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More on "Deferred" Law Firm Employment and Breach of Contract:

In an earlier post, I raised the question of whether a law student whose offer of employment at a law firm has been "deferred" might have a breach of contract claim against the firm. [Putting aside the question of whether they'd want to assert that claim or not] The general consensus of the commentators seemed to be that (a) these are at-will employment contracts, and therefore (b) there's no breach claim for withdrawing the offer when the employee could have been fired for any reason, or no reason at all, the minute after he/she was hired. [One commenter even asked: "David Post, are you trolling your own blog? This flame's been on ATL for months, and only recently has been mocked down into silence."]

Well, perhaps it's a character flaw, but it's not so easy to mock me into silence. I spent a little time doing some research on the problem [when I surely should have been doing some work for which I'm paid more than minimum wage ...], and it turns out things are a little more complicated than one might have thought (or than the folks on ATL might have realized, had they not been so busy mocking ideas into silence). Turns out there have been a bunch of cases on this very question, and the outcomes, perhaps surprisingly or perhaps not, go in both directions. A good ALR annotation collects the cases together [1 ALR 5th 401 ("Employer's state-law liability for withdrawing, or substantially altering, job offer for indefinite period before employee actually commences employment")]. Here's a summary:

"Many courts, recognizing that employees hired for an indefinite period normally have no cause of action where discharged after beginning work, have addressed the issue whether there is a cause of action under state law when an offer of employment was revoked or the employee was terminated before commencing employment. The courts were usually faced with a question whether there was liability based on breach of the employment contract or on the theory of promissory estoppel, but have also dealt with actions based on failure to give reasonable notice of termination, and actions brought under state statutes restricting the right to discharge employees.

Many courts have held that there was no cause of action for breach of an employment contract because the employment would have been terminable at any time by any party and refused to find the situation where a party was terminated, or an offer of employment revoked, before employment was commenced different from the situation where an employee began work and was terminated after the first day. Many of these courts found that, in order to allow recovery based on breach of a contract of employment for an indefinite hiring, there would have to be an exception to the employment-at-will doctrine present, such as consideration in exchange for the promise of employment or other "distinguishing features," and generally rejected the argument that quitting prior employment, and other acts the employee took in reliance on the offer of employment, constituted additional consideration or distinguishing features. However, several courts have held that an employee did have a cause of action for breach of employment contract, some finding that the promise to employ was separate from the employment contract itself, and some finding that steps taken in reliance on the contract took the contract outside of employment at will , while others found the employer liable because it failed to give reasonable notice of termination. In one jurisdiction, there appears to be a conflict over the right to sue for breach of contract under these circumstances ( [] ยง 3[d])."

One case, Slate v. Saxon, 166 Ore. App. 1 (2000), has a nice discussion of the whole problem, and concludes:

"In our view, it would be completely illogical to hold that an employer is exposed to liability if it invokes the right to terminate at will before the employee begins working but is absolved from liability if it defers doing so until immediately after the employee first reports for work.

But it's not illogical at all (given e.g. the possible loss of health benefits via COBRA). I'll stand by what I said initially: I'd be happy to try to persuade a court of the proposition that if the defendant had performed its promise (to hire, even with the right to immediately fire) my client would be in a very different position than he/she is today (never hired), and those are damages recoverable for breach of contract.

Related Posts (on one page):

