United States: Corporate Divorce Series: Do Fraudulent Credentials Annul Employment Contracts?

Last Updated: January 18 2016
Article by Jennifer B. Rubin

If you follow my corporate divorce series, you are familiar with my affinity for the employment-as-marriage metaphor. I've already examined how employment relationships end or should end. But I have yet to address an employment metaphor relevant to annulments.

Unlike divorce, which is the judicial dissolution of a legal marriage, an annulment is actually a judicial (and sometimes also religious) decree that the marriage was never valid in the first place. Typically an annulment is based on a fundamental legal flaw, such as fraud or marrying close kin or some other core defect that goes to the heart of the marriage contract. An annulment declares that the "marriage" is treated as if it never existed, provided a core reason exists to nullify it.

So what, if anything, annuls an employment contract?

The answer is that there are very few reasons a court will treat a contract it as if it never existed at all. And those limited reasons center almost exclusively on a widely pervasive misdeed that is difficult to detect: resume fraud.

In a prior article I relayed the story of Chester Ludlowe, a Vermont resident who received an MBA and Certificate of Distinction in Finance from Rochville University. I noted Mr. Ludlowe's credentials were particularly impressive because he is a pug. His owners purchased his online degree from a post office in Dubai for a $499 fee. The story of Chester Ludlowe would presumably come to an abrupt end when he showed up for his first day of work, regardless of the employer's pet policy.

The reason I included this anecdote (compliments of Degree Mills by John Bear and Allan Ezell) was to demonstrate the lack of attention employers pay to validating educational, work and other credentials on job applications and resumes. Occasionally the lack of validation is related to carelessness. But I suspect the chief reason is due to the impossibility of validating fully and properly the claims job seekers make to secure employment.

Resume fraud is not, of course, limited to educational credentials. Title and salary inflation abound as well as falsified job experience. Setting aside the moral discussion, the question is whether fraudulent credentials provide a basis for annulling an employment contract.

The answer is yes. If it is important to an employer that an employee with a certain degree, experience and even pedigree be hired for a particular position, and it turns out the employer was misled by the applicant about any of those important criteria, then a court may indeed grant an annulment, and permit the employer to avoid any contractual promises made to the employee based on the fabricated credentials. But the key here – and it is critical – is that the criteria at issue be material to the employer.

The word "material" has fairly important legal significance. It means something that is core and fundamental to the job at issue. Obviously what is material to one job may not be material to another. But it needs to be something significant and go the very reason the employer seeks to fill the position in the first instance.

Some courts add an additional layer of proof to secure an annulment – the requirement that an employer act reasonably under the circumstances. This makes sense. If, for example, it is important to the employer that a candidate have a certain degree or license, then it surely is prudent for the employer to confirm through reasonable steps (like a background check) that the degree was earned, the institution the degree was earned from actually exists, and the license is valid.

But absent material and relevant fraud, an employment relationship can't be "undone" in the same way a marriage can be annulled. And even if fraud prevents an employee from recovering benefits under an employment contract, the employee may still be eligible for unemployment and the right to continued participation in a health insurance plan because the bar for those benefits may require even more profound misconduct than misstating credentials.

There is of course no easy fix for this problem, other than employing rigorous vetting policies. But one thing is clear: once the fraud is discovered, swift action is demanded to avoid putting the company in the doghouse.

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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