Employer beware: truth-in-hiring may be the new standard in recruiting.

During the past few years, several courts across the country, both state and federal, have imposed liability on employers who fail to deliver the kind of employment experience that was promised during the hiring or promotion process. Known generally as "Truth-in-Hiring" lawsuits, the legal theories that make up this growing area of employment law include fraud, fraudulent inducement, misrepresentation, negligent hiring, and failure to disclose. As disgruntled employees learn of this potential redress against exaggerating employers, a trend in the law seems to be developing. This area of employment law will most certainly curtail employers who make grandiose representations concerning employment and then fail to live up to those promises. But, the trend is also disturbing to employers who normally describe job opportunities to potential and present employees. As a result, employers and employees alike are beginning to ask what can be promised or described in job or promotion interviews. And, just as employers carefully review prospective employee's resumes, the prospective employees may begin to scrutinize the employer's representations.

This paper will explore the origins of Truth-in-Hiring law, the recent cases holding an employer liable for not being truthful, and the possibility of this trend extending into other jurisdictions. In addition, the paper will examine what employers can do to protect themselves from a claim of fraud in hiring.

Case Development

In most of the cases that have supported claims for truth-in-hiring, employers made promises or statements they knew or should have known were false about a job. These false statements were then relied upon by potential employees who accepted positions and gave up opportunities elsewhere. In many of the lawsuits, however, the employers only exaggerated career opportunities or failed to disclose certain information in order to retain old employees or hire new ones.

Previously, these facts would not have mattered. Employers and employees were bound by the employment-at-will doctrine which allowed an employee to be fired at any time for any reason unless the termination violated public policy or was in breach of an implied contract. However, truth in-hiring lawsuits are not based on the termination of the employee. Such lawsuits would be precluded by the employment-at-will doctrine. Instead, the causes of action are based on the false promises, false claims, or misrepresentations made to the employees during the recruitment or promotion process. These claims also have the element of reliance by the employees. Because they accepted jobs in reliance on the statements made to them, the employees gave up present work or the opportunity to work in desirable jobs elsewhere.

For example, in Navaretta v. Group Health, Inc., the Appellate Division of the New York Supreme Court upheld a fraudulent inducement claim made by an employee of an insurance company, who was induced into leaving her former employer to take a position with Group Health, Inc. Deborah Navaretta had been employed with her previous employer for seven years before interviewing with Group Health for the position of claims examiner.

During the interview, a supervisor for Group Health mentioned that Ms. Navaretta would be tested on materials provided to her during training courses. Ms. Navaretta allegedly replied that she did not test well and that if passing the tests were mandatory for keeping the job, she was not interested in the position at all. According to Ms. Navaretta, Mr. Nicles, the supervisor, responded that the tests were "not that important" and were not pivotal to her employment with the company.

As a result, Ms. Navaretta left her previous employer and took the position with Group Health. On her first day there, she discovered that, in fact, the tests were indeed important and that failure on the tests would result in termination. After Ms. Navaretta failed the tests three times, she resigned because she would have been fired if she had not left on her own.

Thereafter, she filed a claim for fraudulent inducement alleging that Group Health's supervisor fraudulently represented facts crucial to her decision, and that he withheld pivotal information for the purpose of inducing her to terminate her previous employment and take a position with his company. On appeal, the New York court affirmed the trial court's denial of defendant's motion for summary judgment.

The appeals court ruled that Ms. Navaretta's status, which she does not dispute, as an at-will employee who could be fired at any time without cause, was not important. This was due to the fact that Ms. Navaretta's lawsuit was not based wrongful termination, which would be precluded by the employment-at-will doctrine, but on the fact that Group Health's agent fraudulently misrepresented facts to her. As the court stated, "Plaintiff does not allege that defendant was wrong in firing her, but does allege that she would not have taken the job in the first place if the true facts had been revealed to her." As a result, the court ruled for Ms. Navaretta, upholding her truth-in-hiring claim and opening the door to other similar lawsuits.

