When is an employer liable for false and misleading statements to an employee?

When is an employer liable for false and misleading statements to an employee?

When trying to fill a vacant role it is common for employers to want to present the opportunity in only the most favourable light. Poaching an employee from a competitor with outlandish promises might be tempting. What are the consequences?  The potential legal issues in doing so were recently considered by a judge of the Federal Court of Australia in a case raised by McDonald Murholme Solicitors for Ms ‘R’.

Per clause 18 of the Australian Consumer Law forming Sch 2 to the Competition and Consumer Act 2010 (Cth) (ACL), a person, must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Clause 31, meanwhile, provides that a person must not, in relation to employment that is to be, or may be, offered by the person or by another person, engage in conduct that is liable to mislead persons seeking the employment. This includes in relation to the availability nature, terms, or conditions of the employment or any other matter relating to the employment.

In ‘R’ v Johns Lyng Insurance Building Solutions (Victoria) Pty Ltd (Trustee) [2016] FCA 430 (Johns Lyng case) the Respondent (Johns Lyng) was an insurance builder while the Applicant (Ms ‘R’) had been employed in the insurance industry since 1988. During 20 March 2013 and 3 April 2013, Ms ‘R’ engaged in discussions concerning her potential employment by Johns Lyng. The role on offer was that of General Manager and remuneration was to be partly by way of base salary and partly by way of percentage of net profit.

During the course of the above discussions the following representations were made to Ms ‘R’ by Johns Lyng executives concerning the company’s profitability:

1. that Johns Lyng’s profits and sales in the 2013 financial year were likely to meet or exceed its profits and sales in the 2011 and 2012 financial year.
2. that it was probable that after late March 2013, for at least the next 12 months, Johns Lyng would remain as profitable as it had been in the previous 2 years.
3. as at mid to late March 2013 there was no reason of which Johns Lyng was aware for Johns Lyng not to meet its sales and profitability budgets and forecasts for the 2013 financial year.

Such representations were of great interest to Ms ‘R’ who was, at that time, considering leaving her then position with Pattersons Insurerbuild Pty Ltd (Pattersons) where she was enjoying as much as double the base salary that would be on offer at Johns Lyng.

Ultimately, the Federal Court found that both the first and second representations were made without reasonable grounds. In fact, at the time the representations were made there were very good reasons to believe that FY11 and FY12 figures would not be surpassed and that Johns Lyng would not remain as profitable as it had been in the previous 2 years. Accordingly, the court found that there had been a breach of cll 18 and 31 of the ACL and that the representations were misleading and deceptive.

In considering loss, the court agreed that it would be implausible to think that Ms ‘R’ would have accepted the position at Johns Lyng if not for the representations as to its profitability. Therefore in calculating a quantum, the court subtracted from what it considered to be the most likely scenario absent John Lyng’s conduct the amount actually earned by Ms ‘R’ plus the amount likely to be earned post hearing.

Ms ‘R’ was accordingly awarded $333,422 in compensatory damages.