Employment Law Essentials: Negligent Misrepresentation – pitfalls for employers in the hiring process

During the hiring process employers may find themselves focusing on recruiting the best person they can find for the position.  They may not be aware of the risks of negligent misrepresentation during the hiring process.

Do you and your human resources team understand what constitutes negligent misrepresentation under the law and know how to avoid liability? This article summarizes the law on when employers may be liable for negligent misrepresentations to prospective employees, identifies some common pitfalls for employers, and provides tips for how employers can avoid liability.

Key Tips for Employers

The following are key tips for employers to reduce the risk of liability in negligent misrepresentation:

• Take reasonable steps to inform potential employees about information that might have an effect on their decision whether to accept the position or not.
• Notify employment candidates promptly if there is a change of circumstances that may affect them.
• Ensure that there are open lines of communication between management and the hiring team so that pertinent information can be communicated to potential hires.
• Be aware that telling an employee to seek independent advice about what you have told them will not allow you to escape liability if you haven’t given them all of the information that they need to get that advice.
• Be especially cautious if a potential employee will have to move or leave their current position to accept your position.

The Elements of Negligent Misrepresentation

If an employer makes a statement, gives advice, or communicates information to an employee or potential hire that the employer should know will be relied on by the employee or potential hire to decide on a course of action, the employer is under a duty to use reasonable care to see that the information, statement, or advice is true, accurate, and not misleading.  An employer who negligently provides untrue, inaccurate, or misleading information may be liable for damages under the tort of negligent misrepresentation.

Negligent misrepresentations by employers most commonly occur during the hiring process when the employer gives information to a potential hire about the position and in the pension and benefits context when the employer gives information to an employee which the employee will use to make an election or choose their retirement date.

In order to be successful in a claim for negligent misrepresentation, the employee must establish the following:

1. the employer owes the employee a duty of care;
2. the representation or statement in question was untrue, inaccurate, or misleading;
3. the employer acted negligently in making the representation;
4. the employee relied, in a reasonable manner, on the negligent misrepresentation; and
5. the reliance resulted in damages to the employee.

The first part of the test will almost always be met, because it is well-settled law that an employers do owe a duty of care to employees when providing them with information.

Under the second part of the test, in order for a representation to be actionable it must have been untrue, inaccurate, or misleading at the time that it was made.  Both positive statements and omitting to provide relevant information to the employee can amount to misrepresentations.  A common pitfall occurs when the employer provides information to a potential hire about a position but then afterwards there is a change of circumstances. For example, this may occur if funding for the position is withdrawn or if the employer decides to move to a different location.  If the change in circumstances is not communicated to the new hire before he or she has committed to the position, the employer may be liable in negligent misrepresentation.

For the third part of the test to be met, the employer must have acted negligently in making the representation.  The employer will have acted negligently if he or she fails to exercise such reasonable care as is required in the circumstances to ensure that any information provided to the employee is accurate, true, and not misleading.  It is not enough that the person making the statement honestly believes it to be true.  An employer may be found liable for failure to provide an employee with relevant information even if the staff directly involved with the recruitment were not aware of the information themselves, for instance because they were not informed by management or because they failed to make proper inquiries.

Under the fourth part of the test, to succeed in a claim of negligent misrepresentation the employee must establish that they relied on the information provided by the employer to change their situation and that it was reasonable for the employee to do so in the circumstances.  The employee may have relied on the information, for example, to accept the position or to make a choice with respect to their benefits.

In cases where the employee or potential employee is experienced, knowledgeable, and capable of making their own investigations regarding the information which they are provided by the employer, the court may find that the employee did not rely on the information provided by the employer – even if that information was inaccurate. However, an employer will not escape liability merely by telling an employee to obtain independent advice.  The employer may still be liable if the employer has not provided sufficient correct information to allow the employee obtain proper advice.

Finally, under the last part of the test, the employee will only be successful in a claim of negligent misrepresentation if their reliance on the representations caused them to suffer financial damages.  For example, an employer’s misrepresentation in the hiring process may have induced the employee to quit their previous job, causing the employee to lose their previous salary, or to move to a new city, causing the employee to incur moving expenses. An employer’s misrepresentations with respect to pension or benefits may cause a loss or reduction of those benefits. On the other hand, it will be more difficult for someone who was previously unemployed to claim damages as a result of accepting a position on the basis of misrepresentations. That employee may be better off financially for having taken the job even though it did not turn out to be as good as it was represented to be.  As a result, employers should use extra caution to avoid misrepresentations when a potential employee will need to leave a previous position or to move in order to work for the employer.