  1. More on "Deferred" Law Firm Employment and Breach of Contract:
  2. Law Firms' Breach of Contract?:
cboldt (mail):
-- But it's not illogical at all (given e.g. the possible loss of health benefits via COBRA). --
.
I dunno. COBRA gives one the right to pay for continuation of insurance, and generally, the same coverage is not much different in price if purchased on the open market. A person who has the employment offer extended with the purpose of avoiding liability for "firing at will" (rather that rescind the offer of employment) might undertake relocation activities in reliance on the offer, enter into rental agreements, etc.
.
I tend to agree that it's illogical to impose liability for "early breach" while simultaneously having no liability for hire/immediately fire. The sensible company, faced with this legal regime, would never rescind an offer, and would simply fire new hires the day they walk in the door. Oh, and here's your right to COBRA, $800/month for health insurance, if you want it, and it's only available for one year.
4.21.2009 5:18pm
George Weiss (mail) (www):
David: its good to see there are still some lawyers that will not bee mocked into silence.
4.21.2009 5:24pm
Thales (mail) (www):
The italicized portion of the ALR makes the issue quite precise. There is a breach of the promise to employ, and reliance damages that are reasonably foreseeable are recoverable by the pre-terminated employee. I would also argue that if the employer fires the person without cause on day one, these damages likely *continue* to be recoverable, and so on for a reasonable period until there's an opportunity to mitigate them. If you sold your house, quit your job, turned down other offers and moved across the country in reliance on a expectation that you'd be employed (even at will) for an indefinite period, you have a claim in a lot of jurisdictions for breach of the promise to employ (and probably would in most other common law jurisdictions) or a claim at equity.
4.21.2009 5:34pm
apeuro (mail):
As David notes, there are tons of common-law exceptions to employment-at-will. For example, for a good overview of fradulent misrepresentation in hiring, see Richard Perna's article in the Kansas Law Review: Deceitful Employers: Intentional Misrepresentation
in Hiring and the Employment-at-Will Doctrine
.
4.21.2009 5:40pm
Specast:
But, if you were to prevail on your "loss of COBRA = detrimental reliance" theory, then would not your damages be only the amount by which that COBRA insurance is cheaper than an identical policy purchased on the open market, and only for a year? Remember, you're suing for breach of the promise to hire while acknowledging the employer's right to immediately fire.

I suspect the damages would total only a few thousand dollars -- small claims court territory, with any recovery coming with a truckload of ashes from the bridges you've burned.
4.21.2009 5:42pm
Bama 1L:
The cases I've seen on this were promissory estoppel and gave only reliance damages. I don't think this helps your average out-of-luck 3L.

Suppose we have a 3L who was offered a job in August (shortly after finishing the summer program) and immediately accepted, only to have the job withdrawn in March. What has our 3L done in reliance? Odds are she has not turned down any other jobs. She hasn't moved yet. She was going to finish law school anyway.
4.21.2009 5:45pm
rosetta's stones:

"...the pre-terminated employee..."


Just when you thought you'd heard it all... comes yet another labrynthian rhetorical triumph from the litigation profession.
4.21.2009 5:53pm
cboldt (mail):
-- The italicized portion of the ALR makes the issue quite precise. --
.
I agree (and too, that the promise to employ issue/contract is properly divided from an employment relationship per se). And that legal theory would augur for rescinding the offer at the earliest time, in order to reduce reliance. I'd add that this is also, IMO, the most ethical approach.
4.21.2009 5:54pm
Thales (mail) (www):
"I agree (and too, that the promise to employ issue/contract is properly divided from an employment relationship per se). And that legal theory would augur for rescinding the offer at the earliest time, in order to reduce reliance. I'd add that this is also, IMO, the most ethical approach."

Completely agree, and I think that is the approach being taken by a lot of firms for both ethical and damage-reduction reasons.
4.21.2009 5:56pm
ohwilleke:
The issue is analytically similar to the issue of "front pay" as a remedy for a discriminatory firing of an "at will" employee. It is inherently uncertain, but juries value it every day (or at least every week).

Relocation expenses are usually what drives suits like these. Also, the likelihood that other jobs have been turned down, or that a job search likely to produce an offer was abandoned when jobs were plentiful only to be restarted when jobs were not, is very likely and economically huge.

But, the limited deferment pay packages are probably greater than the damages in this kind of suit, so the net damages may be zero, particularly because the continued agreement to employ later mutes the long term harm to the prospective employee. In a year or two, the big bucks from the offer can be anticipated to roll in.

The flip side is that the deferments are in the nature of a layoff (something even termination with cause employment contracts permit), and were not expected at the time of an offer made in good faith.

