
ing period; and (vi) the employer and the students under-
stand that the students are not entitled to any salary for the
time spent in training. However, Searchlight has appealed
against this verdict arguing that interns are not employees
and are not entitled to wage protection under minimum wag-
es act since they are the primary beneficiaries of the intern-
ship and not the employer.
In the light of US DOL’s guidelines on unpaid internship,
Indian industry giants and trade associations advocating for
labour reform to amend the labour legislation such as the
Industrial Disputes Act, 1947 and the Contract Labour (Regu-
lation and Abolition) Act, 1970, should ideally push for re-
vamping the Apprentices Act, 1961, so as to change the nature
and quality of internships for students pursuing professional
courses, especially in engineering, technology, and manage-
ment institutes in India.
Economic & Political Weekly EPW APRIL 29, 2017 vol liI no 17
SPECIAL ARTICLE
Misrepresentation in the figures of average CTC and highest
CTC figures of the placed students is not unknown. For in-
stance, the placement statistics reported by many top business
schools in India is far from satisfactory in terms of transparen-
cy and reliability, especially in case of reporting of compensation
figures, despite many top business schools having committed
themselves for “Indian Placement Reporting Standards” initia-
tive by Indian Institute of Management Ahmedabad in 2011.
One time payouts or contingent benefits such as joining bo-
nuses, relocation allowances, and medical expenses are in-
cluded to make the CTC figures look grand.
Information on Business Education
One of the drawbacks of business education information in In-
dia is that candidates are too dependent on social networking
sites for authentic information about business school place-
ment information, which are mostly supplied by the institutes
themselves to attract prospective students. Many aspiring can-
didates naively believe that “their salary would be better than
the average salary for the last year batch and it is very unlikely
that they would be unemployed or underemployed after
spending two years at the business school.”
In this context, the legal dispute McDonald v Thomas M
Cooley Law School, a Michigan-based law school, might be very
relevant for aspiring MBA candidates in India in the absence of
better governance mechanism for placement disclosures at
many institutes in India. The alumni of Cooley initiated a class
action lawsuit against their alma mater for $300 million in
damages as they did not get employment or struggled to get
full-time permanent legal employment after completing their
law school education with Cooley. They alleged that Cooley
marketed its product to naïve and relatively unsophisticated
customers who relied on unaudited, unverified, and self-
reported statistics on placement, which claimed that 76% of its
graduates were employed and the average starting salary for
all graduates was $54,796.
The class action lawsuit, on the face of it, appears to be right-
eous approach by a few alumni suing their alma mater (under
the Michigan Consumer Protection Act—MCPA) and thereby
teaching a lesson to law schools indulging in deceptive market-
ing practices. However, the Michigan district court not only
dismissed the claim that the above placement statistics per se
amount to fraudulent misrepresentation but also concluded
that the graduates were not entitled for protection under MCPA
since they did not purchase the education from Cooley for the
sake of leisurely reading and understanding Supreme Court
reports but for making money as lawyers. In other words, the
Michigan court equated the candidates with business people or
investors who made bad business choices and not as consumers
of services as the prospective students would be treated in some
other jurisdictions like California or New Jersey. Further, the
district court view was affirmed by the Sixth Circuit Court
which suggested that the candidates’ level of career ambition
was not commensurate with their level of care and scrutiny as
it stated that “an ordinary prudent person would not have
relied on statistics to decide spend on $100,000 or more.”
109
SPECIAL ARTICLE

A discussion on suggestive regulation also warrants that for
dealing with misrepresentation in the labour market, the pres-
ence of a regulatory body or a process might not be enough. A
news report states that “India ranks 4th in the Asia Pacific in
terms of the level of discrepancies found” (Singh 2015). The
onus is on the candidate, the placement committee, the insti-
tute and the recruiter to exercise caution and to collect back-
ground information of the other party from various sources.
While employers have resorted to taking the help of back-
ground screening services, there are others such as Tech Mahi-
ndra which finds only 0.4% cases with fake documents out of
over 2,500 cases every month (Singh 2015). The company
credits this to its creation of awareness and alerting candi-
dates to the stringent checks they would be subjected to. While
information from internet, social media can be an important
source to gather facts about the other party, it needs to be
mentioned that social media is a double-edged sword which
can be used to spread good as well as bad news with equal
speed. It is by now common knowledge how candidates used
social media to express their resentment against HCL Techno-
logies not specifying a joining date and conducting a test, after
offers had been made to further shortlist candidates. This not
only exposed the practices of this organisation to the industry
and prospective candidates but was bad publicity that affected
its employer image.
Conclusions
A discussion of issues in the pre-employment phase would be
incomplete without examining it through a theoretical lens.
The three substantive dimensions of time, qualifications and
wages in the employment relationship framework (Huiskamp
1995) are also evident in pre-employment phase. The first is-
sue of time is clearly evident in the elapsed time between an
intent of offer is made and the onboarding process actually
begins. This is a time of anxiousness and uncertainty for the
employee. A delay might have financial, mental, emotional
social implications for the candidate. Further, the delayed
joining of more than a year could impact the probable wages
he could have earned and the qualifications that he could have
added. If so, can the organisation do something to compensate
for this loss? From the employer’s perspective accepting an
offer and no show on joining date by someone being consi-
dered for a critical role may mean setting back the search pro-
cess by months in time and hiring the first available by paying
a wage premium. Relating the framework to employee misrep-
resentation, inflating one’s qualification and acquired experi-
ence supports the employee’s demand for a higher wage and
gives him an unfair advantage of doing it in shorter than
normal time.
To conclude, while the article enlists and differentiates
some of the behaviours by employer, employee, and labour
market intermediaries like educational institutions in the pre-
employment phase that cause collateral damage, it is only
illustrative and not exhaustive. Given the discussion, it may be
fair to conclude that while some actions may be unavoidable in
the existing circumstances, it may augur well for the employer
and employee to exercise caution and prudence when engaging
in behaviours that may be legal but not ethical.