In another case, Stewart v. Jackson & Nash, the U. S. Court of Appeals for the 2nd Circuit allowed attorney Victoria A. Stewart to proceed with her truth-in-hiring lawsuit. Ms. Stewart was fired from the New York law firm of Jackson & Nash after cutbacks in 1990. Previously, she had worked in the environmental law department of another New York law firm. A partner for Jackson & Nash had contacted Ms. Stewart to offer a job to her.

Ms. Jackson claimed that during an ensuing interview, the Jackson & Nash partner stated that the firm had just secured a major environmental client, the firm was establishing an environmental law department, Ms. Stewart would head the new environmental department, and that Ms. Stewart would be expected to handle the firm's "substantial" existing environmental law clients. In reliance on these statements, Ms. Stewart left her existing practice and began work as an associate with the firm.

However, once she began working at Jackson & Nash, there was little environmental work, no major environmental client, and no developing environmental law department. Instead, Ms. Stewart was put to work on general litigation matters. She worked in an area outside her chosen specialty for two years. In 1990, Ms. Stewart was terminated. She subsequently filed a lawsuit against Jackson & Nash in federal court alleging that she was fraudulently induced into leaving her previous employer and accepting a position with the firm.

The U.S. District Court held that Ms. Stewart could not bring suit because she was an employee-at-will who could be dismissed at any time for any reason. However, on appeal, the 2nd Circuit Court reinstated her claim and ruled that Ms. Stewart's lawsuit was cognizable because the damage to her career, opportunities, and professional reputation was independent of her termination and began while still an associate with Jackson & Nash. This was not a simple case of wrongful termination which would be precluded by the employee-at-will doctrine.

The court stated that although the employee-at-will doctrine would not allow an award of damages from the termination, it did not prevent recovery for injuries that result from reliance on the false statements of a potential employer. In other words, the claim arose not from Ms. Stewart's firing but from her hiring.

In addition, the court pointed out that most of the promises on which Ms. Stewart based her claim were actionable because they misrepresented statements of present fact or circumstance that can cause fraudulent inducement. For example, the Jackson & Nash partner stated that the firm was developing an environmental law department. This was a misrepresentation of present fact. However, the statement about the firm's expectation that Ms. Stewart handle the firm's existing environmental clients was not actionable because it was only a statement about a future potential opportunity. The court also made clear that even future promises may be actionable if the firm making them never intends to perform or keep the promise.

There are also cases which uphold the truth-in-hiring claims in the promotion process. Hanks v. Hubbard Broadcasting, Inc., a Minnesota case, involved an anchorwoman, Ms. Spencer, who filed suit for breach of an employment contract and for fraud in the inducement.

In 1985, Ms. Spencer began work as a television news anchor for a television station owned by Hubbard Broadcasting, Inc. (HBI). In 1986, she signed a three-year contract with her employer. The contract had a "window" period which allowed her to leave during the last year of her contract if she received a written offer to become an anchor from a network affiliate or from any station in one of the top ten markets.

During the contract period, HBI began to search for a co-anchor to be paired with Ms. Spencer. HBI promised her that once a suitable co-anchor was found, it would begin an extensive promotion campaign for the team. In addition, the general manager of the station told Ms. Spencer that when a new anchor was accepted, he already had a plan to do an "extraordinary promotional blitz of the new team ... unlike any you have seen."

During this period, Ms. Spencer's agent found out that an NBC affiliate in Los Angeles, the nation's number two market, was interested in his client. However, she told her agent, against the agent's advice, not to pursue this or any other opportunity because she believed that HBI would institute the promotional campaign. As a result, she gave up the opportunity to exercise the window option.

When HBI finally hired a co-anchor, there was no promotional campaign for the team. Instead, there was a promotion for the new anchor only. Ms. Spencer's co-anchor was in essence promoted while her role on the news was reduced. Ms. Spencer was assured that the situation was only temporary. Again, she did not exercise her option. Finally, she was terminated. It took a year for her to find another anchor position, one with less prestige and a lower salary.

