Australia: The perils of misleading your prospective employees

INTRODUCTION

There are few court decisions which deal with damages claims by employees lured into new employment by prospective employers' assurances, and who suffer loss when things do not go according to plan. However a decision of the Federal Court of Australia handed down in April 2016 in Rakic v Johns Lyng Insurance Building Solutions (Victoria) Pty Ltd (Trustee) [2016] FCA 430 is one such case.

The decision involved a claim by a Ms Rakic a former General Manager at the insurance building firm Johns Lyng, who was awarded nearly $350,000 in damages following the Court's finding that she was induced to leave her existing and higher paid job in reliance upon misrepresentations as to her likely future earnings with Johns Lyng. The decision, apart from highlighting the need for employers to be circumspect about predictions (especially financial ones), also provides a useful insight into how courts interpret the relevant provisions of the Australian Consumer Law which underpinned Ms Rakic's claims.

FACTS

Ms Rakic was employed by Pattersons Insurer build between October 2012 and April 2013. Between April 2013 and February 2014 Ms Rakic was employed by Johns Lyng as a General Manager. In the month or so prior to her joining Johns Lyng, Ms Rakic and her potential employer had a series of discussions concerning possible employment with Johns Lyng. Ms Rakic alleged in the proceedings, that Johns Lyng made various representations to her concerning the profitability of Johns Lyng which were misleading and deceptive and which induced her to leave her stable employment with Pattersons.

Ms Rakic's evidence was that she was offered a base salary inclusive of superannuation which was approximately $100,000 less remunerative than her Pattersons salary. Whilst Johns Lyng's original base salary offer was increased by some $15,000, the difference in salary was an impediment to her joining. Ms Rakic asserted that her concerns around remuneration were ultimately addressed by representations made by Johns Lyng including by email, concerning the potential for Ms Rakic to earn an additional $100,000 plus, based on a share of the profit of Johns Lyng for the forthcoming financial year.

As things turned out, Johns Lyng did not make the profit it had indicated it would and Ms Rakic did not earn the remuneration she thought she was going to. Worse than that, Ms Rakic ended up being made redundant. She subsequently brought a claim against Johns Lyng. Ms Rakic asserted that had she not relied upon the representations made to her by Johns Lyng, she would have continued on in her employment at Pattersons at her leisure, or she could have become employed elsewhere on terms that were as remunerative as her employment terms at Pattersons or more so.

DECISION OF THE FEDERAL COURT

Ms Rakic alleged that Johns Lyng had breached clauses 18 and 31 of the Australian Consumer Law (ACL).

Clause 18 of the ACL essentially provides that 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 of the ACL states:

"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:

  1. the availability, nature, terms or conditions of the employment; or
  2. any other matter relating to employment"

The Court found that Ms Rakic relied upon representations by Johns Lyng that its profits and sales in financial year 2013 were likely to meet or exceed its profits and sales in the financial years 2011 and 2012 and that it was probable after March 2013 for at least the next 12 months, that Johns Lyng would remain as profitable as it had been in the previous two years.

A question which arose was whether the representations (which concerned a forecast) were misleading or deceptive. The Court noted with approval a statement by the Federal Court in ACCC v Dukemaster Pty Ltd [2009] FCA 682 at [10], that where a representation concerns a statement of opinion it will not be misleading or deceptive or likely to mislead or deceive "merely because it turns out to be incorrect, misinforms or is likely to do so." What is critical is whether there was an adequate foundation for holding the view. In that decision the Court went on to say:

"However, an opinion may convey that there is a basis for it, that it is honestly held and when it is expressed as the opinion of an expert, that it is honestly held upon rational grounds involving an application of the relevant expertise. If the evidence shows that the opinion was not held or that it lacked any or any adequate foundation, particularly if the opinion was expressed as an expert, a statement of opinion may contravene s 52 of the TPA".

Justice Bromberg carried out a detailed analysis of the financial data and information of Johns Lyng which was advanced by Johns Lyng as the basis for making the representations in issue. With respect to this material the Court noted that the key question was whether on an objectively reasonable basis the representations could be supported or in Justice Bromberg's words:

"The question is whether there was an objectively reasonable basis for the subject matter of the representations: whether there were facts within Johns Lyng's knowledge that were objectively reasonable and supported the prediction that profits in FY 13 would meet or exceed those in FY 11 and FY 12 and the prediction that Johns Lyng would remain for the next 12 months as profitable as it had been for the previous two years"

The Court ultimately determined that there was not such a basis for the making of these representations. Such finding was in large part because Johns Lyng's number of successful tenders had diminished and was significantly below target in the months immediately preceding the representations. Therefore revenue was likely to decline.

As noted above, Ms Rakic brought her claim under both clauses 18 and clause 31 of the ACL. Clause 18 essentially mirrored the previous section 52 of the Trade Practices Act. Justice Bromberg considered that there was no doubt that any representations found to have been made would satisfy the test in clause 31 as they were directed towards future employment.

An interesting question which arose was whether such representations were deceptive or misleading conduct within the parameters of clause 18 of the ACL. Clause 18 is directed to conduct which is deceptive or misleading "in trade or commerce".

Justice Bromberg noted with approval Justice Kenny's conclusion in Walker v Salomon Smith Barney Securities Pty Ltd [2003] FCA 1099 that misleading or deceptive conduct in the course of negotiations for employment may support a cause of action under section 52 of the then Trade Practices Act. That is to say that such conduct might fall within that provision as it would be considered to have occurred in trade or commerce. Justice Bromberg considered there was no reason why such a conclusion should not equally apply to clause 18 of the ACL. It should be observed that this is a matter about which judicial minds have differed.

To conclude, Ms Rakic was successful as the Court found that: there were not reasonable grounds for making the representations in issue, that the representations were misleading and that Ms Rakic relied upon them in deciding whether or not to accept employment with Johns Lyng, to her detriment. She was awarded $333,422 of compensable loss or damage and a further sum of $16,529 under a separate head of claim involving a contractual entitlement.

LESSONS FOR EMPLOYERS

When considering hiring a new employee, employers need to treat the making of predictions or forecasts with extreme caution. Avoid them if you can. If you cannot, ensure that you have (and retain) all relevant information at your fingertips before making a prediction or forecast. The prediction or forecast needs to be based on a solid foundation which will withstand scrutiny. Wherever possible, qualify your prediction if there are known contingencies that may impact on the accuracy of your forecast or prediction. Finally keep a detailed file note of the prediction or forecast and the basis for it, in case things go south.

For more information please contact:

Richard Ottley, Partner
Phone: +61 2 9233 5544
Email: rbo@swaab.com.au

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.