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110 APRIL 29, 2017 vol liI no 17 EPW Economic & Political Weekly
 A Position Statement on Rescinded and Deferred Employment Offers

Rescinding a job offer or an acceptance is an unfortunate practice, and should only happen in
rare instances when there are no realistic alternatives, such as when an employer is
downsizing. To provide guidance in cases when an employer must rescind an offer, the
NACE Principles for Professional Practice Committee offers a review of the laws regulating
employment, considers relevant ethical issues, identifies the key roles of career centers and
the NACE Principles, and makes recommendations for resolving individual situations fairly.

Legal Considerations

In general, candidates who have an offer rescinded do not have much legal recourse.
Although it varies from state to state, unless otherwise specified, employment is “at-will,”
meaning either the employer or the employee can terminate the employment relationship at
any time and for any reason. Consequently, candidates have a difficult time enforcing a job
offer or recovering damages for a rescinded offer when there is no duty on the part of the
employer to keep the individual employed.

That said, there are some circumstances in which a candidate may have legal recourse if an
employer rescinds a job offer. The candidate may be able to pursue a claim again the
employer under one of the following legal theories:

• Promissory estoppel
• Fraudulent representation
• Breach of contract
• Discrimination

Promissory Estoppel

Under the theory of promissory estoppel, an employer may be held liable if the promise of
employment results in a loss of some kind to the candidate. Generally, such a claim arises
when an employer makes a job offer and the candidate, in relying on the offer, loses or gives
up something of value in order to accept the offer, only to have the employer rescind the
offer. Examples of such losses include a candidate leaving an existing job or incurring
moving expenses to relocate for the job that an employer offered.

The potential for recovery varies from state to state, but some courts have found that even if
the employment relationship is merely “at-will,” the candidate is nevertheless entitled to the
damages incurred as a result of his or her “detrimental reliance” on the offer. It is unlikely,
however, that an individual will receive the job that he or she was promised.

Fraudulent Misrepresentation

To maintain a claim of fraudulent misrepresentation, a candidate must establish that the

company that made the offer did so with knowledge that the offer was false and intended for
the applicant to rely upon it.
For example, a claim of fraudulent misrepresentation may arise when an employer offers an
individual, who is currently employed, a position with its company. The individual then quits
her current position and moves to the employer’s location. Upon arriving at work, the
individual is informed that the offer is rescinded because the employer is closing the location,
a fact that was known by the employer prior to offering the individual employment. In this
situation, the employer fraudulently represented the facts to the individual despite knowing
that acceptance of the offer would require her to quit her job and move her family; as such,
she may be able to establish a claim for fraudulent misrepresentation.

While this is a difficult case to prove, a candidate who prevails under a claim for fraudulent
misrepresentation may be entitled to past and future lost earnings in addition to possible
punitive damages.

Breach of Contract

If an individual can prove a contractual relationship, above and beyond an employment at-
will relationship, he or she may have a cause of action for breach of contract against an
employer when an offer is unexpectedly withdrawn. When an offer and acceptance specify a
length of time of employment or that employment may only be terminated for “just cause,” a
contractual relationship may exist between the parties. If an employer thereafter rescinds the
offer, breach of contract liability may be imposed. If a candidate is successful with respect to
such a claim, he or she may obtain the total value of the contract.

On the other hand, a candidate must also be wary of a claim for breach of contract if he or she
fails to adhere to the terms of the agreement. If a candidate reneges on an employment
agreement after acceptance, the employer may bring a cause of action for breach. In this case,
the employer would need to show that the organization was damaged by having to forgo the
candidate’s services or because of the costs incurred with respect to replacing such a
candidate.

Discrimination

Candidates should also be wary of the reasoning behind an employer’s revocation of an offer.
If a candidate falls within a protected class (e.g. race, age, disability, gender, and so forth)
and is qualified for the position, and the offer is withdrawn and offered to a person outside
the protected class, the candidate may have been subjected to unlawful discrimination.

If the revocation comes after determining the candidate’s religious background or after
discovering a disability, for example, the candidate could consider filing a claim for
discriminatory failure to hire.

Does a Signing Bonus Make the Contract Enforceable?

As a practical matter, accepting a signing bonus forms a legal commitment by the job
candidate to work for the employer. Unless there is a contract indicating otherwise, however,
it is likely that the employment relationship will remain at-will. As such, the employee can
resign one minute after beginning work.

In this scenario, however, it is very likely that the employer will seek repayment of the
signing bonus from the employee. To avoid post-termination issues, employers should
provide such signing bonuses only pursuant to a written agreement clearly defining the
employee’s commitment in exchange for the bonus. Generally, such agreements will indicate
what an employee’s requirements are with regard to repayment should employment terminate
earlier than anticipated by the agreement. Such agreements must be clearly drafted so that the
status of employment is not altered and the employment remains at-will.

Notwithstanding the foregoing, if an employer provides an individual with a signing bonus

prior to the commencement of employment without a written agreement, the employee may
have no legal obligation to return the bonus. Absent such an agreement, the employer’s only
legal recourse may be a claim of unjust enrichment.

Further, at least one court has held that the language of an offer letter can determine when a
signing bonus vests, requiring payment to the candidate. A candidate may be entitled to
payment of the signing bonus, regardless of whether he or she actually commenced
employment, if the offer letter suggests that the bonus “vests” upon acceptance of the offer.
If, on the other hand, the signing bonus is payable to the candidate only upon commencement
of employment, the employer, generally, has no legal obligation to provide payment if the
candidate never actually starts working. As such, a candidate should make sure that the offer
letter clearly states that he or she is entitled to the signing bonus even if the offer is rescinded.

