In an effort to attract the most qualified employees, employers sometimes make promises that they cannot keep. But what may once have been considered harmless exaggeration by employers can now be the basis for a costly lawsuit. Several recent cases have held that employers can be liable for fraud if their representations about a job do not pan out.
Overstating earning potential costs employer over $1.2 million
In a recent case, an employer that overstated an applicant’s earning potential was hit with a $1.2 million damage award. The employee in that case earned $5,800 to $5,900 a month at his old job. He applied for a new job and, during the interview, told the employer that he needed to earn at least $5,700 a month. The employer then pulled out a financial statement, made some calculations, and stated that if the employee had been with the company between January and September of 1999, he would have made $70,000 (which would have been well over $5,700 a month). Based on this representation, the employee accepted a position with the new employer and quit his old job. In his first three months of employment, however, his monthly paychecks amounted to $4,400, $5,100, and $4,800 respectively. The employee complained but received no response, and shortly thereafter was fired. Although he re-applied for a job with his old employer, it had a strict no-rehire policy. He eventually found another job that paid less than $4,000 a month.
The employee sued for fraud, arguing that the employer falsely promised him a salary of at least $5,700 per month, and that he left his old job in reliance on that promise. The jury agreed with the employee and awarded him $490,913 in economic damages, $50,000 for pain and suffering, and $1.5 million in punitive damages, which the trial court later reduced to $675,000. In upholding the jury’s decision, the appellate court noted that the employee was entitled to recover the income he lost when he left his old job in reliance on the employer’s false promise about salary, so long as such damages were not speculative or remote.
Employer can be liable if it overstates job security
In another case, an employee claimed he was induced to leave a steady job in New York for a new job in California based on false promises of job security. The employee earned $120,000 a year in New York as the president of a small family-owned company. He was actively recruited by a California company that wanted him to accept a job as its general manager. During the recruitment process, the employee told the employer he was concerned about giving up a secure job and moving his family across the country. He asked the employer to assure him that his job would be secure. In response to these concerns, the employer told him that he would continue to be employed so long as he performed his job well and achieved certain goals. The employer also told the employee that that the company was strong financially and that it anticipated solid growth and a stable and profitable future. The employee ultimately accepted the new position and moved his family to California.
Approximately two years later, the employee was terminated. He was told that his job was being eliminated because of a management reorganization, and that the termination had nothing to do with his performance. The employee sued the employer for, among other things, fraud. The court found that the employee could state a claim for fraud if he could prove that the employer induced him to leave his job in New York by making promises that it knew it could not keep. The court also held that, if the employee could prove his fraud claim, he would be entitled to recover the costs of moving to California and the loss of job security and income associated with his former job in New York.
Tips to Follow
As these cases make clear, employers can be held liable if their representations to prospective employees later prove to be false. In order to avoid costly lawsuits, here are some tips to follow when interviewing employees and extending job offers:
• Provide training to interviewers so they do not misrepresent the employer’s financial condition or the applicant’s salary potential or job responsibilities.
• Review all job postings carefully to ensure that you are not making any unintended or unauthorized promises.
• Write down the terms and conditions of a prospective employee’s employment in a detailed offer letter.
• Use two interviewers at once, since this provides an employer with a witness if a dispute later arises.
The bottom line: Do not make promises you cannot keep.