False Promises and Broken Dreams - What to avoid when trying to hire a new employee

The recruitment of talented staff can be a long and difficult process. Sometimes employers may give assurances about a potential employee’s future employment conditions to secure their services. The danger for employers is that they can be accountable for the accuracy of such statements. In the not-for-profit sector, the assurances could be about the objects, activities, or future plans of an organisation, or even a key employee's remuneration package.

If an employer misrepresents a future state of affairs during the course of pre-contractual negotiations, it could be found liable for misleading and deceptive conduct under the Australian Consumer Law. Section 36 provides:

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 as to:

(a) the availability, nature, terms or conditions of the employment; or

(b) any other matter relating to the employment.

Note: A pecuniary penalty may be imposed for a contravention of this section.

The more general misleading and deceptive provision of section 18 also applies to the employment relationship, which opens up the possibility of damages. These sections were applied in a recent decision of the Federal Court of Australia. In this case, the employee’s contract provided for a base salary and an entitlement to 2.5% of the company’s net profit. Before signing the contract, the employee asked about the future prospects of the company since the base salary was substantially less than the salary she had previously been earning. She was assured that the company would be profitable, and that the 2.5% entitlement to net profit would see her generously remunerated. As you have probably guessed, the company did not live up to these expectations of profitability. The Court found that the employer had no reasonable basis for making this representation, as it had failed to take into account the real possibility that the company would earn a reduced profit. The Court awarded the employee almost $350,000 in damages.

In another case, the Court found that the employer had made representations about its commission based bonus scheme during contract negotiations, which were misleading and deceptive. The Court awarded the employee compensation for damages plus all legal expenses. In yet another case, the employee was the key person in and sole director of his own consulting company. He was persuaded to join a different company. The Court found that the employee had been induced to enter into a contract of employment by misleading statements made about the strong business position of the other company and the support of its parent company. The employee was made redundant within 18 months. The Court awarded compensation for damages plus all legal expenses. The damages were paid to the employee’s consulting company to compensate it for the financial loss suffered because of its director’s decision to join the other company.

Organisations should therefore exercise care when representing a position, whether through advertising or during negotiations with a potential employee.

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