In a tight job market marked by low unemployment, employers may be tempted to
exaggerate job benefits or make unrealistic promises to attract new hires. Such
impulses should be resisted, to avoid the risk of lawsuits based on a theory of
fraudulent inducement to hire. Should the employment relationship end badly,
unhappy former employees may sue on this theory if they feel they were hired
under false pretenses.
While the elements of this claim vary depending on state law, in general,
fraudulent inducement may be found if the employee can prove that the employer
made a significant misrepresentation concerning the job or the company; the
person making the statement knew or believed it was false at the time he or she
made it; the statement was made with the intent of deceiving the prospective
employee; and the prospective employee reasonably relied on the false statement
and suffered damages because of that reliance. For the most part, damages must
go beyond the loss of employment in order to state a claim.
Misrepresentations that have been found actionable include statements about
the financial stability of the company; promises of compensation, benefits and
support services that the company never intended to keep; and assurances of
long-term job security that the employer does not intend to honor. In fact,
claims have even been based on the failure to disclose harmful information, such
as corporate financial instability, when the applicant makes inquiries and the
employer's concealment is intended to persuade the employee to accept
In one New York case, a subsidiary of IBM was found liable for fraudulent
hiring when it lured two IBM employees away by falsely representing that the
subsidiary's financial security was assured by a long-term contract with IBM.
The court found that the employees stated a viable claim because their reliance
on the false assurances caused them to lose salary, vacation pay and pension
benefits they would have accrued had they not been persuaded to leave their old
jobs. In another New York case, a law firm was found to have fraudulently
induced an employee to leave her job by representing that she would lead the
firm's large environmental law practice when, in fact, it had no environmental
Penalties can be costly. If the misrepresentation is found to be deliberately
made for the purpose of luring the applicant, punitive damages may be imposed.
In California, a provision of the labor law makes it...