Pub­li­ca­tions

The per­ils of mis­lead­ing your prospec­tive employees

INTRO­DUC­TION

There are few court deci­sions which deal with dam­ages claims by employ­ees lured into new employ­ment by prospec­tive employ­ers’ assur­ances, and who suf­fer loss when things do not go accord­ing to plan. How­ev­er a deci­sion of the Fed­er­al Court of Aus­tralia hand­ed down in April 2016 in Rakic v Johns Lyng Insur­ance Build­ing Solu­tions (Vic­to­ria) Pty Ltd (Trustee) [2016] FCA 430 is one such case.

The deci­sion involved a claim by a Ms Rakic a for­mer Gen­er­al Man­ag­er at the insur­ance build­ing firm Johns Lyng, who was award­ed near­ly $350,000 in dam­ages fol­low­ing the Court’s find­ing that she was induced to leave her exist­ing and high­er paid job in reliance upon mis­rep­re­sen­ta­tions as to her like­ly future earn­ings with Johns Lyng. The deci­sion, apart from high­light­ing the need for employ­ers to be cir­cum­spect about pre­dic­tions (espe­cial­ly finan­cial ones), also pro­vides a use­ful insight into how courts inter­pret the rel­e­vant pro­vi­sions of the Aus­tralian Con­sumer Law which under­pinned Ms Rakic’s claims.


FACTS

Ms Rakic was employed by Pat­ter­sons Insur­er build between Octo­ber 2012 and April 2013. Between April 2013 and Feb­ru­ary 2014 Ms Rakic was employed by Johns Lyng as a Gen­er­al Man­ag­er. In the month or so pri­or to her join­ing Johns Lyng, Ms Rakic and her poten­tial employ­er had a series of dis­cus­sions con­cern­ing pos­si­ble employ­ment with Johns Lyng. Ms Rakic alleged in the pro­ceed­ings, that Johns Lyng made var­i­ous rep­re­sen­ta­tions to her con­cern­ing the prof­itabil­i­ty of Johns Lyng which were mis­lead­ing and decep­tive and which induced her to leave her sta­ble employ­ment with Pattersons.

Ms Rakic’s evi­dence was that she was offered a base salary inclu­sive of super­an­nu­a­tion which was approx­i­mate­ly $100,000 less remu­ner­a­tive than her Pat­ter­sons salary. Whilst Johns Lyng’s orig­i­nal base salary offer was increased by some $15,000, the dif­fer­ence in salary was an imped­i­ment to her join­ing. Ms Rakic assert­ed that her con­cerns around remu­ner­a­tion were ulti­mate­ly addressed by rep­re­sen­ta­tions made by Johns Lyng includ­ing by email, con­cern­ing the poten­tial for Ms Rakic to earn an addi­tion­al $100,000 plus, based on a share of the prof­it of Johns Lyng for the forth­com­ing finan­cial year.

As things turned out, Johns Lyng did not make the prof­it it had indi­cat­ed it would and Ms Rakic did not earn the remu­ner­a­tion she thought she was going to. Worse than that, Ms Rakic end­ed up being made redun­dant. She sub­se­quent­ly brought a claim against Johns Lyng. Ms Rakic assert­ed that had she not relied upon the rep­re­sen­ta­tions made to her by Johns Lyng, she would have con­tin­ued on in her employ­ment at Pat­ter­sons at her leisure, or she could have become employed else­where on terms that were as remu­ner­a­tive as her employ­ment terms at Pat­ter­sons or more so. 


DECI­SION OF THE FED­ER­AL COURT

Ms Rakic alleged that Johns Lyng had breached claus­es 18 and 31 of the Aus­tralian Con­sumer Law (ACL).

Clause 18 of the ACL essen­tial­ly pro­vides that a per­son” must not in trade or com­merce, engage in con­duct that is mis­lead­ing or decep­tive or is like­ly to mis­lead or deceive. 

Clause 31 of the ACL states:

A per­son must not, in rela­tion to employ­ment that is to be, or may be, offered by the per­son or by anoth­er per­son, engage in con­duct that is liable to mis­lead per­sons seek­ing the employ­ment as to: 

(a) the avail­abil­i­ty, nature, terms or con­di­tions of the employ­ment; or 

(b) any oth­er mat­ter relat­ing to employment”

The Court found that Ms Rakic relied upon rep­re­sen­ta­tions by Johns Lyng that its prof­its and sales in finan­cial year 2013 were like­ly to meet or exceed its prof­its and sales in the finan­cial years 2011 and 2012 and that it was prob­a­ble after March 2013 for at least the next 12 months, that Johns Lyng would remain as prof­itable as it had been in the pre­vi­ous two years.