Also, unlike most early terminations, a deferment does not carry with it the reputation harm to the laid off individual that a typical early termination would. Future employers can rest assured that the termination carries with it a high risk that the new lawyer is a "lemon," a risk that economists use to explain why cars sold very shortly after purchase carry such a huge price discount right off the lot.
4.21.2009 5:57pm
rick.felt:
Another problem with the COBRA theory:

At every job I've ever had, I was never entitled to any benefits until at least the first day of the month after I started work. So someone who was hired and fired on August 31st wouldn't be entitled to COBRA.
4.21.2009 5:57pm
Thales (mail) (www):
"But, the limited deferment pay packages are probably greater than the damages in this kind of suit, so the net damages may be zero, particularly because the continued agreement to employ later mutes the long term harm to the prospective employee. In a year or two, the big bucks from the offer can be anticipated to roll in."

No doubt on any of that, though I'm not sure David was assuming such packages were offered in all these cases (in some cases of law firm RIFs, they surely were not).
4.21.2009 6:02pm
pete (mail) (www):

At every job I've ever had, I was never entitled to any benefits until at least the first day of the month after I started work. So someone who was hired and fired on August 31st wouldn't be entitled to COBRA.


I have no idea what the law is here since IANAL, but at my current place of employment I started getting benefits from day 1 and I am pretty sure this has been the case at least 1 other job (both were government jobs).
4.21.2009 6:13pm
David Schwartz (mail):
If the employer really no longer wants the employee due to changed circumstances, and there was no fraud or misrepresentation, I don't see that the promise was violated. The promise is the promise to retain the employee for so long as the employee's services are desirable, right?

Certainly both parties understand that changed circumstances can make those services no longer desired at any time and are free to negotiate different terms if that's what they would prefer.
4.21.2009 7:00pm
Anderson (mail):
but it's not so easy to mock me into silence.

Cf. Anderson, torture posts, passim.

... Interesting post. I'm pretty sure Miss. courts would rule "at will, you're outta here," but more enlightened venues might differ.
4.21.2009 7:14pm
amess (mail):
What if you were promised summer associate employment, but the firm went into bankruptcy due to the financial shenanigans of its equity partner (yes, Dreier). Now I'm high and dry for the summer, but I'm assuming that even if this was a valid cause of action, it would be foreclosed by the firm's bankruptcy. Thoughts would be appreciated. -am-
4.21.2009 7:19pm
Thales (mail) (www):
Anderson:

They have courts in Mississippi?
4.21.2009 7:31pm
Ben S. (mail):
In addition to the problems relying on COBRA for your damages, what about the stigma associated with being immediately fired as opposed to having an offer revoked? While having a job offer revoked in the midst of a recession is totally understandable, being terminated on your first day of work may raise more than a few eyebrows among prospective employers in the future. Thus, you could argue that the client who had his offer revoked (when compared to people who are instantly fired) is actually in a better position as a result.

Moreover, if firms could be held liable for revoking offers but immune if they immediately fire, we all know what they will choose in the future. All you've done, then, is to give firms reason to slap people with the stigma of being instantaneously fired. (Of course, one could argue that as this practice becomes more widespread, it will diminish the stigma itself.)
4.21.2009 7:53pm
wm13:
I'd be happy to try to persuade a court of the proposition that if the defendant had performed its promise (to hire, even with the right to immediately fire) my client would be in a very different position than he/she is today (never hired), and those are damages recoverable for breach of contract.

Does this mean that Prof. Post is volunteering to represent any 3L with a rescinded offer on a contingency basis? Because there might be some takers. This offer should be posted at ATL. Or does it just mean that Prof. Post will be happy to represent any 3L who pays his regular hourly consulting rate (which for most professors, isn't that different from a biglaw hourly billing rate)?
4.21.2009 8:00pm
Bruce Hayden (mail):
I think that the damages pretty much have to be based on detrimental reliance. The law student made commitments based on the promise of employment, and it was revoked. He may have turned down job offers from other firms, or failed to pursue other options, and as a result, was injured.