In sum, because most employment offers and acceptances are for unspecified periods of time,
the creation of an enforceable employment contract based on an offer and acceptance is
unlikely. While there may be a moral commitment to follow through with the employment
relationship, especially when a signing bonus is involved, the employer and job candidate
must rely on their ethical commitments to each other for the agreement to have any viability.

Ethical Considerations

Because laws are not intended to regulate all conduct or to remedy all harm, we regard ethical
principles as the platform for managing our dealings with others. If an action results in injury
to someone, where no firm rules or prescriptive standards exist, we seek to negotiate fair
resolutions for individual situations. We try to achieve outcomes that everyone can live with,
even if the terms aren’t fully satisfactory to all.

No one should deny that there is damage all around as a result of rescinded offers. For the
employer trying to survive in hard times, there are short-term, unrecoverable recruiting costs,
including lost employee time and frustration for employees involved in recruiting. Longer
term, there is loss of credibility and reputation on campus.

For the job candidates, the losses are more personal. All of them have lost time and
opportunity for significant earnings. They must restart their job searches, often after having
declined other job offers. In some cases, candidates have already relocated before their job
offers were revoked, leaving them with sometimes significant moving and lodging costs.
Some candidates have even incurred medical costs in attempting to cope with their anxieties,
disillusionment, and frustration.

Career services professionals experience losses as well. They must endure knowing that
much of their good work in carefully cultivating relationships with employers is at risk. They
share the disappointment and frustration of students because their efforts to help them,
ultimately, were unsuccessful. In addition, students may question the value of career services
programs.

If an employer must revoke an offer, the employer should let candidates know as soon as
possible. The employer should consider offering some type of assistance to help the student
get back into the recruiting process, such as providing outplacement services or a stipend to
help the student cover expenses.

The Key Role of Career Services

Career centers are in a key position to deal with rescinded offers. They can assist students in
regaining their balance and help them to salvage their employment campaigns. They can
advocate and mediate equitable resolutions to the students’ hardships. Career services staff
can also counsel employers on how to minimize damage to their reputation, restore their
credibility, and start fresh. Dismayed though they may be, career services professionals have
resources for resolving individual problems and restoring equilibrium to campus recruiting
programs.

The Role of the NACE Principles

The NACE Principles offer reliable guidance, but in general terms, on the topic of rescinded
job offers. By way of remedy for a rescinded offer, “Principles for Employment
Professionals, No. 3” advocates “a course of action for the affected candidate that is fair and
equitable.” The principles leave to those involved—employers, students, and career services
professionals—the latitude needed for negotiating appropriate resolutions for individual
situations.

Recommendations for Employers

Consistent with the NACE principle cited above, the NACE Principles for Professional
Practice Committee urges a two-part approach to employment offers under consideration for
revocation. The first emphasizes the need for a commitment to high standards in recruiting.
The second offers a reasoned approach to dealing with rescinded and deferred offers.
Regardless of the approach taken, however, employers must be consistent in the application
of their actions to avoid any claims for discrimination under federal or state laws.

I. Employers should root their campus recruiting programs and processes to a solid
understanding of the NACE Principles and be in compliance with them. As noted, the NACE
document, Principles for Professional Practice, provides direction to employers who find it
necessary to change their commitments regarding employment to candidates. The guiding
principle advises that: “Employment professionals will supply accurate information on their
organization and employment opportunities. Employing organizations are responsible for
information supplied and commitments made by their representatives. If conditions change
and require the employing organization to revoke its commitment, the employing
organization will pursue a course of action for the affected candidate that is fair and
equitable.” We urge employers to follow this principle assiduously.

II. As a practical consideration, employers are encouraged to do their utmost to minimize the
negative consequences to candidates when they must change their commitments to them. We
recommend the following course of action:

A. First, consider alternatives that do not require rescinding employment offers. These may
include changes in job responsibilities, salary reduction and/or reduced work weeks, changes
in job locale, delayed starting dates, and other reasonable options.

B. If the offer must be revoked, it is strongly encouraged that assistance to the affected
candidates be made which may include, but is not limited to:

1. Reimbursement for expenses incurred in their acceptance of employment, such as

travel and relocation expenses.
2. A provision for short-term financial assistance.
3. Services to aid the candidates in securing other employment.

These actions benefit the affected candidates by offering fair consideration for their losses.
Equally important, these actions also benefit the employer’s college relations efforts by
minimizing the damage to its reputation.

C. Alert candidates about their changes in employment status or commitments as soon as

possible to enable them to make informed and timely decisions regarding their employment
opportunities and other options.

D. As close as possible to their communications with the affected students, employment

professionals should make every reasonable effort to inform the staff of the candidates’
career services centers. Involving career services is beneficial because these practitioners are
trusted by students and can provide supporting services to help the students in a time of
personal crisis. For example:

• The staff can later contact the candidates and offer their services to help them in
gaining other employment.
• The staff can advise employers on how to minimize damage to their reputations and
recruiting effectiveness.

E. Finally, if employment professionals opt to delay the candidate’s starting date by more
than three months in lieu of revoking the job offer, they should maintain regular contact with
the candidate before the start date and provide the candidate with appropriate short-term
financial assistance. Doing so will help keep the candidate well-disposed toward the
employer.

While this proposal may not provide a perfect resolution to a revoked offer, it does offer the
candidate consideration of some value. More important, it gives everyone involved—
employers, candidates, and career service professionals—an opportunity to restart the job-
placement process and move onward.

Conclusion

The campus recruiting process has succeeded for many years in large part because the NACE
Principles have given employers, students, and career centers reliable guidelines for making
their cooperative efforts successful. Using the NACE Principles as our guidelines, we have
proposed a route, based on the concept of fairness, to reconcile individual situations when
employers feel compelled to rescind or defer accepted job offers. We also offer this document
as a way to maintain a climate of trust and keep the campus recruiting process on track.

Reviewed 2016 by NACE Principles for Professional Practice Committee.

