Employers and job applicants frequently negotiate during an application procedure before entering into an employment contract, for instance on the amount of the salary or the entitlement to a company car or a thirteenth month. This negotiation phase is referred to in specialist jargon as the pre-contractual negotiation phase. If the negotiations break down in that phase, however, two questions arise. Has an employment contract not already been entered into, and, if not, is the party that breaks off the negotiations liable for damages? We explain this below.

Offer, acceptance and breaking off of negotiations

In the formation of a contract, and therefore also in the formation of an employment contract, the basic principle is that it is formed by an offer being made and accepted. Both the offer and the acceptance may take any form. An offer and its acceptance may therefore be either written or oral. It is a question of interpretation whether a declaration of intent or a factual act should be regarded as an offer or acceptance of that offer, centring on what the parties could reasonably expect from each other in light of their statements and actions.

If the parties are negotiating the formation of an employment or other contract and one of the parties breaks off the negotiations, that is permitted in principle, unless it is unacceptable on the grounds of the other party’s legitimate expectation that the contract would be formed or on the grounds of the other circumstances of the case. In that case, the party that breaks off the negotiations is liable for damages to the other party. But what are the rules in a job application procedure?

Job application procedure

From an employer’s perspective, a job application procedure is intended to determine whether the candidate is suitable for the vacant position. In such a procedure, even if it has reached an advanced stage, the parties are largely free to decide at any time not to work together after all. An applicant should therefore not too easily assume in a job application procedure that an employment contract has been or will be formed. On the one hand, because an employment contract may be deemed to have been formed only when an offer has been made and accepted and the parties have reached agreement on all the essentials (such as the position, the salary, and the start and end of the employment contract); on the other hand, because the determining factor is whether the employer has made known its manifest intention to enter into an employment contract with the applicant and whether the applicant could legitimately rely on that intention in the circumstances.

In that context, an appointment (or proposed appointment) need not lead to the legitimate expectation of the formation of an employment contract if an interview about the employment conditions and an introduction to the team have yet to take place. The question is whether the employer has expressed its intention to definitively hire the applicant. The mere fact that the parties have (intentionally) discussed the employment conditions also does not mean that full agreement on the essentials has been reached.

Liable for damages

What if the employer breaks off the negotiations while the job applicant legitimately expected that the employment contract would be entered into? In that case the employer is liable for damages for breaking off the negotiations and must therefore compensate the applicant. In practice, this means that the employer must put the applicant in the position that he or she would have been in if the harmful event had not occurred. This often means compensating the loss of earnings incurred by the applicant.

Conclusion

As long as an agreement has not yet been reached on all the essentials and an applicant cannot yet legitimately expect that an employment contract will be entered into, an employer is free to break off the negotiations during a job application procedure. But if the applicant legitimately expected that an employment contract would be entered into, the employer is liable for damages if it breaks off the negotiations. Employers should therefore bear this in mind when making concrete promises to or prematurely congratulating the applicant.

Please contact Puck Keurentjes (+31-6-12860380) if you have any questions on this subject.

This article was published in the Newsletter Vestius of November 2022