That is where mitigation of damages would presumably come in. Any damages would be limited to the difference between what he was to earn and what he ends up earning, and I would think that he would have to show some diligence in pursuing other options.
4.21.2009 8:20pm
eeyn524:
If anyone's interested how this is handled outside of the legal profession - the big defense contractors bite the bullet and tell the person they have the right to show up on the first day and receive the two week termination notice. Happened to a friend of mine, he didn't have anything better to do so he went there and got the pink slip on the first day. They gave him the whole new employee deal including the logo poloshirt and mug, and he got to use the company gym etc for the two weeks. Don't know about relocation but he did get the two weeks pay.
4.21.2009 8:53pm
The Original TS (mail):
There is one very big exception here to the at-will employment defense. It doesn't apply if the prospective employee can re-cast the claim as an action for fraud.

This came up a few years ago and it will likely come up again now. Law firm X knows it has difficulties that will likely prevent them from making new hires. But it knows that announcing a no-hiring policy will shake the faith of its partners, associates and clients. Instead, it goes through the recruitment process and even sends out offers. Prospective Employee E accepts one of these offers only to have it rescinded several months later.

X knew that it wouldn't actually be hiring E but made him an offer nonetheless. E relied on that promise of employment and stopped looking for a job. E may have even turned down other offers to accept X's offer. This scenario meets all the traditional elements for a fraud claim by E.
4.21.2009 8:58pm
Anderson (mail):
They have courts in Mississippi?

Well, Dickie Scruggs tried to bribe somebody like that.

With a bag of sweet potatoes, I hear., I hear.
4.21.2009 9:28pm
trad and anon (mail):
I dunno. COBRA gives one the right to pay for continuation of insurance, and generally, the same coverage is not much different in price if purchased on the open market.
For young, healthy people with no preexisting conditions? Sure. For everyone else? Nope. Especially true for the multitudes of us uninsurables. No company in this state will sell me health insurance at any price.
4.21.2009 9:43pm
ReaderY:

I had thought to have let in some of all professions that go the primrose way to the everlasting bonfire.


It sounds like a great argument, but how does one avoid debt peonage? What happens when the employer makes a similar argument about the opportunity costs incurred for a quitting or no-show employee? The employer's costs, and the employee's ability to pay them, are rather assymetric. Wouldn't this lead to de facto debt peonage in which these various costs that the employer hangs over the employee's head become such a burden that it becomes very difficult for an employee to actually leave a job?
4.21.2009 10:15pm
Ben S. (mail):

I think that the damages pretty much have to be based on detrimental reliance. The law student made commitments based on the promise of employment, and it was revoked. He may have turned down job offers from other firms, or failed to pursue other options, and as a result, was injured.


But, again, the same would be true of an employee fired on his or her first day, which would clearly be permissible. So, IMO, you have to think of some damages that would be suffered by a rescinded-offer claimant, but not a fired-on-first-day claimant. And as my previous post suggested, the only distinction I can think of goes in the opposite direction. I wouldn't be surprised if I hadn't thought of everything, though (it's happened before).
4.21.2009 10:25pm
ReaderY:
Noting that the current state of the law permits employers to use some rather sharp practices, in general how can there be fraud if everyone knows or ought to know that recission is possible?

It's like a person who sells an option suing for fraud when the person who buys it doesn't exercise it. The right not to exercise is part of the definition of an option, something anyone who enters into such a contract ought to know. If one wanted to be sure of selling the thing, one ought to have negotiated a sales contract rather than an option contract.

The concept of at-will employment is as embedded in the law as the concept of an option. The alternative -- employment for a definite term -- is perfectly available. If people want it, they can try to negotiate for it. A belief that one kind of contract is "really" another is simply not a reasonable belief.

It would be a different thing if a legislature passed legislation prospectively reallocating some of the risks. One could debate the costs and benefits of such an action. But it would be a mistake for courts to do so retrospectively simply because they don't like the type of contract people bargained for.
4.21.2009 10:26pm
Brian G (mail) (www):
Make sure you plead negligent misrepresentation sot hat you can do your best to plead it into insurance coverage.

