Australia: Employer liable for inducing employee to leave business and then making him redundant - misleading and deceptive conduct

Workplace Directions
Last Updated: 8 March 2011
Article by Emma Reilly

Moss & Anor v Lowe Hunt & Partners Pty Limited [2010] FCA 1181 (1 November 2010)

Employer liable for inducing employee to leave business, and then making him redundant

The first applicant, Mr Andrew Moss, is the principal and sole director of the second applicant, Pegasus Strategic Planning Pty Limited ("Pegasus"), an independent advertising and research consultancy operating since late 2004. Mr Moss first did work for the respondent, Lowe Hunt, through one of Pegasus's predecessors. Gradually, the amount of work Mr Moss (through Pegasus) was doing for Lowe Hunt increased and he was courted by its Group Managing Director, Benjamin Colman, to accept a position as an employee of the business, working as its Strategic Planning Director. For some time Mr Moss rebuffed Mr Colman's overtures, but in October 2005 he was finally lured away from his own business by the promise of an attractive salary package, leave entitlements and repeated assurances about the success of Lowe Hunt, which he took to involve its financial success. Unfortunately, by this time it was common ground that the business was not actually a financial success. Redundancies that were made shortly before Mr Moss was hired were followed within 18 months by his own, on 23 February 2007.

Mr Moss returned to running his own business following his redundancy. However, Pegasus contends that it suffered financially because of his ill-fated decision to join the staff of Lowe Hunt.

Pegasus succeeded in that claim before Katzmann J of the Federal Court.

The reasons for judgment commence by stating that the determinative factor of the matter was as to whether "it is misleading or deceptive (or likely to be such) to describe a business as successful when, but for the continued support of its parent company (itself not without difficulties), it would be insolvent".

It was pleaded that there were four false representations made by Mr Colman on Lowe Hunt's behalf before and around the time Mr Moss entered into the contract of employment:

  • Mr Colman in April 2005 stated in a presentation to prospective clients of Lowe Hunt that Lowe Hunt was a financially successful agency in Australian advertising at the time
  • In the period April to June 2005, Mr Colman represented that Lowe Hunt was in a great position (making it a desirable employer) and was likely to be successful financially in the future
  • On 13 October 2005, just before Mr Moss started work at Lowe Hunt, Mr Colman's provided an assurance (in response to an inquiry from Mr Moss about Lowe Hunt's financial position) that the "redundancies place Lowe Hunt in a very healthy financial position", a position he conceded in cross-examination was quite untrue
  • The next day Mr Colman's said the words: "The savings made will translate the balance sheet from a $1 million plus loss to a $1 million operating profit".

Pegasus alleged that by 13 October 2005, Mr Colman was aware of Mr Moss's background, the impact that working exclusively for Lowe Hunt would have on his own business and that Mr Moss was likely to rely on him, so there was a reasonable expectation that he would be informed if Lowe Hunt was not in a sufficiently strong position financially to make the prospect of entering into an employment contract a desirable one for him. Pegasus relied on that circumstance to complain that the failure to disclose information showing that Lowe Hunt was not in a sufficiently strong position to be a desirable employer from 13 October 2005 until November 2006 amounted to breaches of the misleading and deceptive conduct provisions in the Trade Practices Act.

Mr Colman did not dispute that he made the first two representations but he denied making the third and fourth.

He claimed that by that time, he would not have used the language described as he was aware that the agency was making continuing losses and was dependent on its US parent to remain solvent. Mr Colman conceded that at the time Mr Moss accepted his job offer, IPG was also undergoing very serious financial problems.

Mr Moss was assessed as a careful and thoughtful witness, who was trying to give considered and truthful answers to the questions asked of him. Mr Colman, on the other hand, was observed by Katzmann J to be given to overstatement. He conceded he had made a number of misleading statements in significant documents and he was quick to shift responsibility to others. He made admissions as to instances where he had been untruthful to prospective clients because he perceived it to be in his employer's interests.

In those circumstances the evidence of Mr Moss was preferred over that of Mr Colman as to the facts of the circumstances surrounding the representations.

Ultimately, Lowe Hunt did not dispute that its financial position was not disclosed to Mr Moss. The respondent submitted that the failure in that regard was not in breach of any duty to disclose and was not "in trade or commerce". As to damage, the respondent asserted that the representations caused no loss, as Lowe Hunt had performed its obligations to Mr Moss under the contract of employment and the redundancy was for reasons other than the financial position of Lowe Hunt. It was argued that Pegasus had not proven an actionable loss, only a loss of opportunity.

Despite these arguments, Katzmann J saw fit to award damages to Pegasus to the extent of $306,740.00, with reference to expert evidence as to economic loss.

The decision reflects an interesting avenue to seek a remedy in employment related circumstances, as before not pursued.

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.

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