During negotiations with potential employees, employers should exercise significant caution in making representations as to the future economic performance of the employer and its impact upon the remuneration payable to the employee in their employment.
Such pre-employment negotiations are likely to be held by Australian courts to be conduct “in trade or commerce” for the purpose of claims by the employee under the misleading and deceptive conduct provisions of the Australian Consumer Law (ACL).
This means that employees seeking to bring misleading and deceptive conduct claims in relation to pre-employment representations are not necessarily restricted to bringing such claims under the provisions of section 31 of the ACL (dealing with misleading conduct relating to an offer of employment), but may also bring claims under the more general prohibition on misleading or deceptive conduct undertaken in trade or commerce under section 18 of the ACL.
This position was emphasised by the Honourable Justice Bromberg of the Federal Court of Australia in his decision in the matter of Rakic v Johns Lyng Insurance Building Solution (Victoria) Pty Ltd [2016] FCA 430[1], handed down in April 2016.
In March and April 2013, Ms Rakic undertook negotiations with Johns Lyng Insurance Building Solution (Victoria) Pty Ltd (Johns Lyng) for employment with Johns Lyng.
In the course of those negotiations, representatives of Johns Lyng made representations to Ms Rakic as to the future profitability of the company, including that profits and sales for the following year were likely to meet or exceed the levels of the two previous years, that it was probable that the company would remain as profitable in the following twelve months as it had been in the previous two years, and (by implication) that it was not aware of any matter which meant that it was other than likely that the company would meet its sales and profitability forecasts.
Relying upon those representations, Ms Rakic gave up her existing employment on a salary of approximately $225,000, and accepted employment with Johns Lyng on a package which included a substantially lower salary of $115,000 and a 2.5% profit share arrangement.
Ultimately, the company’s sales and profitability forecasts were not accurate, and Ms Rakic commenced legal action under the ACL seeking damages.
In his decision, Justice Bromberg found that the pre-employment negotiations with Ms Rakic were made “in trade or commerce”, citing with approval the decision of the Honourable Justice Kelly of the Federal Court in the matter of Walker v Salomon Smith Barney Securities Pty Ltd [2003] FCA 1099; (2003) 140 IR 433[2]. Justice Bromberg expressed reservations as to whether negotiations with an existing employee (as opposed to a potential employee) could have the necessary commercial character so as to be conduct in trade or commerce.
Justice Bromberg ultimately found that all three representations by Johns Lyng were misleading and deceptive on the basis that:
- there were not reasonable grounds for the first two representations at the time they were made; and
- in respect of the third representation, Johns Lyng was aware of matters that it knew made it unlikely that it would meet its sales and profitability forecasts.
Ms Rakic had relied upon the representations and suffered damage to her earnings. As a result, Johns Lyng was ordered to pay damages to Ms Rakic of $333,422.
[1] http://www.austlii.edu.au/au/cases/cth/FCA/2016/430.html
[2] http://www.austlii.edu.au/au/cases/cth/FCA/2003/1099.html
