Avoiding Truth-in-Hiring Lawsuits

By Fay Hansen

Dec. 11, 2007

Under heavy pressure to pull in a top candidate, a recruiter exaggerates the pay and promotional opportunities for a position or conceals financial difficulties at the firm.

    The candidate leaves a secure, lucrative job to accept the position, only to discover that the recruiter overstated the opportunities. After a few months, the whole deal goes sour, and the employee sues.

    “These lawsuits are tort claims, and damages may include economic damages that may be almost unlimited,” says Peter Golden, partner in the Atlanta office of Hunton & Williams.

    Damages may cover lost job opportunities and lost salary. In addition, there may be compensatory awards for damage to reputation and emotional distress. In the most extreme cases, where a jury finds the statements made in the hiring process were clearly made in bad faith, there may be punitive damages intended to send a message to other employers.

    “We’ve definitely seen a rise in the number of truth-in-hiring lawsuits,” Golden says.

    Two trends are driving the increase. First, because top-notch candidates are in high demand, employers are competing aggressively for the best applicants and recruiters feel pressured to “sell” the company when they talk to candidates. “Misrepresentation claims arise out of these situations,” Golden notes.

    Second, the employment-at-will doctrine has become so strong in many states that employees who have been terminated often have no recourse stemming from the termination itself, so they reach for other vehicles that do not fall within the bounds of employment-at-will.

    “They go back and look at the employment situation from the very beginning and turn to tort claims,” Golden says. Many truth-in-hiring lawsuits arise after employment has been terminated.

    “Representations that originate with the recruiter or the hiring manager can come back to bite them,” Golden warns. “These lawsuits can sully a recruiter’s good name.”

    Golden reports that the most common scenario for these lawsuits arises when an employee is induced to leave a lucrative position for a new job, often because the recruiter or hiring manager told the candidate that a promotion to a higher position would occur within a short time frame.

    A candidate accepts a job in sales, for example, because during the interview the hiring manager stated that sales manager positions would open up within a few months. The new hire begins employment only to discover that none of the sales managers has any intention of leaving in the near future and no managerial positions will open up.

    These suits may also arise when a candidate leaves a job with a company that is financially stable for a new position at a company that the recruiter claims is also financially stable. In short order, the new hire learns the company is in trouble and layoffs may be imminent. “Typically in these situations, the employment relationship goes sour, and the employee quits or is terminated,” Golden says.

Trouble spots
To avoid these lawsuits, employers should focus on two trouble spots, Golden advises. The first occurs during the interview process when a recruiter or hiring manager oversells the company.

    “At best, the end result is that the exaggerations get the candidate in the door, but they don’t stay in the job,” Golden says. The employer bears the cost of having to replace the employee and there is also a cost to the employer’s reputation. The worst-case scenario is that the employee leaves and files a lawsuit.

    The second trouble spot commonly occurs after the company has made an offer. The company learns the candidate is weighing multiple offers and the recruiter or hiring manager steps back in to try to sell the company again.

    “When recruiters and hiring managers are in the middle of a conversation with a candidate who is weighing multiple offers, these exaggerations may not seem like a big deal,” Golden says. “But they can bring trouble down the road.”

    Recruiters and hiring managers can avoid the risk of a truth-in-hiring lawsuit by following a few simple rules.

    “Tell the truth about the job and the company,” Golden advises. “Don’t make false promises. If you can’t bring the candidate in with the truth, then he or she is not the right fit.”

    Recruiters must avoid the temptation to tell candidates what they think candidates want to hear. “Recruiters should talk with the candidate about the good and the bad of the company,” Golden advises.

    Golden notes that the offer letter should contain details on the salary and job duties, but it should also contain disclaimer language and make it clear that the conditions outlined in the letter constitute only the expectations of the company.

    “Of course, if the disclaimer goes too far and the language is too strong, it can drive away top candidates,” he cautions. “So employers have to be careful on both ends. It’s a sticky situation.”

