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Law Firms' Breach of Contract?:

Like many law professors these days, I've watched in dismay as many graduating students find that the jobs they thought were waiting for them after graduation are no longer there, either eliminated entirely or deferred into the uncertain future. [I'm dismayed on a personal level — as a social and economic phenomenon, this retrenchment might well be a good thing; law firms are built on an entirely unsustainable business model; there is no rational marketplace in which a first-year associate can earn money for a firm paying her $150,000, and I'm not surprised to see that model stressed and deformed when adverse economic conditions hit]. It got me to wondering — aren't these firms breaching their contracts with these students? I'm no contracts expert — am I missing something? Firm X makes Student Y an offer, Y accepts, and then X withdraws the offer, or alters it without additional consideration being exchanged. Is that not a breach? And if it is, how long will it be before some student sues for damages?

Update: I understand that the "at-will" nature of the employment (assuming these are all at-will positions) changes the analysis -- but I'm not convinced it eliminates the cause of action for breach of contract. X offers (in September, 2008) to hire me beginning in September 2009, and I accept. They rescind the offer in April. I have damages, even though their promise to hire me would have allowed them to fire me immediately. I didn't look for another job in the intervening six months. I rented an apartment in NYC. I don't have health insurance.

The latter strikes me as potentially very important -- if I'm hired and then immediately fired as an at-will employee, I have all sorts of vested rights -- perhaps in the firm 401(k) plan, certainly in their health insurance coverage (which, once I'm fired, can't be taken away from me, as I understand things, for one year, by virtue of COBRA). Now, because they never hired me in the first place but instead rescinded the offer, I'm uninsured beginning in September. That's damage flowing from their breach of contract, no? If the goal of contract law is to place me in the position I would have been in had they performed as per their promise, I should get insurance for the year, no?

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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?:
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