Murphy, T H --- "Reneging: a topic to promote engaging discussions about law and ethics in a business law or legal environment course" [2010] LegEdDig 6; (2010) 18(1) Legal Education Digest 19

• Reneging: a topic to promote engaging discussions about law and ethics in a business law or legal environment course

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Reneging: a topic to promote engaging discussions about law and ethics in a business law or legal environment course

T H Murphy

Journal of Legal Studies Education, Vol 26 No. 2, 2009, pp325-355

When instances of reneging become public, they receive considerable attention and often provoke disapproval.

Reneging also gains attention at colleges and universities in career services or placement offices. Nearly all college and university career placement web sites counsel students against reneging. A typical web site advises, ‘Do not renege after accepting an offer, except in cases of extreme personal emergency.’ Others word it more strongly and unequivocally: ‘Accepting a job offer is a professional commitment. ... Reneging on an offer is a serious violation of the Career Centre’s policy and will result in immediate suspension of all recruiting privileges’. Many institutions threaten disciplinary action. Indeed, several leading schools, including the Kellogg School of Management at Northwestern University, the Wharton School of the University of Pennsylvania, and Columbia Business School, have reserved the option of assessing monetary fines of up to $1,000 against students who renege.

The article discusses not only the compelling ethical issues that may arise in reneging cases, but also legal issues. The article provides materials on reneging that instructors may use to help students understand the roles of law and ethics, and also to teach students to spot and give critical thought to ethical issues they may encounter in the early part of their careers. Such personal relevance is likely to make this an engaging topic for students.

As the term is used in this article, ‘reneging’ occurs when a job offer has been accepted, and then one of the parties, either the prospective employer or the prospective employee, backs out before work begins. Reneging presents not only issues of contract law and employment at will, important topics in legal studies courses, but also an opportunity to examine ethical issues connected with reneging in particular and promise-keeping in general.

The vast majority of employees in the United States are at will. Given the prevalence of at-will employment and the consequent fact that employment obtained by graduating seniors is likely to be at will, discussion of the legality of reneging in this article will focus on at-will employment contracts. Courts have generally found that because at-will employment can be terminated by either party at any time, even before employment begins, the prospective employer incurs no legal liability. The jilted employee, therefore, must rely on a promissory estoppel theory in order to pursue a claim against the reneging employer. Under this equitable theory, however, in many states, courts have ruled that a prospective employee may not reasonably rely on the prospect of employment and therefore cannot recover. Courts in other states allow equitable recovery.

Even if a court finds that a prospective at-will employee may reasonably rely on the promise of employment, proving damages is a second hurdle.

While there are scores of cases brought by jilted prospective employees, the author’s research uncovered no reported appellate cases brought by a company against a prospective employee who reneged.

The fundamental ethical question in reneging cases concerns ethical obligations that arise when one makes a promise. Traditionally, ‘promise-keeping’ is regarded as one of the ‘core ethical values’ of business and a universal moral value. The presumption then is that the reneging party has an ethical obligation to ‘stick it out,’ to honour the employment promise.

Carter notes, however, that ‘in morality, the reason for an act matters’. Thus, when a party breaks a promise, it would be appropriate to assess the reason for doing so. Carter suggests three situations where it may be morally acceptable to disregard a commitment: impossibility, loss of meaning, and alternate superseding obligation. It is interesting to observe the extent to which these reasons parallel legal excuses to performance of a contract. With regard to reneging, it is appropriate, then, to consider the reasons that the reneging party offers to justify its actions. Some proffered reasons would appear to pass ethical muster—for example, the company reneged because it has been liquidated in bankruptcy, or the prospective employee reneged in order to be close to a parent who was just diagnosed with a serious disease. Other reasons may be judged insufficient, especially when the relevant circumstances could have been considered before the offer was given or accepted.

At its most basic, the central ethical issue in reneging cases is whether a person with integrity would renege. Rhode provides a useful definition of ‘integrity’: ‘willingness to adhere to values that reflect some reasoned deliberation, based on logical assessment of relevant evidence and competing views’. Stating the issue in this way inherently accepts the proposition that values education is appropriate and worthwhile. In the aftermath of recent corporate scandals, there has been an increased call for attention to integrity and virtue. This focus on virtue, including the virtue of promise-keeping, certainly fits with the ethical orientation in Business as a Calling, the primary ethics reading in the author’s course. Such a focus would be equally appropriate in any legal studies course, as virtue ethics is a standard school of ethical thought and an approach to ethical reasoning that is commonly included in the ethics chapter of legal studies textbooks.

