Spouses Sue Employer for Misrepresentation of Company’s Future

Issue:
You interviewed four applicants whom you really wanted to hire. During the interviews, they asked about the company’s future growth. You told them that 20% growth was expected in the next year and that sales were up and were expected to increase. You were proud to say that the company was a stable one, with few downsizings and layoffs, and that you expected to be hiring more staff and creating new positions since the company was “ramping up.” Overall, you said, the future looked great for the company. You also told the applicants how desirable it was to live in the Oregon community where the company is located.

All four applicants joined the company and relocated after either quitting their current positions or passing up other employment opportunities. What they didn’t know at the time, what even you did not know, was that the company was going to close its Oregon facility. That decision was made at company headquarters, either before or after the four recruits relocated. Now the employees and their spouses are suing the company’s owner for fraudulent misrepresentation arising from the closure. The attorney says the company cannot be liable for damages on the spouses’ claims and that he will have them dismissed. Is he right?

Answer:
Not necessarily. While the employer was granted summary judgment in federal district court, the court of appeals in San Francisco reversed and found that there were genuine issues of material fact on whether the company made false misrepresentations and whether the employees justifiably relied upon them.

Even summary judgment on the spouses’ misrepresentation claims was reversed. The issue at trial will be whether the spouses can meet the Oregon test of misrepresentation. They will have to prove that the company made representations to their husbands under the circumstances that entitled the spouses to believe that the company had authorized the husbands to communicate the representations to them.

Family decisions?
The appeals court refused to hold that the spouses could not prove that, under these circumstances, misrepresentations occurred. After all, the court said spouses usually make decisions as a family unit, and “it is likely that the process of deciding whether to relocate for a new job involves convincing the spouse that the positive qualities of the new job outweigh the difficulties caused to the family.” A concurring judge emphasized that marriage is a partnership with major decisions made by the partners jointly. “Only a very foolish employer will try to persuade a prospective employee to relocate without addressing the concerns of the spouse,” he wrote. In dissent, however, another judge argued that to prevail the spouses will have to show that the company intended to make representations to the spouses.

What should HR do?
Although the appeals court’s discussion of family decisionmaking is not a binding interpretation of Oregon law, the end result is that misrepresentation claims by these employees and their spouses must still be defended by the employer. The spouses’ claims expose the employer to additional liability that could be significant in certain dual-career families. Here are steps HR can take to avoid making dangerous misrepresentations:

1. Warn management.
   HR has to warn management about the dangers of concealing information or not being honest about plans. In Oregon, for example, employers have a duty to disclose material contingencies. This is particularly important when plant closure or layoffs are under discussion.
2. Train.
   Training is necessary so employees know specifically what can and should be said during the recruitment/hiring process. It may be necessary to create scripts.
3. Do not rely on employment-at-will.
   The employees in this case had signed employment-at-will agreements, but the agreements could not be used as a defense against the charge of misrepresentation.

Cite:Meade v. Cedarapids, Inc., (9^th Cir 1999), 137 LC 58, 520.

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