What the law says when your employer withdraws your job offer
While Grofers is dealing with legal notice sent to them by agitated students whose job offers the company
retracted, here's what the law has to say about it.

Vani Vyas, People Matters, Aug 3, 2016

The most coveted and pleasing words an ardent job seeker can ever hear is –“We're pleased to
offer you a position with us," but all goes in vain when these dreaded words slay the excitement,
"We unfortunately will have to withdraw our offer of employment."

The latest Indian e-commerce company, Grofers revoked the job offers of the students who were
placed on campus. Not long before, this year in May, Flipkart deferred job offers to about 15 IIM-
A students and because of this event IIM campuses have threatened them to blacklist from
recruiting companies. Flipkart was also in the news recently for plans to let go over 700-1000
underperforming employees. But deferring job offers and revoking/withdrawing offers are
different.

Another recent example this year would be, L&T Infotech which has withdrawn offer letters from
1,500 students based in South India. Agitated students undertook one-day hunger strike to protest
against the corporate giant L&T Infotech. As per them repeated promises of employment were
made by the company for 18 months and now they have suddenly decided to revoke their offer.

Prashanth Verma, assistant vice-president, marketing at Grofers, said, “We have revoked 67 offers
in total. We are making some strategic changes in the company. We are downsizing because of the
market environment and revised growth projections. So, these changes have been made and we
are no longer able to give the offers we had made.”

These repeated scenario of retracting jobs by employers have impacted the morale of future job-
seekers in the market. So, what do you do when a prospective employer offers you a job but pulls
the rug under you?

The legal side of Ignominy

Here is what our legal system has to say on arbitrary decisions taken by companies to withdraw
job offers abruptly. As per Section 5 of the Indian Contract Act, 1872-

"A proposal may be revoked at any time before the communication of its acceptance is complete
as against the proposer, but not afterwards. —A proposal may be revoked at any time before the
communication of its acceptance is complete as against the proposer, but not afterwards."

The job offer once accepted becomes a basic legal contract between you and your new employer
and when your employer withdraws that offer then it falls under ‘Breach of Contract’. Normally
the contract once made cannot be unilaterally revoked. Only both parties can discharge each other
from obligation by novation /accord and satisfaction.
"Acceptance and intimation of acceptance of offer are therefore both necessary to result in a
binding contract. In the case of a contract which consists of mutual promises, the offeror must
receive intimation that the offeree has accepted his offer and has signified his willingness to
perform his promise. When parties are in the presence of each other, the method of communication
will, depend upon the nature of the offer and the circumstances in which it is made." Bhagwandas
Goverdhandas Kedia vs M/S. Girdharilal Parshottamdas (1966 AIR 543, 1966 SCR (1) 656)

So, if an employer rescinds a job offer, candidates can sue the employer for damages, if losses
have been suffered. The court looks into your case and if it finds your contract was breached then
it can order your employer to pay you damages or compensation.

How should employers handle rescinded job offers?

From the legal perspective, the employer should notify the individual as soon as it becomes aware
of it. Section 6 Of The Indian Contract Act tells us the requisites of revocation of contract. One
needs to communicate to other party and if there is lapse of time in accepting the offer then
contract can be revoked. Another reason is if acceptor fails to fulfil conditions precedent to
acceptance.

Section 6 - “Revocation how made.—A proposal is revoked— —A proposal is revoked—"

1. by the communication of notice of revocation by the proposer to the other party;

2. by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so
prescribed, by the lapse of a reasonable time, without communication of the acceptance;
3. by the failure of the acceptor to fulfil a condition precedent to acceptance; or
4. by the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge
of the acceptor before acceptance.”

Therefore, employers should do everything best possible to address the concern of the
individual. They should help the employee to find another job inside or outside their company.
As repeated rescinding offers might blemish reputation of the company. In future it might be
difficult for them to hire bright talents into their company. They need to consider the ramifications
of revoking job offers and do whatever to minimize the negative results of the outcome.
ERLJwinter1223 12/23/04 11:31 AM Page 40

“But It’s in My Contract . . . !” When

Employers Should (and Should Not) Use
Employment Agreements

Lisa L. Ballentine and Matthew W. Clarke

This article highlights some of the key provisions employers should consider with employ-
ment agreements, and also emphasizes the restrictions and commitments that employ-
ment agreements should generally entail.

Y ou are the person in management at your company who is

responsible for hiring the head of a new company division. You
finally located the individual that you believe to be “the right one” for
the job. However, you want to make certain that your new employee
understands what the company expects from her and what the com-
pany will provide in return. Maybe there should be something in writ-
ing between the new employee and the company. You could always
confirm the terms of the position in a letter to the employee, but
what exactly does that accomplish? Does it give the company any
protection? Does it obligate the company? Is it a contract? Maybe you
should have an employment agreement with your new hire.You could
take your own employment contract, make a few changes and use
that document, but what changes to make? Does this new employee
need the same provisions contained in your employment agreement?
Do you really need anything in writing at all?
This scenario, its questions and its issues are faced by companies every-
day. When it comes to employment agreements, inertia is king. Those
companies that have historically used employment agreements often-
times follow past practice and continue to enter into employment agree-
ments with new employees, even if doing so is not really necessary or
advisable. On the other hand, companies that have historically not used
employment agreements may tend to theorize that since they have not
been “burned” in the past by not using them, why start now? Typically,
employers fall into one of three categories:

1. Companies that never use employment agreements (but

should);

2. Companies who use employment agreements with almost

every employee (but shouldn’t); and

Lisa L. Ballentine and Matthew W. Clarke are partners in the Litigation Practice of Smith,
Gambrell & Russell, LLP.
ERLJwinter1223 12/23/04 11:31 AM Page 41

But It’s in My Contract

3. Companies that tend to dredge out their old “Standard

Employment Agreement” and simply change the employee’s
name, title and salary on the form on the computer, without
really considering alternative ways to structure the operative
document that will define the essential terms of the employment
relationship.

