Buy-Back of Employment Offers

In the last few years, while exposing myself to the recruitment industry, one common question which I have been asked by many candidates is, “It’s just an email offering me a job. I haven’t signed any document. What if they revoke the offer tomorrow?” Until last month, I used to assertively reply that there is no employer who would rescind your offer once you have accepted it. My answer was primarily based on the trust and experience in the industry and understanding of applicable laws.

However, things have changed after Covid-19. The pandemic has forced individuals and organisations to withdraw job offers. This unprecedented crisis has adversely impacted the number of employment opportunities available across the sectors globally. On a positive note, the pandemic has made people to brainstorm on the manner in which they carry out their businesses, making a shift from the traditional approach to online platforms and work from home policies.

Let’s discuss the impact of Covid-19 on prospective employees.

Existing Law in India

Candidates usually argue on the lines of ‘reasonable expectation’ the moment they get a job offer. Acting upon such reasonable expectations, the candidate terminates his/her previous employment and it would be unfair if the employers are given the right to rescind the offer without any valid reason.

Under the Indian laws, when an employer makes a written offer to a prospective candidate and the candidate accepts it through a written response, it becomes a binding agreement under the provisions of Indian Contract Act(ICA), 1872. After the offer has been accepted by the prospective candidate, the employer has less or no choice of withdrawing the offer. Section 5 of the ICA prescribes the time between the day when the offer is made and the day when offer has been accepted in writing as the time period when an offer can be revoked by the employer.

Any revocation made thereafter amounts to ‘non-performance’ of obligations under the binding agreement. This stance of law is also backed by the principle of ‘promissory estoppel’, which says that when one person takes an action based on a promise made by the other person, then such person cannot revoke their promise.

This potentially gives an option to the candidate to file a civil suit for execution of the binding agreement or for the damages caused. Practically, most candidates opt for the latter as it is a futile exercise to force an employer to employ you for a certain period. The employment relationship is based on mutual understanding and trust between the employer and employee.

Does This Position Change Due to Covid-19?

In most cases, offer letters or employment agreements do not have a ‘force majeure’ clause or a ‘material adverse change’ clause which could get triggered in a situation similar to Covid-19. Although Section 56 of the ICA covers the situation wherein it is impossible for the service provider or the recipient of the service to fulfill their obligations due to an unforeseeable event (including pandemic).

One may argue that this provision may not be applicable in case of an employer who is already in agreement with a prospective employee, as an organization is always in a position to recruit a talent unless the impact of Covid-19 is to the extent that the employer plans to shut down the operations of the organisation or the branch office where the prospective employee was offered a position. However, a practical view may be taken that the potential assignment for which the candidate was to be hired has been impacted due to Covid-19.

This pandemic would haul the dust of such matters, wherein employees have been laid off or prospective employees’ offer has been revoked, in the corridors of the Courts once this (pandemic) settles down. Employers may argue on the grounds of reasonableness or commercial inability to retain employees. Courts might take factors into account such as impact of Covid-19 on the industry in which employer operates or the financial condition of the employer.

Although the validity of the directions/ orders passed by various state governments and the Ministry of Home Affairs pertaining to payment of wages is a separate question that needs to be addressed but one can potentially argue that such directions/ orders can be extended to ‘prospective employees’ as well. It would be interesting to see howcourts adjudicate on this point of law. At this point of time, employers should review the terms of their offer letter/ employment agreement and analyse the scope of termination clause read with other applicable laws.

(The author is a corporate lawyer based out of New Delhi. The content of this article is intended to provide a general guide on the subject matter. Views expressed are personal.)