Shortly after her termination, Ms. Spencer filed a lawsuit alleging breach of contract and misrepresentation. The contract claim was dismissed but the trial court awarded Spencer $82,000 in compensatory and $300,000 in punitive damages on the other claims. The Minnesota Court of Appeals affirmed.

The appellate court agreed with the jury that HBI made false representations of its intent to promote Spencer, that she relied and acted upon the representations, and that she was fraudulently induced into staying with HBI and giving up the other job opportunities.

As in the other truth-in-hiring cases, the court found that even if Spencer had been an employee-at-will who could be fired at any time for any reason, she would still have a cause of action against HBI because the claim did not come out of her termination. The claim arose out of the misrepresentations made to Spencer before the termination. Her injuries were caused while still employed with HBI.

A Vermont case, Pearson v. Simmonds Precision Products, Inc., involved an engineer who accepted a position with Simmonds, to work on the design of the fuel system for the Boeing B-2 bomber. At his interview, Pearson was assured that his employment was not tied into the Boeing project and that only 40% of Simmonds' total work was military, In reality, about 70% of the work was military, and the Boeing project was facing serious cutbacks.

Although Pearson signed a contract saying that he could be terminated at any time and was, therefore, an employee-at-will, Simmonds did not tell Pearson that his position was specifically tied to the Boeing project and that his job could be eliminated. Only four months after beginning work at Simmonds, Pearson was laid off. He filed suit on negligent failure to disclose and negligent misrepresentation.

Pearson won his case because Simmonds breached the duty of care it owed to Pearson to disclose the information before he signed the contract. Once again, a court allowed the truth-in-hiring claim because, even though Pearson was an employee-at-will, the claim did not allege wrongful termination. Instead, the claim arose out of the misrepresentations and failure to disclose essential elements at the time of hiring and prior to any agreement. Simmonds' misrepresentations and failure to disclose induced Pearson into accepting an offer of employment. In accepting the job, Pearson gave up the opportunity to accept work elsewhere.

Extension of Truth-in-Hiring Claims

Employers in many states are now facing the reality of lawsuits based on false representation or promises made during the hiring, recruitment, and promotion process. Even more important is the fact that as disgruntled employees learn of this potential remedy, they will be attempting to extend this type of lawsuit into jurisdictions which have not yet addressed the issue. If the facts and circumstances of a particular case are strong enough, courts appear willing to accept the theory as redress for damaged employees.

In order for an employee to win a truth-in-hiring lawsuit, the employer or potential employer must make an intentional or negligent misrepresentation, or fail to disclose an essential fact which it has a duty to disclose. The representations must be false and must deal with a past or present fact.

Additionally, as set forth in Hanks v. Hubbard Broadcasting,, Inc., to establish a claim,

a plaintiff must show ... the fact was material; the fact

was susceptible of knowledge; the representor knew the

represented fact to be false, or, in the alternative, asserted

it as his or her own knowledge without knowing

whether it was true or false; the representor intended to

have the other person induced to act ...; that person was

so induced to act ...; that person's action was in reliance

upon the representation; that person suffered damage;

and the damage was attributable to the misrepresentation.

All courts that have upheld the truth-in-hiring claims have made it clear that mere promises of future opportunity are not actionable. Actionable promise must go beyond statements of intent. For example, in Hanks, HBI's representations were that it already had a plan to promote the anchor team. This was a statement of present fact, not future intent.

There must also be true reliance by the injured employee. As the court stated in Hanks, "We recognize that where an at-will employee continues to work and does not claim to have turned down any offers of employment based upon an employer's representations, no reliance will be found." In that case, Ms. Spencer turned down the opportunity to pursue a career in the nation's number-two television market because she relied upon the promises made to her by her employer.

