Rescinding an Offer: Why It Might Be Necessary and How to Do It

Two women sit in an office during a job interview.

In uncertain economic times, rescinding an offer, implementing a hiring freeze or considering layoffs may be necessary. Few hiring situations are as complex to navigate as rescinding a job offer. However, it may be necessary to evaluate this option. Advanced planning can help contain risk and mitigate the fallout.

  • Rescinding an offer can be necessary in uncertain economic times or due to candidate factors, but it's a complex move with legal and reputational consequences.
  • Always consult legal counsel and evaluate offer letters and contracts used before rescinding an offer.
  • Clear candidate communication that's fair and empathetic is essential to minimize reputational damage.

Measures to restrict hiring are on the rise, with the CEO Economic Outlook Index reporting that organizational leaders have voiced declining optimism about sales, hiring and capital investments. Meanwhile, Axios reports that high-profile companies are increasingly considering offer revocation as a cost-cutting measure.

If you're considering rescinding a candidate's job offer, here's what you should consider along with a step-by-step guide to take you through the process.

Why you might have to rescind an offer

It's important to consider the various reasons an offer may need to be pulled back. The reason might be internally driven, such as changing staffing needs or financial considerations. In other cases, an offer may be rescinded due to an issue that comes up with a candidate during a background check.

Reasons organizations may rescind a job offer include:

  • Economic uncertainty or budget changes
  • Failed drug screens
  • Issues with the background check
  • Poor reference checks
  • False resume information, educational data or certifications
  • Previously unknown criminal history status
  • Delayed projects or new internal leadership that shift organizational needs
  • Negative post-hire interactions

Whatever the reason, being clear about what's driving the decision can help you communicate more effectively with your legal department and candidates.

Guide to rescinding an offer

When you first think about the possibility of rescinding an offer and start to establish the reasons driving it, you'll want to go through a process to ensure you've thought of everything from every angle. Here are some key steps to follow:

1. Speak with legal counsel

When you've made a job offer, even thinking about rescinding it should be handled with the utmost care.

"If economic or company conditions have changed and a company would like to explore rescinding a job offer, legal guidance is best practice as a first step before any decisions are made," says Tiffanie Ross, senior director of AIRS, powered by ADP.

Speaking to legal counsel can help you understand any potential liability connected with rescinding a job offer because the legal and financial implications vary.

"Legal guidance should always be sought and a critical component of any discussion before any decisions are made or conversations take place with a candidate," Ross notes. "There are often state and other jurisdictional requirements, guidelines and laws that need to be met, and they will drive decision-making and next steps."

2. Understand the risks of rescinding an offer

Organizations may face legal risks and financial penalties if rescinding a job offer. The specifics may depend on where you're operating, the language of the offer and other factors. However, HR literature and recent media coverage highlight a range of possible concerns, including claims of fraud, discrimination and breach of contract.

While legal risk may be a primary concern when rescinding a job offer, there are other impacts to consider.

"Organizations need to be aware and considerate of the risk to their employer and employment brand, employee referral pipeline, talent acquisition and retention goals," Ross says. "How candidates are treated is reflective of a company's values, ethos and culture and directly impacts them at all levels of the talent landscape."

Even if your legal counsel suggests that a rescinded offer carries minimal legal risk, take time to assess how this can influence your future ability to attract and retain talent.

3. Review the contract language

It's important to understand how the language in your job offers, employment contracts, job applications and other documents affect this decision. Does the offer letter address the possibility of an offer being rescinded, if at all? Are there contingencies that can help pave the way for smoother discussions? Now may be the time to take a closer look.

"Any language to be included would be provided by an organization's legal counsel and would be in alignment with requirements by state, federal or other applicable jurisdictions," Ross explains. "This should be a standard practice and part of an effective hiring process."

Initiating that conversation with your legal team before you need to invoke these contingencies or clauses can help you better mitigate risks.

4. Manage offers to senior talent carefully

While rescinding any offer is a significant decision, organizations may want to examine their processes for dealing with executives and senior talent in particular.

"Legal should be part of the process that includes offer letters, contingencies and any negotiations between the candidate and hiring organization to ensure legal risk is minimized and compliance is at the forefront of the communication as expectations are set throughout the process," Ross says.

The earlier your legal team is involved in the process, the more effectively they can help you navigate unexpected waters.

5. Consider alternatives to rescinding an offer

Often, rescinding an offer is driven by an underlying need to cut costs, preserve cash flow or meet another goal. There may be other approaches that HR and leadership can consider, in partnership with legal counsel, to achieve those goals without incurring the same level of legal or reputational risk.

For example, you may be able to implement a hiring freeze for requisitions that don't have active candidate offers in play or not replace talent that's lost to regular attrition. What other options may be available to you can be a useful question to ask legal advisors.

"Options to consider, depending on legal guidance, could include offering optional open role(s) that are being filled and in salary range/skill set, start-date deferment or other remedies that would not create legal liability for the company," Ross notes.

In addition, if a candidate does not pass a contingency outlined in their offer letter, such as a background check or drug test, companies may follow the mechanisms for rescinding an offer detailed in the offer letter.

6. Contact the candidate

Timely candidate communication is essential once your legal counsel has approved the action. Notifying a candidate allows them to move forward and resume their job search.

Be fair, compassionate and professional when speaking or writing to candidates. And be respectful of their emotions as they may be upset or confused. Express your regret and maintain a professional tone even if discussions become heated.

Clearly state why you're rescinding the job offer, such as budget cuts or a failed background check. Providing a reason to the candidate helps them understand the decision. You may also wish them luck on their job search or potentially connect them to other resources if appropriate.

7. Write a formal letter

Organizations may contact a candidate by phone to break the news. Others send a formal letter. It's important to have clear documentation that states the job offer has been rescinded and why just in case the process comes under scrutiny later.

The specific language in your rescission letter should be provided by your legal counsel. For example, that language may include noting the position was at will if applicable. Each locality, state, country and jurisdiction may have specific requirements that need to be included.

Typically, however, letters will include the date the action was taken, what prompted you to rescind the offer and additional contractual language required by law.

Final thoughts on rescinding an offer

Rescinding a job offer is a difficult decision that's sometimes necessary due to financial reasons or candidate-related issues. Evaluating your options and communicating with the candidate in a fair, timely and professional way is critical for mitigating the reputational risk to your organization's brand. Before taking action, involve legal counsel as early as possible and lean on their guidance for decision making and communication.

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