An employer has been found to have breached the Australian Consumer Law after misrepresenting the financial status of the company to an employee during recruitment.
A senior insurance executive who took up the position of General Manager with a competitor has been awarded over $300,000 in compensation by the Federal Court of Australia (FCA), after the FCA found that her new employer had breached the Australian Consumer Law (Sch 2 of the Competition and Consumer Act 2010 (Cth)) (ACL).
The Case
In the case of Rakic v John Lyng Insurance Building Solutions (Victoria) Pty Ltd (Trustee) [2016] FCA 430, Ms Rakic alleged that she took up the General Manager role on a lower base salary on the basis of misleading and deceptive representations that her earnings would be boosted by a profit-share scheme. Ms Rakic alleged that during the discussions between herself and John Lyng about her potential employment, Mr Lyng made certain representations to her concerning the profitability of the business. This was particularly important because part of her remuneration was to be by way of a percentage of net profit.
After Mr Lyng failed to reach its predicated profits in 2013, Ms Rakic alleged that Mr Lyng had engaged in misleading and deceptive conduct pursuant to clauses 18 and 31 of the ACL and sought compensation on the basis that she had relied upon these representations in deciding to take on the role.
Reasons
In reaching its decision, the FCA found that:
- the representations were made for the purpose of inducing Ms Rakic to leave her former employment
- Mr Lyng had told Ms Rakic that the profit share system was "quite a successful model" and had been in place for some time
- there was email evidence sent to Ms Rakic which contained information about how the model worked, the profit share results for the 2011 and 2012 financial years and the projected forecast for the 2013 financial year
- in circumstances where Ms Rakic's offer was less than half her current remuneration, it was reasonable that she would rely upon the representations regarding profit
- whilst unexpected events might have intervened, it was also reasonable to accept that the representations made verbally combined with the email evidence, would "convey that the stipulated outcome was likely"
- there was also evidence to show that prior to making the offer, Mr Lyng should have been aware of the company's true financial position
- the discussions in the meeting and the email exchange, were alike to pre-employment contractual negotiations
Lessons
The case demonstrates that employers should be very careful as to the promises and representations made to prospective employees.
A misrepresentation or unfulfilled promise, may see an employee take action against the employer, such as for breach of contract or breach of the ACL. Such breaches, can prove costly for employers.
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.