By the way, suing is not really the best way to begin your career. You think the job market sucks for you now, wait until you see what happens if ti gets out you sued your first potential employer.
4.21.2009 11:32pm
Hadur:
Careful, now that you are bringing up ATL's favorite subject, we can respond by calling you "David PosTTT".
4.22.2009 12:52am
Christopher Cooke (mail):
Bruce Hayden and Thales are right, at least in California. There was a case about 10 years ago which held that an would-be employee who accepted a job offer for an at will position and detrimentally relied on that offer in selling his house, moving across the country, etc., could recover under a promissory estoppel theory, but not as an at-will employee.
4.22.2009 1:13am
Steve:
I don't agree that a firing on the first day is automatically OK. Sure, the employment is at will, but I still think you could allege a breach of the promise to hire if they hire you simply to fire you 5 minutes later. I think many courts would be sympathetic to the claim that the hiring was just a legal fiction.
4.22.2009 7:10am
Frog Leg (mail):
The absolutely sure-of-themselves postings (at will = no COA) on the earlier post and at ATL reminded me of innumerable summer associates and 1st year attorneys who, when given a research assignment, were absolutely sure they knew the answer, based on 1st principles, before doing even 0.1 hours of research. Such assumptions always seemed to lead to an inferior work product.
4.22.2009 8:27am
Frat Guy:
I knew a kid in high school once who sued his prospective employer after they withdrew his job offer in order to claim his COBRA benefits. It was no big deal.
4.22.2009 8:45am
Ricardo (mail):
I don't know about law firms but many other employers have a probation period of a few months during which time health coverage is not available. For these, I would think even the claim of COBRA benefits doesn't hold water.

If courts go down the path of allowing prospective employees to sue for COBRA benefits, I could imagine more employers instituting a probationary period like this.
4.22.2009 8:52am
erics (mail):
You are deliberating ignoring the critique from ATL types. No one is arguing there is no merit to a breach of contract/section 90 argument. Everyone is simply pointing out that the benefits of suing for less than significant damages will never outweigh the costs of suing the legal profession before you ever even have a job.

That commenter was right on the money.
4.22.2009 9:06am
Bama 1L:
The fraud theory is interesting but isn't the plaintiff going to lose on the pleadings? How can the plaintiff know all that absent a very unlikely level of knowledge of the defendant's operations?
4.22.2009 9:45am
Upend, Coming:
What do you guys read into NALP principles as it relates to the requirement to not hold more than a certain number of offers open? Or those regarding the release remaining job offers as soon as you accept a position? Do you consider the release a change in position?

Not quite delayed, but rescinded: http://www.nalp.org/rescindedoffers

NALP suggests: "Students should be counseled not to burn bridges with the employer by being unreasonably demanding or antagonistic."
4.22.2009 10:28am
Gruest:
Employers will (a) argue that any reliance isn't reasonable, especially in this economy, because a law student should understand that an offer of at-will employment can always be rescinded, (b) argue for anticipatory repudiation, (c) may offer the student specific performance (heh), and (d) are likely not to vest medical benefits on the first day.

Also, only a professor would find it useful to discuss a hypo "Putting aside the question of whether they'd want to assert that claim or not." Useless.

Finally, NALP isn't worth the paper it's written on.
4.22.2009 11:47am
Guest123999:
Perhaps I missed it, but did anyone mention that with at at-will contracts the employee also has the option to quit before showing up for work and also to leave without a day's notice? When the economy was booming, how many employers talked about suing such non-employees for breach of contract, etc?
4.22.2009 3:25pm
ReaderY:
Plenty of courts have held there is no COA under even stronger circumstances. These are recent graduates just starting a first job, but in strong at-will states employees leaving long-term careers for a new position have found no COA.
4.22.2009 9:24pm
2009:
Aside from the Cobra arguments, isnt there still a strong reliance claim for 3Ls who went through the OCI process, got SEVERAL offers, decided to not pursue the rest but join Firm X for a summer associate position, relied on getting an offer of employment with X after graduation (which is nearly 100% guaranteed), and accepted it esp since there is little/no chance of starting as a 3L at a firm you didnt summer at, and come 2 weeks before graduation, your offer gets completely rescinded? The reliance was on the whole process which basicaly began 2 years before you start working, and which firms are well aware of - 2 years is a long time to forego all other opps bc you're relying on your offer. It's not like other offers of employment when the whole system is set up for you to rely on an offer 2 years before you're scheduled to start.
4.30.2009 11:46am

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