The academic literature provides useful guidance for designing classroom exercises and methods to enhance student learning. In designing exercises for the classroom, instructors first are well advised to keep in mind learning objectives. Three appropriate objectives related to incorporating the reneging issue in a legal studies course would be (1) to encourage students to recognise the legal and ethical issues inherent in reneging decisions, (2) to encourage students to reach a reasoned conclusion as to whether reneging may be ethically justified in a particular case, and (3) to encourage students to act with integrity.

Of course, it is also preferable that classroom exercises engage the students’ interest. That is more likely to happen if students see the relevance of the classroom exercise to their own lives.

In summary, well-designed classroom exercises will ‘provide an interesting case study that the student can relate to which will stimulate debate not only on the issues of ethics and social responsibility but also how these issues related to particular majors/courses of study.’ Such a goal also appropriately reflects the spirit of integration, underscoring the relevance of multiple disciplines. The hope is that ‘[o]nce the student becomes engaged with the problem of what kind of person to be, and how to become that kind of person, the problems of ethics become concrete and practical and, for many a student, moral development is thereafter looked on as a natural and even inescapable undertaking’.

Reneging, considered in the context of contract law and/or employment at will, can serve as such an interesting, relevant case, likely to prompt vigorous discussion. Instructors wishing to address reneging in a business law or legal environment course may consider incorporating one or more of the following approaches.

Instructors may choose to provide to students a composite ‘typical’ offer letter at the beginning of the study of contract law, as an example that would be used for the duration of that unit. Initially, the letter would be used in class to illustrate legal issues that may arise with regard to a typical express, bilateral contract. Instructors would ask such questions as the following: At what point would the contract be formed? What if the student signs the offer letter but it is lost in the mail? What consideration supports the resultant contract? As employment is contingent on the student’s graduation and a background check, the letter also illustrates a condition precedent. Later in the contracts unit, the instructor would introduce the reneging question, challenging students to address the legal and ethical issues presented. Finally, the instructor could raise the practical question of what a student who regrets acceptance of a job offer might do. In legal terms, it may be desirable for the student to try to negotiate a mutual rescission of the contract. In fact, depending on the reason for the renege, employers may be quite willing to release the student from obligations. The practical point, of course, is that there are ways to handle these cases in a professional manner and other ways that are more likely to lead to hard feelings and resentment. The foregoing treatment of reneging issues in class would be appropriate for students of all levels.

Another option for introducing these topics in class discussion would be to have students read one or more of the appellate court cases on reneging in connection with either promissory estoppel in the contracts unit or the study of employment at will. An interesting approach would be to have the students read one case allowing equitable recovery and another finding that the prospective employee could not reasonably rely on the promise of a job and, therefore, could not recover any damages, such as Goldstein v Unilever and May v Harris Management Co. The instructor may choose to draw one of these cases from the local jurisdiction. Instructors adopting this approach could explore not only the legal and ethical issues raised by reneging, but also the nature of the common law. Students would be asked to analyse and evaluate the reasoning of the courts. Instructors then might ask the question that is the central focus of this article: would students’ thinking on reneging change if it is the prospective employee, and not the company, who reneges? This approach may be more challenging, especially for younger students.

The composite ‘typical’ offer letter could also serve as the focus of a set of exam questions. The exam would include, first, the expected questions of contract law, as suggested above. The instructor would then ask students to consider the reneging issues in an essay question. Successful answers would evidence critical thinking about the legal and ethical issues. This exercise would be challenging for students, especially if the instructor had not focused on these issues in class.

In the author’s course during the 2007–08 academic year, an ethics-related paper assignment was directed at the reneging issue. The reneging-related topic was one of three available to students each of the two semesters. Sixty-two students chose to write on the reneging issue.

