Misleading and deceptive conduct by employer in not disclosing their true financial position to prospective employee

Written by Jennifer Sant | 30 May 2011
Posted in General Employment

A recent decision of the Federal Court has highlighted the need for employers to use caution when making representations to prospective employees.

The Managing Director of an advertising agency made representations to aprospective employee, both express and implied, that the company was a financially successful agency in Australian advertising, that it would be financially successful in the future and that recent redundancies placed the company in a healthy financial position.

The agency admitted that it had made a number of these representations and that the true financial position of the company was not disclosed, however it argued that there was no obligation to disclose that information. It further argued that any false or misleading conduct was not in “trade or commerce” and therefor was not within the ambit of the Trade Practices Act 1974.

Justice Katzmann found that:

• The extended definition of “trade and commerce” in the Fair Work Act 1987 (NSW)incorporated “any business or professional activity” and that this definition encompassed the employer’s conduct.
• In relation to the nondisclosure issue, there was an obligation to disclose the true financial position in these circumstances where the consultant had made specific inquiries.

The Federal Court found that the consultant would not have accepted the offer of employment without the implicit representations regarding the company’s financial security and awarded the consultant over $300K which was equal to the amount that he would have earned if he had not left his previous role to join the agency.

Employers have an obligation to not make misrepresentations about their business expressly or by implication when communicating with prospective employees, particularly in circumstances where that person accepts an offer of employment based on that information.