How can employers guard against wrongful-hire suits?

Question: What is a wrongful-hire lawsuit and how can employers guard against potential liability in these situations?

Answer: A claim of wrongful hire can arise where there has been a negligent misrepresentation by an employer which induces an employee to enter into a contract of employment. If an employee relies on a representation made by an employer to his detriment during the hiring process that consequently proves to be inaccurate, the situation may amount to a wrongful hire. The employee may be entitled to damages to put him back into the position he would have been in had he not accepted the position of employment.

In a Supreme Court of Canada decision an employee complained that, during the interview process, he was advised by the company's representatives that, if hired, he would head a major project developing a new product. He was not told the project did not have guaranteed funding, nor that the position was subject to budgetary approval.

Apparently the interviewer did not know the funding had not been finalized. After the employee was hired, the funding was denied and the position did not materialize. Eventually the employee was dismissed. Since an employment contract between the employer and the employee restricted the amount of termination pay the employee was entitled to, the employee sued for damages arising from the company's misrepresentations.

While the court found the interviewer had no intention of misleading the candidate, it held the company was negligent in making representations that were not accurate and which the employee relied upon in deciding to resign from his previous secure position. The court ruled in favour of the employee on this basis, holding the employer liable. The existence of an employment contract did not help to limit the company's exposure, as the court found the misrepresentation was outside of, and did not constitute part of, the written employment agreement.

Therefore it is important for employers to take steps to protect themselves from a wrongful-hire lawsuit. The following are some suggested measures for employers to adopt in order to avoid liability in this area:

•Create a job description for the position and make sure all interviewers know what the job description and compensation package entail.

•Ensure any recruitment material (such as an advertisement or job posting) clearly reflects the skills and abilities required for the job.

•Create a standard list of questions to ask each candidate interviewed.

•During the interview, ensure the description of the job is accurate.

•Do not overstate the duties, salary, benefits or the future potential for the position.

•If the interviewer does not know the answer to a candidate’s question, the interviewer should advise the candidate that she is not in a position to answer the question at this time, but will check with supervisors and respond in a second interview.

•Do not give in to the temptation to simply tell a promising candidate what he wants to hear.

•Once the decision has been made to hire the employee, put the agreement in writing in order to reduce the likelihood of misunderstandings about the terms and conditions of the position. The agreement should specifically indicate that the employee has not been induced to accept the position by any representations made by the employer.

Peter Israel is the head of Goodman and Carr LLP’s Human Resource Management Group. He can be reached at (416) 595-2323 or [email protected].

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