An important goal in the author’s business law course was to encourage students to recognise ethical issues and come to reasoned conclusions about them. To assess the progress of students in those areas, the author analysed two indicators of student thinking: first, student papers on reneging, and second, student responses on pre- and post-course surveys on reneging.

In the fall 2007 semester, forty-four students completed papers on the reneging topic. Of these, seven students concluded that reneging is ethical. Fourteen students concluded that reneging is unethical. The remaining twenty-three students concluded that reneging may be ethical or unethical, depending upon the reason for the decision.

In the spring of 2008, to gain a better understanding of students’ thinking about reneging, the author administered pre- and post-course surveys on the ethics of reneging. The author did not set out to test any particular hypothesis on what students’ attitudes would be. Rather, the aim was to learn more about students’ perspectives, to inform presentation of the issue in the author’s course, and also to add to the literature on promise-keeping.

The pre-course survey was administered on the first day of the business law course, prior to any coverage of course material. The topic of reneging on employment contracts was not directly addressed in class lecture or discussion during the semester. As noted above, some students chose to write their ethics paper for the course on the topic of reneging, and so had the opportunity to examine that issue closely during the semester. The post-course survey, which included the same questions, was administered on the final day of class.

The anonymous assessment instruments included a cover sheet, with instructions and a consent form, and a questionnaire comprising sixteen questions. Six of those questions gathered demographic information, and ten measured student reactions to the reneging issue. One hundred and four students were registered for the course. Of those, 89 students attended on both the first and the last day and chose to participate in the survey. The study, therefore, compares the mean responses of these 89 respondents, collected at the beginning (pre-course) and end (post-course) of the semester.

On the post-course survey, 18.0 per cent of the respondents agreed that ‘reneging is ethically acceptable,’ reduced from 29.2 per cent of respondents who indicated that they agreed or strongly agreed with that statement on the pre-course survey.

Results of a paired sample statistical analysis suggest development in students’ thought during the semester. There were highly significant changes (p<0.01) in mean responses for all respondents from the pre-course to the post-course survey for all but one of the nine questions gauging student attitudes toward reneging. For example, on the broad question asking whether students agree that ‘reneging is ethically acceptable’, the mean response on the pre-course survey was 2.94 (s.d.=0.94). The mean response for all respondents on the post-course survey was 2.63 (s.d.=0.82). On the question asking whether reneging for a larger salary is ethically acceptable, the mean response pre-course was 2.89 (s.d.=1.03). Post-course, the mean response was 2.33 (s.d.=0.90). In general, respondents registered much less sympathy with reneging at the end of the course than at the beginning. These results provide support for the proposition that critical thinking about the issue did occur.

Both pre- and post-course, in comparison with the mean level of agreement with the unqualified statement that ‘reneging is ethically acceptable’, there is a higher level of agreement that reneging may be acceptable in certain situations – especially when the decision is based on the desire to be near family and friends (pre-course mean=3.43, s.d.=1.01; post-course mean=3.01, s.d.=1.04) or a concern about the financial status of the prospective employer (pre-course mean=3.33, s.d.=0.94; post-course mean=3.10, s.d.=0.97)). Students were least sympathetic to those who renege to take a higher salary (pre-course mean=2.89, s.d.=1.03; post-course mean=2.33, s.d.=0.90). On both surveys, students were also somewhat likely to find that reneging is more acceptable if there is no written contract (pre-course mean=3.55, s.d.=1.18; post-course mean=2.94, s.d.=1.17), which is a distinction not made in the law in these cases.

This study provides no definitive insights as to what factors may account for these changes. Notably, the mean responses on the post-course survey of students who wrote their ethics papers on the reneging topic were statistically similar to the mean responses of those who wrote on other topics. As stated above, reneging on job contracts was not specifically addressed in class. The author suggests that students’ thinking in fact was positively affected by the course material, apart from the ethics papers. Over eight weeks of the fourteen-week semester were devoted to contract law issues. Students focused during that time on the nature of commitments and the legal enforceability of promises. When students encountered cases where a promise would not be legally enforceable, the author routinely challenged students to consider whether, ethically, it would be right nonetheless to live up to that commitment. The highly significant changes in mean responses to questions about the ethics of reneging, pre-course to post-course, suggest that the content and methods of this course are fruitful.