A recent decision of the Federal Court of Australia, emphasises the significance of ensuring the representations employers make to future employees about their employment and the employer's business are not misleading or untruthful.
In the case of Moss v Lowe Hunt & Partners Pty Ltd  FCA 1181, the Court ordered that Lowe Hunt & Partners Pty Ltd (Lowe Hunt) pay just over A$300,000 to a former employee, Andrew Moss (Mr Moss), after finding its Managing Director made a series of misleading representations to him before the commencement of his employment.
In 2004, Mr Moss operated his own advertising and research consultancy business, of which Lowe Hunt was a client. Lowe Hunt, an international advertising agency, courted Mr Moss to become its Strategic Planning Director; a position he commenced in October 2005.
In February 2007, after being employed by Lowe Hunt for approximately 18 months, Mr Moss' position was made redundant and his employment was terminated. Mr Moss ultimately set about re-establishing his consultancy business.
Mr Moss, together with his consultancy company, brought a claim against Lowe Hunt for misleading and deceptive conduct in contravention of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW). Interestingly, Mr Moss settled his claim against Lowe Hunt, but his consultancy company proceeded to Court with its part of the claim.
In enticing Mr Moss to leave his consultancy business and join Lowe Hunt, the Group Managing Director of Lowe Hunt, Benjamin Colman (Mr Colman), was found by the Court to have made four misleading representations:
- the first misrepresentation was that, in April 2005, Lowe Hunt was a financially successful agency. It is important to note that this representation was made six months prior to the commencement of Mr Moss' employment and was made in the context of a "pitch" to prospective clients, rather than being directed to Mr Moss' employment
- the second misrepresentation, made between April and June 2005, was that Lowe Hunt's business was in a great position and likely to be financially successful in the future. This representation was made in the context of Mr Colman telling Mr Moss he "would be a great asset to the agency"
- the third and fourth misrepresentations were made by Mr Colman after several redundancies occurred at Lowe Hunt just before the commencement of Mr Moss' employment in October 2005. Mr Colman told Mr Moss that the redundancies placed Lowe Hunt in a very healthy position and that the savings would improve Lowe Hunt's balance sheet.
The Court found that these misrepresentations were relied upon by Mr Moss in accepting the offer of employment. Justice Katzmann noted "I am satisfied that Mr Moss is unlikely to have accepted the job offer if he thought he would be made redundant within eighteen months of doing so and that Mr Colman's representations lulled him into a false sense of security".
The Court also found that there was, in effect, misrepresentations made 'by silence' both before and during Mr Moss' employment. In the context of describing Lowe Hunt as being in a strong financial position, Mr Colman failed to reveal to Mr Moss that Lowe Hunt was experiencing trading losses and depended upon the backing of its US parent company due to its poor financial position.
In considering the issue of damages payable by Lowe Hunt to Mr Moss' company, Justice Katzmann concluded "that it is more likely than not that the company lost a valuable commercial opportunity" as a result of Mr Moss' employment with Lowe Hunt.
The Court ordered that Lowe Hunt pay a total of A$306,740, consisting of costs and interest, to Mr Moss' company as damages for misleading and deceptive conduct. Taking into account the exigencies of business, the Court intended this amount to compensate Mr Moss' company for the revenue it would have received had Mr Moss continued to operate his business during the period of his employment with Lowe Hunt.
Lessons for employers
- An employer will naturally cast a positive light on its business, and a person's future prospects within its business, in order to secure the best candidate for a position. What this case highlights is the importance of the distinction between 'talking up a job' and misleading a potential employee.
- An employer needs to ensure that its officers, agents (such as recruiters) and employees (such as managers or human resources staff) do not mislead candidates in enticing them to take up employment.
- Employers need to provide truthful answers to potential employees, particularly in circumstances where the candidate emphasises how important the issue is to them.
- This case also highlights that a prospective employee may be misled by representations made to a large group in a general context, not just directly to the person concerned.
Lowe Hunt ultimately complied with its obligations in Mr Moss' employment contract. An employer's exposure under the relevant legislation for making misleading statements will extend to lost opportunities, not only of the employee, but potentially third parties (such as former employers) and the damages will not be limited by the contract of employment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.