There are some situations in which courts have refused to find a cause of action for fraudulent inducement/truth-in-hiring claims. This can occur when the employer makes claims about career development possibilities or generally praises the employee's job performance; when an employee bases his or her reliance on a company's good reputation for retaining employees; or when an employee couches his or her contract or wrongful termination claim as a fraudulent inducement claim.

Implications for Employers

If an employer makes false representations to a potential employee which are intended to induce the employee to accept a position with the company, the law may recognize a remedy for the employee even it he or she is a traditional employee-at-will. As stated by Michael C. Lasky, a partner in the New York City law firm of Davis & Gilbert, the best way for an employer to avoid truth-in-hiring lawsuits is to take preventative measures to insulate itself.

Although truth-in-hiring claims can affect any business, preventive measures are especially important for professional associations such as accounting firms, medical associations, law firms, and the entertainment industry. These professions are unique and, as The Wall Street Journal says, "frequently engage in puffery and in exaggeration to keep people from leaving or induce them to come in the first place." Some strategies for prevention are listed below.

Provide Training

Training sessions for partners, associates and staff that include role playing in the interview, promotion, and hiring process are essential in order to minimize the threat of truth-in-hiring lawsuits. Firms should teach their employees the importance of distinguishing between statements of fact and promises of future opportunity. They should learn to point out that certain situations may be only possible and not a sure thing. In addition, training sessions should be used to discourage exaggeration, puffery and "sales talk" when speaking to potential employees. Only the actual facts about advancement, promotion, job responsibilities, and job security should be given. Otherwise, interviewees may believe that all the statements made about the position are promises or guarantees.

If potential employees were to ask questions about companies' plans, percentage of work in a certain area, or tenure of certain managers/supervisors whom the individuals might want to work with, employers should be truthful in answering the questions. If employers are unsure about one of the areas discussed, this must be disclosed. In addition, silence or half-truths can be as misleading as outright misrepresentation.

Create Written Agreements

All employers should tender written offers to potential employees. The offer should completely outline the terms of employment. It should also contain a disclaimer or renunciation of any outside promises or representations. The terms and disclaimers could be incorporated into an employee manual or handbook.

Employers should also make sure that new employees understand the terms of the employment agreement and disclaimer. It might be wise to have both employers and employees sign written offers or employee manuals.

Document Everything

Companies should begin to document all aspects of the interview, hiring, promotion, and firing processes to protect themselves from truth-in-hiring claims. Richard J. Reibstein, a labor and employment lawyer with the law firm of McDermott, Will and Emery, says for example, that before any offer is made, the employer should ask whether any representations have been made about the employment. Any promises made should be confirmed or renounced in writing and signed by both employers and employees. All terms and conditions of employment should be documented and made available to the employees. These documents should be retained in the employees' files.

Truth-in-hiring cases appear to be just one of the new types of claims that unhappy employees are using to gain compensation from employers who fire them or force them to quit after an unfulfilling employment experience. This type of case is being embraced by the courts and the legal system. As America's workforce becomes more educated about its legal rights, employers and employees alike should take aggressive steps to protect themselves in the recruitment and promotion process.

References

Hanks v.Hubbard Broadcastinq. Inc., 493 N.W.2d 302 (Minn.App. 1992).

Lasky, M. (1993, August). Firms Held Liable for False Claims During Job Interviews. PR Services, 57.

Navaretta v. Group Health Inc, 191 A.D.2d 953,595 N.Y.S.2d 839 (N.Y. App. Div. 1993).

Pearson v. Simmonds Precision Products, 624 A.2d 1134 (Vt. 1993).

Reibsteim, R.J. (1993, May 19). The Emergence of Truth in Hiring Claims. N.Y.L.J., 1.

Stewart v. Jackson & Nash, 976 F.2d 86 (2d Cir. 1992).

The Wall Street Journal. (1992, Oct. 7). B1.

Amy Oakes Wren

Associate Professor of Business Law

Louisiana State University Shreveport

Larry Clark

Dean of the College of Business Administration

University of North Carolina Wilmington

Marie Deriso

1993 Graduate of Louisiana State University Shreveport