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Can the Employer Cancel an Offer Letter?


Author: Francis Pan
Editor: Normand Gauthier

After the employer issues an offer to the job applicant, it may still encounter various types of situations and need to cancel the offer. For example, a financial institution may suspect that the candidate has participated in money laundering, or job positions are unexpectedly revoked by the company's superior, or the company has found a more suitable candidate, etc. Although the two parties have not signed a labor contract yet and did not establish a labor relationship, does this mean that the employer can cancel the offer at will without any liability?

The essence of the offer
An offer means a party’s contractual condition for the purpose of contracting with another party. According to Chinese Contract Law, when the applicant receives the offer from the employer, the offer will take effect and the employer may not cancel it at will.

Circumstances under which an offer can be canceled
For an issued offer, in most cases, the employer cannot freely cancel it. However, in certain circumstances, the employer may withdraw or revoke the offer without any liability. First is the case of withdrawing the offer. "Withdrawal" means that when the offer has not yet arrived at the job applicant, the employer may issue a further notice to withdraw the offer. The notice of withdrawal must arrive at the applicant before or together with the arrival of the offer. The premise of a valid withdrawal notice is that offer has not yet arrived at the applicant. Decades ago, the withdrawal notice can reach the applicant before the arrival of the offer by sending an expedited letter. However, in the era of widespread use of email, an Offer immediately arrived at the applicant's mailbox after it was issued, so it is rare to have the opportunity to withdraw the offer.
In addition to withdrawing the offer, the employer can also "revoke" the offer. Unlike the withdrawal, the notice of revocation is made on condition that the offer has arrived at the candidate. A valid revocation notice should normally meet three conditions: The revocation notice must arrive at the candidate before the candidate has yet to respond to the offer; the offer sent to the applicant didn’t determine a deadline for the reply; the candidate has not taken any act upon the offer, such as resigning or rejecting other offers.
Under the above circumstances, the employer may withdraw or revoke the offer without liability.

Pre-contractual liability of an issued offer
In addition to the above-mentioned exemptions, it is more common that the applicant has replied the employer to accept the offer, or the applicant has submitted a resignation letter to the original job due to the issued offer or rejected offers from other employers. In this case, if the employer cancels the issued offer, it shall bear the corresponding liabilities.
Since the two parties have not signed a labor contract yet and have not established a formal labor relationship, the employer does not need to bear the liability for breach of contract, but it is responsible for violation of pre-contractual obligations. The reason is that in this case, the applicant who received the offer has established a reliant relationship with the employer. According to the principle of honesty and good faith, the employer shall perform the pre-contractual obligation. If the employer violates this obligation and cancels the offer at will, it will result in financial losses to the candidate.

Dispute resolution: negotiation or litigation
What should an employer do when it needs to cancel an offer?
First of all, it is recommended that the employer promptly notifies the candidate about cancellation of the offer. If the notice is timely, the offer may still be withdrawn or revoked, in which case the employer may be excused. Secondly, the employer may negotiate with the applicant to solve the problem. Finally, on the occasion of a failure to negotiate, the dispute can be further resolved through litigation.
When the dispute is resolved through litigation, since the applicant has not started working and has not signed the labor contract, the two parties have not yet established a labor relationship. The dispute is not in the scope of labor disputes, and there is no need to go through the required arbitration procedure of the labor dispute. It should be directly tried by the court. In practice, different courts will file cases on different grounds. Some courts still file such cases under labor disputes, while other courts file the case with other causes of action. The difference between causes of action will affect the costs of litigation – the litigation costs for labor disputes is 10 yuan, while other causes of action will be charged proportionally according to the compensation claimed by the job candidate.

Compensation standard
There is no clear standard of compensation for the employer’s liability for cancellation of the offer. Therefore, some recent cases are selected below. In the process of negotiating with the applicants, the employer may refer to the compensation amount of the court judgment in the following cases as the basis for negotiation.
Based on the above judgments, it can be found that the court often comprehensively considers the wage promised by the employer, the unemployed situation of the candidate, and the ability of the candidate to find a new job. As can be seen from the above table, after the employer withdraws the offer, the compensation determined by the court is usually between one and three months of salary during the probation period. Therefore, the employer can use this range as a reference when negotiating with the candidate.
At the same time, in the case from Shenzhen in 2016, the court put forward another standard worthy of reference. The court held that the financial loss of the job candidate should be foreseeable, and the maximum amount of compensation shall not exceed the amount that can be expected when the contract is actually performed. To be more specific, in such cases, the compensation for the illegal cancellation of an offer should not exceed the compensation for the illegal termination of a labor contract. According to Articles 47 and 87 of the Chinese Labor Contract Law, if the employer illegally terminates the labor contract of both parties immediately after the employee is recruited, the compensation is one month salary. Correspondingly, this amount should be the upper limit of the compensation of the illegal cancellation of an offer.
It is worth mentioning that, in addition to the above withdrawals and cancellations, there might be other cases when the employer is not liable for the cancellation of the employment notice:

Candidate cannot prove the losses
It should be noted that the candidate also bears the burden of proof to prove his loss in such cases. In a case from Shanghai in 2017, the company canceled the candidate’s Offer. The candidate claimed the company should compensate her 20000 RMB for her loss. However, the candidate failed to prove the loss she suffered. So finally, only 50 RMB, a symbolic compensation for the transportation fee was awarded to the candidate. The compensation is even less than the litigation cost, 131 RMB, she needs to pay to the court.

Candidate did not provide documents as required by the employer
After obtaining the Offer, the job candidate shall submit the recruitment documents upon the reasonable requirements of the employer. If the candidate fails to submit the documents required by the employer within the time limit, the employer may cancel the Offer. In two cases in Beijing and Shanghai, the candidates did not submit documents in accordance with the employer’s request and the employers subsequently canceled the offer. In both cases, the applicant’s claim for reimbursement was not supported by the court.

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