This article highlights some of the key provisions employers should

consider with employment agreements, and also emphasizes the restric-
tions and commitments that employment agreements should generally
entail.

WHY SHOULD EMPLOYERS USE

EMPLOYMENT AGREEMENTS?

Why would an employer enter into an employment agreement with an

employee? There are several reasons. An employment agreement can pro-
vide clarity with respect to the parties’ expectations for the employment
relationship.A well-drafted employment agreement can ensure that both
the employer and the employee understand what the other expects con-
cerning duties and responsibilities, compensation, benefits, and grounds
to terminate the relationship. In addition, an employment agreement can
clearly define an employee’s incentives to perform, such as requirements
for bonuses, commissions, evaluations, performance goals and objectives
and consequences for failure to meet those goals and objectives. An
employment agreement can also confirm the status of employment—will
employment be at-will, or for a specified term, and how long will that
term be? With an employment agreement, the employer can define mini-
mum commitments and obligations for both the employer and the
employee and, if well drafted, can minimize disputes based upon the ter-
mination of the employment relationship by clearly setting forth the
terms under which the employer and employee may separate. Finally, in
today’s workforce, in order to recruit certain executives, salespeople, or
research and development personnel, the employer may have to provide
the employee with some guarantees in writing in order to persuade that
individual to enter into the employment relationship.
On the other hand, there are reasons not to have employment agree-
ments, and most of those reasons concern the employer’s ability to end
the employment relationship. Employment agreements restrict and limit
an employer’s flexibility in terminating the employment relationship.
Most employment agreements require “cause” as defined and agreed
upon between the parties in order to terminate the relationship. Many
agreements provide that an employer must terminate the employment
relationship within or at a specified period of time in the term of the
agreement and employment agreements usually require the employer to
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But It’s in My Contract

pay the employee some compensation at termination if the employment

relationship is not terminated for “cause.” If the employment agreement
is not terminated properly or if the employer deviates from its terms, the
employer faces a claim for breach of contract and possibly wrongful ter-
mination.
Therefore, while employment agreements can be useful tools, they are
not arrangements to be entered into without careful thought, planning
and consideration.

WHAT IF AN EMPLOYEE DOES NOT HAVE AN

EMPLOYMENT AGREEMENT?

True or false? Absent a written or oral agreement of employment that

specifies the duration or specific period for employment, an employer
can terminate an employee at any time, for any reason or for no reason,
with or without notice. Many employees will respond that any such state-
ment is false because an employer cannot terminate an employee with-
out good cause and some notice. However, the statement is absolutely
true in the majority of states.The doctrine is called “employment at-will”
and in most states, as long as an employer does not terminate an employ-
ee for an illegal reason (i.e., discrimination, jury service, workers’ com-
pensation claim, etc.) either party can terminate their employment rela-
tionship at any time for any reason and the employee has no claim for
wrongful discharge.
There are some exceptions to the employment at-will doctrine.
Obviously, an employer with a unionized workforce under the terms of a
collective bargaining agreement cannot terminate an individual’s employ-
ment in violation of that agreement. Some states have laws which provide
that a period of compensation—for example, a monthly salary, semi-
monthly or weekly salary—creates a guaranteed period of employment
for at least the time period provided by the compensation.There are fed-
eral and state laws that prohibit discharge from employment based upon
discrimination, pursuing rights under wage and hour laws, for service on
a jury or for military service obligations. In addition, many states have
statutes and regulations prohibiting discharge of employees due to the fil-
ing of a workers’ compensation claim, reporting an employer for illegal
activities, political orientation or sexual preference. Although some states
have some notice requirement prior to termination even absent an
employment agreement, in the majority of states, provided that there is
no employment agreement and provided that the reason for termination
is not illegal, either the employer or the employee can terminate the
employment relationship at any time for any reason or for no reason, with
or without notice, and the employer will not face liability for a claim of
wrongful termination or wrongful discharge.
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But It’s in My Contract

WHO SHOULD HAVE AN EMPLOYMENT AGREEMENT?

Many employers operate under the belief that all employees should
have employment agreements. This practice is particularly evident with
European-based parent companies who, based upon employment laws in
their countries, assume that each employee in their American subsidiary
needs an employment agreement. Consequently, employers often have
workforces where everyone from the president down to the receptionist
has an employment agreement. Practically speaking, an employer’s use of
employment agreements should be limited. The use of employment
agreements should be reserved for employees whose absence would
damage, limit or impair the company’s ability to conduct business, for
employees who possess unique skills, knowledge or abilities, or for
employees who would be extremely difficult to replace. Typically,
employment agreements are best used for high-level executives, such as
chief executive officers, chief financial officers, chief operating officers,
presidents and vice presidents, heads of divisions or other members of
upper management, significant research and development or information
systems personnel and highly compensated or high-producing sales per-
sonnel. Generally, mid-level and lower-level employees and routine office
personnel such as receptionists, administrative assistants, accounts
receivable and accounts payable clerks, bookkeepers and even office
managers should not have an employment agreement, so that employ-
ment may be terminated and the individuals replaced as needed without
having to pay for a notice period or pay any form of severance pursuant
to the terms of a contract.

A CAVEAT ON OFFER LETTERS

Many employers use offer letters to extend an offer of employment

and to outline the terms of that employment relationship. Unfortunately,
many employers do not realize that offer letters can frequently form the
basis for an enforceable agreement, especially when an employer asks
the individual to sign the offer letter if accepted, date it and return it to
the employer.Therefore, employers should carefully consider and review
offer letters for any promises that might be construed as a guaranty of a
particular length of employment, or that employment may only be ter-
minated for “cause.” An employer should consider putting “at-will” lan-
guage in an offer letter. Such language should indicate that employment
with the company is “at-will” and may be terminated by the employer or
the employee at any time, for any reason or for no reason, with or with-
out notice.While such language may seem legalistic or cold, it can avoid
having an offer letter construed as a contract for some specific term and
avoid a great deal of confusion, hostility and legal fees.
ERLJwinter1223 12/23/04 11:31 AM Page 44

But It’s in My Contract

WHAT SHOULD BE IN AN EMPLOYMENT AGREEMENT?

