Can an Employer be Liable for Rescinding a Verbal Employment Offer?
Apr 12, 2021 | Written by: Share|
When employment is promised orally for months and then the offer is rescinded, can the employer be liable for damages even though a contract was never signed?
In Goldfarb v. Solimine, 245 N.J. 326 (2021), the plaintiff claimed promissory estoppel after the defendant backed out of a verbal contract to hire the plaintiff as a financial adviser to handle his family’s extensive investment portfolio. Although the court ruled within the context of the Uniform Securities Law, it is possible that the Court’s ruling will impact all employers within the hiring context, and particularly investment professionals and those in the financial sector.
In this case, plaintiff Jed Goldfarb claimed that defendant David Solimine reneged on a promise of employment after Goldfarb quit his job to accept the promised position. Although an employment agreement and its terms were never reduced to writing, the plaintiff claimed that he received specific promises of a base salary and return on investments for managing the sizeable investment portfolio of the defendant’s family. The key issue in the appeal was “whether plaintiff may bring a promissory estoppel claim because he relied on defendant’s promise in quitting his prior employment.” Id. at 572.
The defendant maintained that the plaintiff could not bring a promissory estoppel claim because New Jersey’s Uniform Securities Law of 1997, N.J.S.A. 49:3-47 to -89 requires investment advisers to have a written agreement memorializing the terms for an investment relationship. The Court held that the Securities Law did not bar the plaintiff’s promissory estoppel claim for reliance damages and affirmed the liability judgment on that claim. The Court also affirmed remand for a new damages trial in which the plaintiff would have the opportunity to prove reliance damages. However, he was not entitled to benefit-of-the-bargain damages.
The language of the Securities Law that governs investment practices and arrangements bars “any suit on the contract” when its making is in violation of the Act. N.J.S.A. 49:3-71(h). The defendant argued that the plaintiff’s promissory estoppel claim was barred by the statute because it was “any suit on the contract.” The Court disagreed, finding that the plaintiff’s claim was not based on “the contract” referenced in the Securities Law, but rather, the defendant’s broken promise to engage in an employment relationship with the plaintiff.
The Court explained that the distinction can be most easily understood through the distinct types of recovery at issue. Benefit-of-the-bargain or expectation damages look forward (i.e., what the plaintiff would have earned if he had worked for the defendant). The defendant was correct that the plaintiff could not recover this type of damages under the unwritten employment agreement, because that “contract” violated the Act’s writing requirement. However, the plaintiff was entitled to seek reliance damages, which look backward (i.e., losses the plaintiff suffered as a result of relying on the defendant’s broken promise). This claim is “separate and apart from a contract-based claim that would be barred under the Act.” Id. at 573. Thus, the Court held that “[h]owever far-reaching the prohibitions of the Securities Law may be, they do not prohibit the instant action and its goal of deterring persons from reneging on promises made with the expectation that there would be reliance when, in fact, there is reliance to the detriment of the promisee.” Id. at 579.
Those in the investment advisory sector in New Jersey should be mindful of the implications of this case when discussing future employment opportunities. The fact-driven nature of claims for promissory estoppel and reliance damages, including the reasonableness of any reliance, will be the subject of future debate by counsel in settlement negotiations and litigated matters.
Any statements made herein are solely for informational purposes only and should not be relied upon or construed as legal advice.