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Talking it Up: Employers, Employees and Misleading Conduct

During times of low unemployment, and critical shortages of workers in some industries, it is not uncommon for employers to find themselves in the situation where they are selling themselves and their business, to potential employees. Likewise for recruiters, who will work hard to secure the best candidates for their clients, and in doing so will be making certain representations to those candidates about the overall performance and potential of the company.

Many employers and recruiters may find themselves in a situation where they and other business are vying for the services of a particular individual. In many of these instances, it is not just the salary that a potential employee is concerned with, but other less measurable factors such as career prospects, company growth and gaining increased credibility and exposure in their particular fields. The summary of a court ruling below illustrates the importance of taking care when making representations about these particular issues, to potential employees.

In the recent case of Moss v Lowe Hunt & Partners[2010] FC 1181, the Federal Court explored the notion of false and misleading representations made by an employer to an employee. The background to the case was that Moss was an advertising and research consultant, who ran his own company, Pegasus Strategic Planning Pty Limited (Pegasus), of which he was the sole director. During his time as an advertising consultant for Pegasus, he completed various pieces of work for advertising agency Lowe Hunt & Partners (Lowe Hunt). Lowe Hunt then sought, from early 2005 to entice Moss away from Pegasus in order that he become a full time employee for Lowe Hunt. Moss eventually joined Lowe Hunt as an employee in October 2005. During the period of early 2005 through to October 2005, Lowe Hunt made several representations to Moss about the success of the business in order to entice Moss to join the company. The court found the following representations to be false and misleading.

  •  Representations made in April 2005 that Lowe Hunt was a financially successful agency, by way of a pitch to potential clients, which Moss attended. The judge stated it was misleading or deceptive to describe a business as being successful when it did not have the continued support of its parent company.
  •  Representations made to Moss between April and June 2005 to the effect that Lowe Hunt was a business in a great position and likely to be financially successful in the future.
  • Just prior to Moss commencing at Lowe Hunt, several redundancies occurred. Lowe Hunt made representations to Moss that the redundancies would place Lowe Hunt in a very healthy position, and improve the company's ballot sheet.

In October 2005, Moss became an employee of Lowe Hunt after relying on these statements, but within 18 months, his role was made redundant also. He returned to his own business, Pegasus, however, Pegasus contended that it had suffered financially because of the events that transpired. Pegasus claimed damages under s.82 of the Trade Practices Act 1974 or s.68 of the Fair Trading Act 1987 stating that it lost the opportunity to continue to grow and develop its business during the time that Moss was employed by Lowe Hunt. In assessing damages the court compared the amount that would have been earned by Pegasus, had Moss not been lured away, with the amount Moss earned during his employment with Lowe Hunt. The total amount awarded, including interest, was $306,740.00.

The take home messages for employers, and recruiters, from this case this are:

  • Be careful when making direct or indirect representations about your business to prospective employees. These representations may be those made in a public forum as well.
  • Pay particular regard to the representations made about the companies financial security.
  • There is a difference between casting a positive light on your business and making misleading or deceptive representations.
  • Employers should answer questions from employees (current and potential) regarding the circumstances of the business with truthfulness.
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