Employment agreements are governed primarily by state laws, and the

laws applicable to the construction, validity and enforcement of employ-
ment agreements differ from state to state. Generally speaking, for an
employment agreement to be enforceable, it must contain the basic ele-
ments of a contract for services.That means that whether the contract is
in writing or is an oral agreement or implied understanding between the
parties that constitutes a contractual arrangement, there must be some
identification or designation of the employee’s place of employment, a
specific time period or fixed term for the period of employment, a
description of the services that the employee is to provide and the
amount of compensation the employee is to receive for the performance
of those services. In addition, at least two parties must have entered into
the contract—the employer and the employee.
Generally, the terms of any agreement must be sufficiently clear to
be understood and enforced. A written employment agreement will be
construed in favor of the party who was not involved in drafting the
document and will be construed against the party who prepared the doc-
ument.Therefore, employers should have their legal counsel review their
employment agreements before such agreements are put into use.
A general rule of thumb is to avoid the use of any industry-specific or
company-specific words or phrases.The agreement should be written so
that a third party could easily read and understand the document. If the
agreement is unclear, vague or ambiguous, it will provide fertile ground
for misinterpretation and disputes between the parties and may very well
render certain provisions or the entire contract invalid. If you must use
an industry or company-specific word or phrase, make certain that the
phrase is clearly defined in the contract. Do not assume that the term or
phrase is understood by those who will be bound by the agreement.

Description of Duties

An employment agreement should contain a clear description of the

employee’s job duties. Such a description should include the name or
title of the position as well as the essential job functions or duties of the
position. In addition, the agreement should include language which
requires the employee to put forth his or her best efforts on behalf of the
employer, to focus all of the employee’s time, energy and effort to the
interests of the employer during working hours, and to refrain from
engaging in any activities or conduct which would damage or impair the
company’s business. A description of job duties should include the place
or location where the duties will be performed and the expected hours
of employment or operating hours for the office or site of employment.
The employer should make certain that the reporting relationship is
described—from whom will the employee take direction and to whom
ERLJwinter1223 12/23/04 11:31 AM Page 45

But It’s in My Contract

will the employee report? An employer should make certain that the
employment agreement states that the employee will perform the duties
described for the position and any other duties that may be assigned to
the employee from time to time by the employer.

Term of the Agreement

One of the most important terms of the contract is the length of the
agreement. While the importance of stating the term of the agreement
should be self-evident, unfortunately, many employers tend to overlook or
minimize the significance of this provision.The importance of the provi-
sion becomes painfully clear later on when the employer attempts to ter-
minate the contract. An employment agreement should clearly set forth
the term of the agreement. The written agreement can indicate that
employment is “at-will,” meaning that the employment relationship can
be terminated by either party at any time with or without cause and for
any or no reason, with or without notice, or by providing some minimum
form of notice, such as written notice seven or 14 days prior to termina-
tion. Keep in mind that when an employment agreement requires a
notice period, the employee must be paid for that notice period. The
agreement may be for a fixed term, such as one year or two years.With a
fixed term, the parties should clearly indicate what happens at the end of
the term. In other words, the parties should decide whether the agree-
ment will simply end or whether the agreement will continue, such as
with a one-year extension of the agreement, unless one party provides
notice to the other that there will be no extension of the contract.

Compensation

An employment agreement should clearly set forth the terms of the

employee’s compensation.An agreement should address any form of base
compensation such as salary, hourly wages, or commissions. For employ-
ees paid by a salary, the compensation should be identified in two ways:
by the amount that the employee will draw per pay period (weekly,
biweekly, semi monthly), and by what those payments equal on an annu-
alized basis.With an hourly rate, the agreement should clearly indicate at
what intervals the employee will be paid, the expected hours of work per
week, and whether overtime must be approved prior to its accrual.
Commission payments can be a matter of great contention between an
employer and an employee. Therefore, an employer must make certain
that any requirements for commissions are clearly spelled out in the
employment contract, including when a commission is earned, how and
when a commission is paid, whether the employee will receive a draw
against commissions, whether the employee is required to repay any
unearned draws if employment terminates, and the effect of employment
termination on any pending deals, sales, contracts or projects. That last
ERLJwinter1223 12/23/04 11:31 AM Page 46

But It’s in My Contract

point is particularly significant in order to avoid situations in which

employees claim that they are entitled to commissions even though their
employment has terminated, e.g., if a sale is “in the works” but the com-
pany has not yet been paid by its client at the time the employee leaves,
will that employee be entitled to a sales commission, or must the com-
pany have actually received payment itself by the time the employee
leaves to be entitled to a commission?
In addition, with regard to compensation, any incentive programs or
arrangements should also be addressed and the terms set forth in plain
language. For example, if the employer pays a bonus, the employer should
indicate in the agreement whether the bonus is discretionary and who
makes the decision, or if there are certain performance criteria for a
bonus, those criteria should be plainly identified along with how the cri-
teria are met, who determines that the criteria have been met, and when
the bonus is earned and paid. The agreement should also indicate what
happens to eligibility for any incentives if employment terminates and if
different reasons for termination impact the payment of the incentive.
For example, will the company pay a bonus to an employee whose
employment is terminated due to some form of misconduct, such as
fraud, theft or sexual harassment?
The provisions that address compensation should also indicate
whether the employee is to be reimbursed for any reasonably incurred
business expenses and what the employer’s requirements are for reim-
bursement of those expenses. If an employee is provided with a car, meal,
travel or living allowance, the terms for those allowances should also be
included in the employment contract. Finally, the employment contract
should indicate how and when the employee’s salary may be adjusted,
either up or down. If an employee’s salary is altered after a written
employment agreement has been entered into, an amendment should be
prepared for the agreement so that the individual’s correct level of com-
pensation is clearly documented.

