In Rakic v Johns Lyng Insurance Building Solutions (Victoria) Pty Ltd (Trustee)[2016] FCA 430, Bromberg J found that an employer engaged in misleading and deceptive conduct during negotiations concerning an employment contract.
The facts
Ms Rakic was an experienced employee in the insurance industry. She was employed by Pattersons Insurerbuild Pty Ltd (Pattersons). She left Pattersons and entered into a contract of employment with Johns Lyng Insurance Building Solutions (Victoria) Pty Ltd (JBI). She did so after the principal of JBI made certain statements and representations about the future profitability of JBI. Ms Rakic alleged that these representations constituted misleading and deceptive conduct. She sought damages on the basis she relied on that these representations.
What is misleading or deceptive conduct?
Section 18(1) of the Australian Consumer Law prevents employers for engaging in conduct that satisfies the following two criteria:
- First, the representation must be ‘misleading or deceptive’ or ‘likely to mislead or deceive’. This will be the case if the representation is capable of leading a reasonable person into error or misconception. If the representation is made about a future event or circumstance, it will be deemed to be misleading or deceptive unless the person who made the representation had reasonable grounds for making it.
- Secondly, the conduct must occur ‘in trade or commerce’. As Bromberg J explained, statements and representations made during the course of negotiations prior to the entry into an employment contract are made ‘in trade or commerce’.
Damages for misleading and deceptive conduct
If an employee acts to his or her detriment in reliance on such representations, he or she may be entitled to damages. This will be the case if the following criteria are satisfied:
- First, the employee must have relied on the representation. Bromberg J explained that, in the context of representations made in pre-employment negotiations, an employee will be held to have relied on an employer’s representations if the representations had a substantial effect on the employee’s decision to enter into the contract. It does not matter if there are other factors which also prompted the employee to enter into the contract.
- Secondly, that reliance on the representation must have caused loss to the employee. The amount of damages awarded will reflect the extent of this loss.
Did JBI’s principal engage in misleading or deceptive conduct?
Bromberg J found that the representations made about the future profitability of JBI were misleading and deceptive as the person who made the representation did not have reasonable grounds for making it. Relevantly, the person who made the representations merely relied on past revenue and failed to take into account a number of circumstances and indicators which suggested that it was very likely that profits would be lower in future years.
Did Ms Rakic detrimentally rely on the representations?
Ms Rakic was found to have relied on the representations in entering into the employment contract. She was awarded $333,422 in damages on the basis that her decision to enter into the contract on the basis of the misleading and deceptive representations deprived her of the opportunity to get a higher paying job elsewhere.
Lessons for employers
Employers should be particularly careful about what they say when they are negotiating employment contracts with potential employees. There is a fine line between trying to make a business attractive to talented recruits and making misleading statements that could result in a large award of damages.
Particular care should be taken when making statements about future profitability or business decisions. If employers do not have evidence, such as accurate accounting reports or business and marketing plans, which provide a reasonable basis to make such statements, they should not do so.
How can JFM Law help?
If you are negotiating contracts or believe that there has been misleading or deceptive conduct, contact JFM Law on (02) 9199 8597 for a no obligation chat. If you would rather get in contact through email, send your question through or by email at wehelp@jfmlaw.com.au.We will provide you with a free initial phone consultation that will help you to map out your options.
The information contained in this post is current at the date of editing – 29 August 2024.