A ques­tion which arose was whether the rep­re­sen­ta­tions (which con­cerned a fore­cast) were mis­lead­ing or decep­tive. The Court not­ed with approval a state­ment by the Fed­er­al Court in ACCC v Duke­mas­ter Pty Ltd [2009] FCA 682 at [10], that where a rep­re­sen­ta­tion con­cerns a state­ment of opin­ion it will not be mis­lead­ing or decep­tive or like­ly to mis­lead or deceive mere­ly because it turns out to be incor­rect, mis­in­forms or is like­ly to do so.” What is crit­i­cal is whether there was an ade­quate foun­da­tion for hold­ing the view. In that deci­sion the Court went on to say:

How­ev­er, an opin­ion may con­vey that there is a basis for it, that it is hon­est­ly held and when it is expressed as the opin­ion of an expert, that it is hon­est­ly held upon ratio­nal grounds involv­ing an appli­ca­tion of the rel­e­vant exper­tise. If the evi­dence shows that the opin­ion was not held or that it lacked any or any ade­quate foun­da­tion, par­tic­u­lar­ly if the opin­ion was expressed as an expert, a state­ment of opin­ion may con­tra­vene s 52 of the TPA”.

Jus­tice Bromberg car­ried out a detailed analy­sis of the finan­cial data and infor­ma­tion of Johns Lyng which was advanced by Johns Lyng as the basis for mak­ing the rep­re­sen­ta­tions in issue. With respect to this mate­r­i­al the Court not­ed that the key ques­tion was whether on an objec­tive­ly rea­son­able basis the rep­re­sen­ta­tions could be sup­port­ed or in Jus­tice Bromberg’s words:

The ques­tion is whether there was an objec­tive­ly rea­son­able basis for the sub­ject mat­ter of the rep­re­sen­ta­tions: whether there were facts with­in Johns Lyng’s knowl­edge that were objec­tive­ly rea­son­able and sup­port­ed the pre­dic­tion that prof­its in FY 13 would meet or exceed those in FY 11 and FY 12 and the pre­dic­tion that Johns Lyng would remain for the next 12 months as prof­itable as it had been for the pre­vi­ous two years”

The Court ulti­mate­ly deter­mined that there was not such a basis for the mak­ing of these rep­re­sen­ta­tions. Such find­ing was in large part because Johns Lyng’s num­ber of suc­cess­ful ten­ders had dimin­ished and was sig­nif­i­cant­ly below tar­get in the months imme­di­ate­ly pre­ced­ing the rep­re­sen­ta­tions. There­fore rev­enue was like­ly to decline.

As not­ed above, Ms Rakic brought her claim under both claus­es 18 and clause 31 of the ACL. Clause 18 essen­tial­ly mir­rored the pre­vi­ous sec­tion 52 of the Trade Prac­tices Act. Jus­tice Bromberg con­sid­ered that there was no doubt that any rep­re­sen­ta­tions found to have been made would sat­is­fy the test in clause 31 as they were direct­ed towards future employment. 

An inter­est­ing ques­tion which arose was whether such rep­re­sen­ta­tions were decep­tive or mis­lead­ing con­duct with­in the para­me­ters of clause 18 of the ACL. Clause 18 is direct­ed to con­duct which is decep­tive or mis­lead­ing in trade or com­merce”.

Jus­tice Bromberg not­ed with approval Jus­tice Kenny’s con­clu­sion in Walk­er v Salomon Smith Bar­ney Secu­ri­ties Pty Ltd [2003] FCA 1099 that mis­lead­ing or decep­tive con­duct in the course of nego­ti­a­tions for employ­ment may sup­port a cause of action under sec­tion 52 of the then Trade Prac­tices Act. That is to say that such con­duct might fall with­in that pro­vi­sion as it would be con­sid­ered to have occurred in trade or com­merce. Jus­tice Bromberg con­sid­ered there was no rea­son why such a con­clu­sion should not equal­ly apply to clause 18 of the ACL. It should be observed that this is a mat­ter about which judi­cial minds have differed.

To con­clude, Ms Rakic was suc­cess­ful as the Court found that: there were not rea­son­able grounds for mak­ing the rep­re­sen­ta­tions in issue, that the rep­re­sen­ta­tions were mis­lead­ing and that Ms Rakic relied upon them in decid­ing whether or not to accept employ­ment with Johns Lyng, to her detri­ment. She was award­ed $333,422 of com­pens­able loss or dam­age and a fur­ther sum of $16,529 under a sep­a­rate head of claim involv­ing a con­trac­tu­al entitlement. 


LESSONS FOR EMPLOYERS

When con­sid­er­ing hir­ing a new employ­ee, employ­ers need to treat the mak­ing of pre­dic­tions or fore­casts with extreme cau­tion. Avoid them if you can. If you can­not, ensure that you have (and retain) all rel­e­vant infor­ma­tion at your fin­ger­tips before mak­ing a pre­dic­tion or fore­cast. The pre­dic­tion or fore­cast needs to be based on a sol­id foun­da­tion which will with­stand scruti­ny. Wher­ev­er pos­si­ble, qual­i­fy your pre­dic­tion if there are known con­tin­gen­cies that may impact on the accu­ra­cy of your fore­cast or pre­dic­tion. Final­ly keep a detailed file note of the pre­dic­tion or fore­cast and the basis for it, in case things go south.