Benefits

A written employment agreement should also address any benefits to

be provided to the employee or for which the employee may be eligible
during the term of employment. If the employer provides health, dental,
vision, life, or disability insurance to its employees, those benefits should
be identified in the employment agreement, but any provision concern-
ing those benefits should indicate that the employee will be eligible to
receive those benefits provided that the employee meets and satisfies the
requirements for coverage pursuant to the employer’s benefit plans.
If the employer will also provide some form of professional liability
insurance for the employee, that provision should also be documented in
the employment agreement as well as any requirements for coverage. If
the employer intends to reimburse an employee for professional license
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But It’s in My Contract

fees or memberships in professional organizations or associations, or

reimburse the employee for educational training courses that would
increase the employee’s value to the company, the parties should docu-
ment their understanding in the employment contract. An employee’s
entitlement to paid vacation, holidays and sick leave should also be out-
lined in the employment agreement, along with any requirements for or
restrictions on the use of paid leave. Any entitlement or eligibility for
stock options, profit sharing plans or pension plans should also be iden-
tified in the employment agreement, and if the company utilizes other
documents that govern those entitlements, those documents should be
identified in the employment contract.

Performance Targets

If the employer has any specific performance goals or benchmarks that

it expects the employee to achieve, obviously, those terms should be
clearly set forth in any written employment agreement. For example, if
the employee is expected to achieve a certain volume of sales, meet a
specific level of production, limit or reduce overhead expenses or reach
a certain skill level, it is essential that those performance terms be iden-
tified in the employment contract. Oftentimes employers leave perform-
ance targets rather vague, e.g.,“Employee will be paid a bonus if sufficient
sales are achieved.” Such vague terms often leave unanswered many vital
questions, i.e., How much bonus? When will it be paid? What level of sales
is required? The more specific an employment agreement is in defining
performance targets, the less likely disputes are to arise.

Termination

A vital provision in any employment contract is the one that deals with
the termination of the agreement and of the employment relationship
itself. If an employment relationship is not at-will, then a termination pro-
vision must address under what circumstances the employment contract
can be terminated, who can terminate the employment contract, and
whether the employee is to receive any form of compensation upon ter-
mination. A termination provision should plainly address any grounds for
termination. For instance, the agreement should set forth what happens
if the contract merely expires at the end of a term.The agreement should
also address what happens if the contract is terminated by the employee
or the employer.
With regard to the employee, the agreement should state that the
employment contract terminates upon the death of the employee. The
parties should document what payments would be made to the em-
ployee’s designated beneficiary or to the employee’s estate upon the
employee’s death. The employment agreement should also address if
the employment agreement will terminate in the event of the employee’s
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But It’s in My Contract

disability.The Americans With Disabilities Act, 42 U.S.C. § 12101, provides

that an employer may not discriminate against an employee based upon
a disability if the employee is able to perform the essential functions of a
job with or without reasonable accommodation. Therefore, in order to
comply with the Americans With Disabilities Act, employment agree-
ments that address termination in the event of an employee’s disability
usually state that, due to the significance of the employee’s position and
responsibilities, employment will terminate if the employee is unable to
perform the essential functions of the job due to a mental or physical dis-
ability for some extended period of time in a 12-month period, such as
120 or 180 consecutive days. Typically, such provisions are reserved for
employees in significant management, research or product development
roles, and should be reviewed by legal counsel.
An employment contract should provide some means for an employee
to end the employment relationship without cause or reason. Generally,
such a provision states that an employee may terminate the employment
relationship without cause or reason by providing some specified writ-
ten notice to the employer, such as 14 days or 30 days written notice.
Some employment contracts provide that an employee may terminate
the employment contract for “good reason.” “Good reason” is often
defined as a substantial change in the employee’s duties or responsibili-
ties without the employee’s consent; a change in the employee’s com-
pensation without the employee’s consent; a requirement that the
employee relocate to another city or state; or the employer’s breach of
any term of the employment contract. Obviously, such provisions should
not be included in every employment agreement. Typically, such provi-
sions are found in employment contracts where the employee is of sig-
nificant value to the company and the employer has negotiated such a
provision with the employee in order to obtain the employee’s services.
For an employer, such a provision should never be entered into without
careful consideration as most such provisions provide that the employee
is entitled to some form of severance if the employee terminates the
agreement for “good reason” as defined by the terms of the contract.
As for the employer, the employer should also have a provision in the
employment contract that allows the employer to terminate without
cause or reason.Again, such provisions typically provide that the employ-
er may terminate the employment contract without cause or reason by
providing some advance written notice to the employee of the termina-
tion. An employer would be wise to include in any such provision a
clause that allows the employer to relieve the employee of duties and
responsibilities during the notice period and to pay the employee for the
notice period rather than have the employee remain in the workplace.
Employers should also have a carefully drafted provision that allows
the employer to terminate the agreement for “cause.” Unfortunately, many
employers simply use the word “cause” and assume that the term “cause”
must be defined by law. Generally, that term is not the subject of some
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But It’s in My Contract

