Having received an offer from another company, one decisively resigned from the original job. However, the company suddenly reneged on the offer. Who should compensate the person for any and all resulting losses?

[Case Review]

Ms. Wang has worked as a Security Supervisor at Company A for four years. In pursuit of new development opportunities, she applied for the position of Security Manager at Company B through an internal referral. After several interviews and selections, Ms. Wang received a job offer letter specifying the position, onboarding date, salary, etc. Ms. Wang then submitted her resignation to Company A. Unexpectedly, shortly after the completion of her resignation procedures, Company B notified Ms. Wang that the offer was cancelled because the background check contact provided by Ms. Wang had concealed her work experience. As a result, Ms. Wang lost her job at Company A and was also unable to onboard at Company B. In such a case, Ms. Wang filed a lawsuit against Company B in the People's Court, claiming compensation for her losses during the period of unemployment.

[Decision by the People's Court]

The People's Court found upon trial that when concluding an employment contract, the employer has the right to hire autonomously, and the worker enjoys the right to choose a job autonomously; neither party may unilaterally compel the conclusion of a contract. Once substantive negotiations have commenced, however, both the employer and the worker shall adhere to the principle of good faith, strictly observe the duty of care, and protect reliance interests. In this case, the job offer letter received from Company B was sufficient for Ms. Wang to be sure that an employment contract would be concluded with Company B in the future. Thereafter, Company B refused to sign the contract with Ms. Wang without good reason and in breach of the principle of good faith, and thus should bear the culpa in contrahendo liability. Company B claimed that the background check contact provided by Ms. Wang had concealed her work experience, but failed to provide evidence to prove this claim. Hence, the People's Court did not accept this assertion. Considering various factors such as the degree of fault by Company B, the time of Ms. Wang's resignation, the promised salary standard, and a reasonable period of awaiting employment, the People's Court exercised its discretion to order Company B to compensate Ms. Wang for economic losses amounting to RMB 45,000. Company B refused to accept the ruling and filed an appeal. The court of second instance rejected its appeal and upheld the original judgment. (All names of parties involved in the text are pseudonyms.)

[Judge's Comments]

I. Protecting the Reliance Interests of Workers

Culpa in contrahendo liability refers to the civil liability borne by a party according to law for its violation of pre-contractual obligations. Generally speaking, a special relationship of reliance is established between parties when they initiate engagement and negotiation to conclude a contract. At this stage, both parties already bear collateral obligations such as assistance, notification, care, and protection based on the principle of good faith, though formal primary obligations of performance have not yet been determined.

Specifically, when an employer and a worker are conducting substantive negotiations for the future conclusion of an employment contract, both parties are obliged to protect each other's reasonable reliance in good faith. In this case, Company B formally sent a job offer letter to Ms. Wang, specifying the job position, onboarding time, salary, and other corresponding details, which was sufficient for Ms. Wang to reasonably believe that an employment contract would be concluded and she would onboard as scheduled. Subsequently, Company B cancelled the job offer without good reason and in clear breach of the principle of good faith, and thus should bear the culpa in contrahendo liability according to law.

II. Honoring the Employment Decision and Commitment

In concluding an employment contract, the employer is in a superior position regarding information acquisition and should logically bear a heavier verification obligation than the worker. Before sending a job offer letter, the employer should investigate and verify the worker's qualifications and conditions, which could provide a basis for the hiring decision. After formally sending a job offer letter, the employer shall not arbitrarily revoke the offer for its own reasons, such as insufficient background check or failed internal approval. In this case, Company B should have conducted a comprehensive background check on Ms. Wang before sending the job offer letter. After Ms. Wang had resigned from her original job, however, the company cancelled the offer on the grounds that her information obtained through the background check was questionable. This essentially transfers the consequences of the employer's own oversight failure onto the worker, violating the principle of good faith and the concept of fairness.

III. Establishing a Harmonious and Stable Employment Relationship

In view of the typicality of this case, the People's Court decided to conduct a circuit trial at the Comprehensive Social Governance Center, to, based on this case, elucidate legal principles in the context of the common dispute where employers "give job offers but then refuse to employ," and advocate for the establishment of harmonious and stable employment relationships.

A harmonious employment relationship must be maintained by both the employer and the employee in good faith. Although any employer has the right to autonomously decide whether to hire a person based on its own needs, it should conduct an assessment in line with the principles of prudence, good faith, and reasonableness. Particularly after making an onboarding commitment to a job applicant, the employer shall not arbitrarily cancel it without cause, so as to genuinely respect and protect the worker's employment expectations and lawful rights and interests. When applying for a job, everyone should truthfully introduce their own conditions and work experience, without concealment or deception. And when their rights and interests are infringed upon, they should safeguard their rights rationally according to law.

[Deputy's Comments]

Yu Bin, Deputy to Shanghai Municipal People's Congress, Member of the Party Committee and Vice President of China Pacific Insurance (Group) Co., Ltd., Chairman of China Pacific Property Insurance Co., Ltd., and Chairman of CPIC Technology Co., Ltd.

Employment is crucial to people's well-being. Currently, China faces pressures from both the total scale of employment and structural contradictions. On the new journey of the new era, promoting high-quality and full employment is our new goal and mission in employment work. In practice, labor turnover is increasing, and sometimes employers give job offers but then refuse to employ, which results in unemployment difficulties for workers. The decision in this case effectively reduces the risks involved in the job transfer process by protecting the reasonable reliance interests of the concerned worker. It also allows the worker to bravely seize new job opportunities, with fewer worries about job changes. These are all conducive to unlocking the vitality of the labor market and promoting the rational flow of talent. Furthermore, this case regulates and guides employers to prudently exercise their hiring autonomy, further contributing to the creation of a fair and good-faith employment environment. It represents a vivid practice of promoting harmonious and stable employment relationships through individual case adjudication.

[Legal Provisions]

Civil Code of the People's Republic of China

Article 500        In the course of concluding a contract, a party which is engaged in any of the following conduct and thereby causes losses to the other party shall be liable for damages:

(I) Negotiating in bad faith under the pretext of concluding a contract;

(II) Intentionally concealing any material fact relating to the conclusion of the contract or providing false information;

(III) Engaging in any other conduct that violates the principle of good faith.

Article 584        Where a party fails to perform its contractual obligations or its performance does not conform to the agreement, causing losses to the other party, the amount of damages payable shall be equivalent to the losses caused by the breach of contract, including the benefits that can be obtained after the performance of the contract; provided, however, that it shall not exceed the losses that the breaching party foresaw or ought to have foreseen when concluding the contract as likely to result from the breach of contract.