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))
In the case of
Rakic v John Lyng Insurance Building Solutions (Victoria) Pty Ltd
(Trustee)  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.
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
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
the discussions in the meeting and the email exchange, were
alike to pre-employment contractual negotiations
The case demonstrates that employers should be very careful as
to the promises and representations made to prospective
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
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.
Kemp Strang has received acknowledgements for the quality of
our work in the most recent editions of Chambers & Partners,
Best Lawyers and IFLR1000.
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An employee that refused a reasonable offer of settlement was ordered by the FWC to pay his ex-employer's legal costs.
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