specific legal definition and if it is, it generally requires some extraordi-

narily bad conduct on the part of the employee in order to justify a ter-
mination for “cause.” Some employers so poorly define the term “cause”
that termination of the employment contract and relationship requires
some criminal act, gross negligence or reckless conduct on the part of the
employee, rendering termination for poor performance virtually impossi-
ble.Therefore, an employer should make certain that any provision which
provides for termination “for cause” not only includes criminal acts or
conduct, fraud, misrepresentation, theft or dishonesty, but also includes
factors such as poor performance to be judged in the company’s sole dis-
cretion, criminal convictions or the entering of a plea of “guilty” or “nolo
contendre” to any crime, a violation of company policies and procedures,
and any act or omission that results in a breach by the employee of the
employment agreement.
The employment contract should also indicate what compensation, if
any, will be paid upon termination of employment. One of the pitfalls that
traps many employers is the use of an employment agreement that does
not spell out precisely what the employee will, and will not, receive when
the agreement is terminated. Unless your contracts have such definite
terms, do not be surprised to see an employee who is terminated one year
into a three-year employment agreement try to claim entitlement to a
lump-sum payout of the remaining two years under the agreement. To
avoid such a situation, differing compensation options are usually provid-
ed depending upon whether the agreement is terminated “with” or “with-
out” cause, by voluntary resignation, etc. For example, many agreements
provide that if an employee resigns, the employee will be entitled to
receive only that compensation which has been earned up to and includ-
ing the date of termination.However,if the employer terminates the agree-
ment without cause, the employee will receive some form of severance in
addition to any accrued but unused vacation, bonuses or other incentive
compensation to which the employee may be entitled.
Typically, agreements provide that if the employer terminates the
agreement for “cause;” however, that term may be defined in the agree-
ment, and the employee will receive only the amount of compensation
earned up to and including the date of termination. Obviously, what hap-
pens upon termination is important to both parties and its impact upon
any compensation due the employee should be clearly set forth in the
employment contract.

Restrictive Covenants

Many employers want their employment agreements to contain

restrictive covenants. Restrictive covenants are provisions that provide
that during the term of employment and for some period of time there-
after, the employee will not compete with the employer, solicit customers
or solicit employees of the employer. The goals of restrictive covenants
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But It’s in My Contract

are to protect the employer’s assets, goodwill and its relationships with
its customers and its employees. Artfully drafted, restrictive covenants
can serve those purposes. However, restrictive covenants are governed
by state laws and those laws differ greatly from state to state. For compa-
nies operating in several states, a restrictive covenant contained in an
employment agreement may be enforceable in one state and invalid in
another. Most state laws require that restrictive covenants be reasonably
related to and necessary for the protection of the legitimate business
interests of the employer and require that the covenants be reasonable in
geographic scope, time and the nature of the activities prohibited.
Restrictive covenants comprise a volatile, complex and ever-changing
area of the law. Suffice it to say that the restraints and limits of this article
do not provide for an adequate discussion of restrictive covenants in
employment agreements. However, employers should make certain that
any restrictive covenant provisions are reviewed by legal counsel and
they should have such provisions reviewed on a periodic basis in order
to ensure that such provisions remain valid and enforceable.

Dispute Resolution

In an attempt to decrease litigation expenses and reduce exposure to

uncertain jury awards, an increasing number of employers are now
including arbitration clauses in their job applications, employee hand-
books and employee contracts. By agreeing to arbitrate instead of litigate,
employees give up their rights to have their claims heard by a jury in a
court of law. Arbitration provisions can be an effective, efficient and eco-
nomical way of disposing of employment disputes. However, such agree-
ments are not without their faults.
Why arbitrate? Studies show that many potential jurors tend to have a
“pro-labor” mind set that favors terminated employees. Many jurors tend
to feel that employees should be the top priority of a company, not its
profits. It is not surprising to find out that employees win the majority of
all employment lawsuits that go to trial. When they rule in a plaintiff’s
favor, juries can award large damage verdicts and punitive damages are
often awarded by juries that can easily reach into six figures and beyond.
With these risks in mind, it is not surprising that many employers are
turning toward mandatory arbitration provisions in their employment
contracts, handbooks or even job applications, whereby aggrieved
non-union employees agree to waive their rights to a jury trial, to take all
common law and statutory claims out of the judicial arena, and to pri-
vately arbitrate those disputes. Arbitration provisions are not limited to
traditional “discrimination” claims, such as those based on race, sex, age,
disability, etc. In actuality, the majority of employment-related lawsuits
allege state common law claims such as breach of contract, intentional
infliction of emotional distress and similar allegations, and such claims
are ripe for arbitration. Courts in most judicial circuits will generally find
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But It’s in My Contract

an arbitration provision to be enforceable, so long as certain procedural

safeguards are in place. To be enforceable, an employee’s agreement to
arbitrate claims must generally be “knowing and voluntary.” In other
words, an employer cannot try to slide an arbitration provision into a con-
tract or handbook. The arbitration provision must be conspicuous and
should be in plain language.

MAKING THE EMPLOYMENT RELATIONSHIP WORK

The main purpose behind employment agreements is to clarify the

parties’ expectations. When a new employee is hired, it’s always “milk-
and-honey”—neither side expecting the employment relationship to
end, and neither side focusing on all the “bad things” that can happen
months or years down the line. By using a written agreement addressing
these issues, employers may spell out exactly what an employee will
receive and what she can expect, both during the term of employment
and upon its eventual termination.There is no bright-line test for which
employees should and should not have employment agreements.There is
also no magical form or template for an employment agreement that will
provide a document that can used in any and every situation. Simply
because an agreement worked for one employee does not mean that the
same agreement is appropriate for another. Often employment contracts
are the subject of intense negotiations between the employer and the
employee, which result in compromises from both parties. Employment
agreements can be a tremendous asset for employers and of great bene-
fit to employees, but vague, unclear, and poorly drafted contracts can
severely damage the working relationship through misunderstandings,
misinterpretations, and unfulfilled expectations.Thus, from an employer’s
perspective, while using employment agreements certainly offers many
benefits, such agreements should be entered into carefully and with prop-
er consideration given to the obligations of both parties to the contract.
As Ralph Waldo Emerson observed,“Nothing astonishes men so much as
common-sense and plain dealing.”