Covering contingencies
   Stephen Fox, principal in the Dallas office of Fish & Richardson, describes other situations that may trigger a truth-in-hiring lawsuit. Some employers choose not to run a background check until they know the candidate will accept the offer. The employer makes the offer, the candidate accepts, the employer runs the background check, the check reveals a problem, and the employer withdraws the offer.

    “The employee may assume that the information revealed by the check was incorrect or that the employer is using the background check as a pretext for withdrawing the offer,” Fox says. The employee may sue for breach of contract or discrimination.

    “Employers can easily avoid these cases by including in the offer a statement that the offer is contingent on a clean background check,” he advises.

    In another situation, the employer makes an offer, the candidate accepts, and the employer then withdraws the offer because the business that required new hires does not materialize or a contract is not awarded and additional employees are no longer needed.

    “In many cases, senior leadership may be aware that the business or the contract may not materialize, but recruiters have received instructions to hire new employees and senior leaders have not communicated the contingency to the recruiters,” Fox reports.

    Employers can address this situation by including employment-at-will language in the offer letter.

    “The employee may attempt to get around the employment-at-will defense by arguing that the employer made a representation and the employee accepted the offer, but the employer had some doubt about the work,” Fox says. “However, this is difficult to prove.”

    In many states, the employment-at-will doctrine is so strong that the courts will simply not allow this challenge, but courts in some states, including California, Massachusetts and Minnesota, welcome the chance to challenge the employment-at-will doctrine, Fox notes.

    Employees may sue for breach of contract, with damages equal to the pay not received during the time until the employee finds a new job, or the net difference in pay between the job offered and the new position.

    “Courts vary in how long they allow the net difference to continue, but one year is common,” Fox says. “There may also be exposure to attorney’s fees.”

    Fox advises employers to use a written offer for every position and include statements on any contingencies in the offer. He also notes that any statement on compensation and benefits provided should state the amount on a pay-period basis, such as the biweekly or monthly pay, not the annual salary. “Some Texas courts have held that a salary offered on an annual basis implies guaranteed employment for one year,” he says.

    Also, if the employer asks the employee to sign a confidentiality or non-compete agreement, the employer should reference the agreement in the offer letter as a necessary condition for beginning employment.

    “Otherwise, the employee may begin the job and then refuse to sign the agreement because it is more onerous than the employee expected,” Fox says. “The employer may then withdraw the offer, and the employee may sue based on lost opportunity.”

Pay and promotion promises
   Truth-in-hiring or fraudulent inducement lawsuits are common in the securities industry and other sectors that use commissions and high amounts of variable pay, according to Todd Hale, partner and co-chair of the labor and employment group in the Tucson, Arizona, office of Lewis and Rosa.

    “A recruiter or hiring manager tells a candidate that they will make a certain amount of money and the candidate leaves a good job under that promise,” Hale says. “Competition for brokers leads firms to dangle promises, and then it turns into a swearing contest about whether the promises were made.”

    A recruiter persuades a stockbroker to leave one large firm for another with promises that the broker will be provided with certain marketing tools that will allow the broker to earn much higher commissions. The employer does not provide the tools, the broker is not successful, and the broker sues for misrepresentation and asks for the difference in the compensation earned and the compensation that would have been earned if the tools had been provided.

    The key for employers is to ensure that recruiters are not allowed to make statements about how much the candidate will earn in commissions or variable pay.

    “Also, the employer should use written documents or offer letters that specifically disallow any promises or statements made during the recruiting process,” Hale advises. “The offer letter should explicitly state the terms of employment and stipulate that no variable pay is guaranteed.”

    “Employers must ensure that recruiters maintain a clear delineation between the potential in a particular job and the actual job,” Hale says. The best protection is a document that includes a disclaimer that all terms are spelled out in the document and no other terms are in effect.

    These documents are helpful but not a guarantee that a lawsuit will not occur; oral promises may still apply. Most important, employers need to educate recruiters and hiring managers to never make a promise that the company may not be able to keep.

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