Recruitment lies revisited in court

If an employer misrepresents itself to an employee during the hiring process, the employee may be entitled to damages

The hiring process is a lot like the dating game — both parties strive to put on their best faces to attract the other side. Embellishment is common. While in the dating scene, liability may only be restricted to hurt feelings and no chance of a second date, it can have much more serious ramifications in the hiring process.

If an employer misrepresents itself to an employee during the hiring process, the employee will likely be entitled to significant damages if a court case ensues.

Generally, issues which arise during the hiring process do not surface until the employee is terminated and brings an action for wrongful dismissal. At this time, the court will determine whether the employee received proper notice of termination. Traditional factors used to assess the reasonable notice period include the employee’s age, length of service, character of employment and the availability of similar employment. The factor given the most weight by courts is the length of service. Employees with longer periods of service to a corporation are typically given longer periods of reasonable notice. When the court examines the employee’s length of service, the court must also determine whether she was induced or enticed to come to work for the present employer.

The Supreme Court of Canada’s landmark decision in Wallace v. United Grain Growers Ltd. stood for the principle that an employer has an obligation to act in good faith and have fair dealings when terminating an employee. It also confirmed that inducing someone to leave secure employment is a significant factor in reasonable notice.

The classic case of inducement occurs when the employee has been securely employed by one company for several years, but is enticed by another company to come to work for them. The employee is then employed for a short period of time and terminated with or without cause.

But in recent years courts have been willing to expand on this classic scenario. Wallace serves as a good example. Jack Wallace, 59, was dismissed after 14 years of service to the company. He was induced to join the company and was told he would have job security until retirement. Prior to his dismissal for cause, Wallace was the top salesperson every year he was with the company. Despite the fact he had been with the employer for more than 14 years, the court still found inducement to be a factor which served to lengthen Wallace’s length of service and, thus, the reasonable notice period he was entitled to.

In other cases, where the employee was actively looking for a new job, courts have found inducement where there are extenuating circumstances. In the Ontario Court of Appeal’s decision of Marshall v. Watson Wyatt & Co. the court upheld a nine-month reasonable notice period for an employee who had only been on the job one year. The court did not use the term “enticement” but took notice of the fact Shirley Marshall had been hired “in the face of a competing offer” and that these offers had occurred one month after the employee had been terminated from a position she had held for eight years with another company. Despite the fact Marshall was actively looking for alternate employment before being hired, the court found she was induced to accept Watson Wyatt’s offer over another one.

In Bureau v. KPMG Quality Registrar Inc. the Nova Scotia Court of Appeal found inducement where the employee left her own business. Kathryn Bureau was recruited by consulting firm KPMG. In accepting the offer of employment, she had to give up her own company. Fifteen months later, she was dismissed. The appeal court upheld the trial judge’s finding that five months was a reasonable notice period.

And although courts will not always find there is inducement, particularly where the employee had been the one to express an interest in working for the employer, it can still play a role in awards. In Easton v. Wilmslow Properties Corp., Donna Easton left her long-standing employment with one employer to become an employee for another organization. While the court found inducement had not been established given that it had been Easton’s idea to be a candidate for Wilmslow, the court noted she would not have left her position at the previous employer had she and the employer not believed the new position to be reasonably secure. So even though inducement was not established, it was a factor which nonetheless affected the notice period.

The effect of a finding of inducement could significantly lengthen the notice period of the employee in question. Therefore it is important to address these issues in employment contracts so the contract specifically outlines the amount of notice to be provided to the employee and ensures the inducement issue does not arise later on.

Equally important is the issue of negligent misrepresentation. Employers owe the potential candidate a duty of care to represent themselves honestly and accurately. The law has made clear that an employer can be held accountable for any representations it makes to job applicants about job opportunities and what the applicant can expect if hired.

The Supreme Court of Canada’s decision in the Queen v. Cognos outlined the test for what constitutes negligent misrepresentation:

•there must be a duty of care based on a special relationship between the employer and the employee;

•the employer must be untrue, inaccurate or misleading;

•the employer must have acted negligently in making the said misrepresentation;

•the employee must have relied, in a reasonable manner, on the said negligent misrepresentation; and

•the reliance must have been detrimental to the employee in the sense that damages resulted.

This same test can be applied within the employment relationship as long as all the elements are met. Inducement and negligent misrepresentation liability also extends to third-party headhunters or recruiters.

In Kilpatrick v. Peterborough Civic Hospital, William Kilpatrick was induced and had been led to believe he had guaranteed employment for life at the time of his hiring. In this case, it was a third-party headhunter who had negotiated between the hospital and Kilpatrick.

The hospital argued it had not authorized the headhunter to provide any assurances of job security. But the court found that during the negotiations the headhunter acted as agent for the hospital and any representations he made bound the hospital.

In the clearest cases of negligent misrepresentation, the largest sets of damages are awarded in cases where the employer has provided assurances about job security. In Wallace the company had told the employee that as long as he continued to perform as expected, he could work for them until retirement. In Kilpatrick, the employer not only induced Kilpatrick to come to work for it, but simultaneously made flagrant statements that he had a job for life. When Kilpatrick was subsequently terminated, these statements were considered negligent misrepresentations and significantly lengthened the reasonable notice period to which the employee was entitled.

In an action for misrepresentation, damages for pure economic loss are recoverable as are damages for loss of purchase and sale of home, relocation expenses, emotional distress and loss of income. Generally, however, courts attempt to put the employee back into the position he would have been in had the misrepresentation not occurred.

Given the potential consequences arising from findings of inducement or negligent misrepresentations, it is imperative that employers address any ambiguities by outlining the terms and conditions of hiring in an employment contract. If a corporate employer is not willing to recognize the service from the previous employer, this must be stated clearly within the employment contract as this will form the basis of the employment relationship. Likewise, all of the other terms and conditions of the employment relationship should be clearly outlined to avoid confusion later.

Although employment contracts are critical, they will not be very useful if the employees who are conducting the interviews are not educated about inducement and negligent misrepresentation. The person responsible for hiring must know that if he does not have the answer to a potential employee’s question, no answer should be provided until it has been verified with superiors. That person should not be afraid to tell candidates he will get back to them with a proper answer. Above all, people responsible for hiring must be aware that at no time should any assurances ever be made with regard to a potential employee’s job security.

For more information

Wallace v. United Grain Growers Ltd. (1997), 152 D.L.R. (4th) (S.C.C.).

Marshall v. Watson Wyatt & Co., [2002] O.J. No. 84 (Ont. C.A.).

Bureau v. KPMG Quality Registrar Inc., [1999] N.S.J. No. 261 (N.S.C.A.).

Easton v. Wilmslow Properties Corp., [2001] O.J. No. 1752 (Ont. S.C.J.).

Queen v. Cognos, [1993] 1 S.C.R. 87 (S.C.C.).

Kilpatrick v. Peterborough Civic Hospital, [1998] 36 C.C.E.L. (2d) 265 (reversed on other grounds 42 C.C.E.L. (2d) (Ont. C.A.).

Natalie MacDonald is an associate with Grosman, Grosman & Gale, a Toronto-based law firm specializing in employment law. She can be reached at (416) 264-9599 or [email protected]. Her column appears regularly in Canadian HR Reporter’s Guide series. Look for the Guide to Pensions & Benefits in the June 2 issue.

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