Employers can be liable for misleading or deceptive representations made to prospective employees

Ms Rakic, a senior insurance executive, left her job at Pattersons Insurerbuild to accept a General Manager position at Johns Lyng, another insurance builder.

During pre-employment discussions, Johns Lyng offered Ms Rakic a base salary of $115,000 (approximately $100,000 below her salary at Pattersons) as well as a 2.5 per cent profit share, which it said would make up the difference for the gap. In support of this, a director of Johns Lyng told Ms Rakic that the business was profitable and likely to meet or exceed the profits and sales targets that had been achieved in the two previous financial years. Ms Rakic was emailed the profit share figures for the previous two years as well as an estimate for the coming year.

However, Johns Lyng’s financial performance fell significantly short of its forecasts and Ms Rakic was retrenched. Ms Rakic then sued Johns Lyng for misleading or deceptive conduct, alleging that she had relied on its representations when she accepted the job instead of continuing in her previous job or accepting employment elsewhere with higher remuneration.

The Decision

The FCA ruled that Johns Lyng did not have reasonable grounds for representing to Ms Rakic that its profitability would continue to meet or exceed that of the past two years. Ms Rakic was awarded $333,422 to compensate her for her reliance on those representations.

Even though Johns Lyng’s representations were not guarantees, the Federal Court of Australia (the FCA) accepted that the company had misrepresented to Ms Rakic that its profitability forecasts were likely to be achieved since:

• the financial year forecasts were presented to Ms Rakic three months before the end of the financial year and were not qualified in any way;
• Johns Lyng could have reasonably foreseen that the forecasts were wrong or at least needed to be revised, given it had recently seen its worst monthly profit in two years; and
• the statements were made to induce Ms Rakic to accept employment with them, since she had made clear her concern about being worse off by accepting employment at Johns Lyng.

In deciding what damages to award Ms Rakic, the FCA took into account Ms Rakic’s diminished job prospects, what she would have earned if she had stayed at Pattersons and her likely future earnings.

• There are potential dangers in making ambitious representations to incoming employees. Employers should be careful not to ‘oversell’ a prospective employee’s likely remuneration or benefits, especially where the employee does not have a strict entitlement to receive them.
• Employers should also avoid making predictions and forecasts about a company’s profitability without a proper basis for doing so or without making appropriate qualifications.

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Allens workplace relations team works closely with its clients to ensure that their human resources strategies, policies and procedures achieve ‘best practice’ in a way that is consistent with their business objectives. Its experienced team provides clients with the full spectrum of workplace relations services throughout Australia and Asia to help minimise workplace issues, protect corporate reputation and promote clients as employers of choice. They offer clients workplace visits to advise on potential health and safety risks (including personal liability for directors and corporate officers).