Alert: California Court Permits Suit Against Prospective Employer for Withdrawing a Job Offer

December 15, 2004

In this fluctuating economy, job openings occasionally disappear between the offer date and the start date.  This month, a California Court of Appeal held that prospective employers may face liability in these situations.  In Toscano v. Greene Music, 2004 WL 2749813 (Cal. App. 4 Dist.), the court held that a person who quits a job (even if it was at-will) in reliance on a job offer may collect lost wages against an employer who subsequently withdraws the offer.  The prospective employee need not demonstrate that the offering employer made a fraudulent promise; he need only show that he quit his prior employment in reliance on the offer.

Toscano was employed at-will by Fields Pianos.  He solicited and received an offer from a competitor, Greene Music, for employment to begin September 1, 2001.  With the offer in hand, Toscano resigned from his employment at Fields Pianos.  In mid-August 2001, however, Greene Music withdrew the employment offer.  Toscano was unable to secure comparable employment and sued Greene Music for wages he would have earned at Fields Pianos if he had not quit.

The trial court rejected Toscano's arguments of breach of contract, breach of the implied covenant of good faith and fair dealing, and interference with prospective economic advantage.  The court, however, allowed a trial of his promissory estoppel claim, meaning that Greene Music was held liable for its promise of employment and for withdrawing the offer due to Toscano's reliance in quitting his job.  The jury awarded Toscano $538,833 in damages; $119,061 for past wage loss and $417,772 for Toscano's future earnings from September 1, 2001 until his projected retirement from Fields Pianos in 2017.  Greene Music appealed, arguing that Toscano's damages were speculative and non-recoverable because, as an at-will employee, Toscano could have quit or been fired at any time. 

Recognizing that the issue had never before been decided, the Court of Appeal held that a plaintiff's lost future wages from the former at-will employer are recoverable from the prospective employer that broke its promise under a promissory estoppel theory.  The Court of Appeal established the following limitations on damages based on this theory:  1) they must not be speculative or remote and 2) they must be supported by substantial evidence.  The court specifically rejected the idea that the at-will nature of Toscano's employment with Fields Pianos is a "strict impediment to recovery of future wages" that he would have earned at Fields Pianos but for Greene Music's promise.  The court, however, directed a new trial, requiring more specific testimony about the likelihood that Toscano would have remained employed with Fields Pianos until retirement – suggesting that testimony from his Fields Pianos manager would be probative.  

This case is another example of why employers should be prudent in making employment offers.   Even if the offer is made in good faith, subsequent withdrawal may result in substantial liability because the candidate has quit or declined other employment.  If withdrawal of the offer is unavoidable, it should be communicated to the prospective employee as soon as possible to minimize actions taken in reliance on the offer.