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Kevin Schlosser Authors, "Fraudulent Inducement of Employment Claims Sustained by Federal Court"

Aug 7, 2017Litigation & Dispute Resolution
Source: This post concerns fraudulent inducement claims in the context of prospective employment. The factual scenario is a fairly common one: The prospective employee interviews for employment, is told what the employment will entail, accepts the offer of employment and then claims that the employment opportunities were misrepresented. These claims often fail because the employee cannot cite an actual misrepresentation of fact, as opposed to promises of future employment, and/or alleged damages that involve only lost pay due to termination of at-will employment. See my prior post: Claims of Fraudulent Inducement of Employment Opportunities Dismissed. The plaintiff in Hopkins v. Hazmat Environmental Group, Inc., 16-CV-841, NYLJ 1202794546874, at *1 (WDNY, Decided July 28, 2017) scaled the hurdles and defeated a motion to dismiss. The Pre-Employment Discussions Plaintiff was self-employed as a truck driver but was seeking a higher salary without the financial risks of self-employment. Plaintiff interviewed for employment with defendant. Plaintiff was a female, transgender, and older than almost all of the other truck drivers working for defendant in Buffalo. Plaintiff alleged that defendant’s manager represented to plaintiff during the interview process that plaintiff would be hired to drive defendant’s trucks on a specific job, which was a more lucrative job with higher pay than other runs. Based upon those representations, plaintiff accepted the employment and terminated her existing business. After plaintiff became employed, she was assigned to jobs with lesser pay. After plaintiff complained and according to her, she was harassed and discriminated against, the defendant employer indicated that plaintiff had resigned (when she had not) and terminated her employment. Plaintiff brought suit against the employer and its manager, asserting that the defendant employer discriminated against her and that defendants fraudulently induced her to accept employment. In addition to the above, plaintiff alleged that defendant’s manager knew that she would not be given the more lucrative job promised, but intentionally misrepresented the opportunity to induce her to join defendant’s employ, thinking that because she was older and transgender she would be forced to stay even without the higher pay. Defendants’ Motion to Dismiss The court’s decision concerned defendants’ motion to dismiss under FRPC 12(b)(6). As relevant here, the court sustained plaintiff’s claim for fraudulent inducement. The court noted in addition to the plausibility standard on all complaints, plaintiff also needed to satisfy FRCP 9(b): “[T]o comply with the heightened requirements for fraud claims under Fed. R. Civ. P. 9(b), a complaint must ‘(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.’ Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)).” Defendants argued that plaintiff failed to state a claim for fraudulent inducement for two reasons. First, defendants argued that the manager’s alleged promise that plaintiff would be hired to do lucrative runs was merely a representation concerning future action and therefore not the type of misrepresentation required to sustain a claim for fraudulent inducement. Second, defendants argued that any reliance on the manager’s promise would have been unreasonable as a matter of law because plaintiff was an at-will employee. The court rejected both arguments in denying the motion to dismiss. Misrepresentations As to whether plaintiff alleged a sufficient misrepresentation, the court relied on three cases sustaining fraud claims in the prospective employment context: Stewart v. Jackson & Nash, 976 F.2d 86, 89 (2d Cir. 1992), Braddock v. Braddock, 60 A.D.3d 84 (1st Dep’t 2009) and Laduzinski v. Alvarez & Marla Taxand LLC, 132 A.D.3d 164 (1st Dep’t 2015). The court described these decisions as follows: In Stewart, the defendant law firm allegedly recruited plaintiff, an environmental law attorney, by falsely telling her that she would head the firm’s environmental law department. Stewart, 976 F.2d at 89. Upon arriving at the firm, however, plaintiff was assigned to work primarily on general litigation matters and the firm’s environmental case work never materialized. Id. at 87. The Second Circuit held that the firm’s misrepresentation to plaintiff gave rise to a valid claim of fraudulent inducement because the firm allegedly knew, at the time it made that representation, that it did not intend to fulfill its promise. Id. at 89. In Braddock, the defendant David Braddock allegedly told his cousin John that once John raised the capital needed from an investor, John would be appointed to serve as the CFO and land manager of David’s oil and gas exploration company and would be issued “founder’s shares” giving him an equity interest in the company that was equal to David’s. Braddock, 871 N.Y.S.2d at 71. The court held that John stated a claim for fraudulent inducement because John alleged that David had no intention of fulfilling his promises at the time they were made. Id. at 72-73. In Laduzinski, the plaintiff alleged that the Alvarez companies “knowingly and purposely misrepresented the nature of the work plaintiff would be doing for [Alvarez] by telling him that he would be managing the sizeable workload of the company rather than bringing in business, when in fact [they] intended the opposite.” Laduzinski, 16 N.Y.S.3d at 231. Like in Stewart and Braddock, the court in Laduzinski held defendants’ representations supported a claim for fraudulent inducement. Id. at 232. The court held that plaintiff satisfied her pleadings requirements for misrepresentation based upon the foregoing cases. The court found that although the manager’s representation that plaintiff would be assigned to the more lucrative run “contains elements of both present fact and future promise, it is actionable because, like in Stewart, Braddock, and Laduzinski, Plaintiff plausibly alleges that [defendants] had no intention of actually hiring Plaintiff for that assignment. Further, the representation at issue here is not merely a speculative promise about the future. Cf. Rehman v. State Univ. of New York at Stony Brook, 596 F. Supp. 2d 643, 660 (E.D.N.Y. 2009) (finding that ‘purported assurances that the plaintiff would be fast tracked for promotion and would have ample time to conduct research are non-actionable future promises’). Rather, it is a concrete statement regarding the nature of the job that Plaintiff was interviewing for. As a result of her reliance on that representation, Plaintiff began suffering financial injury as soon as she received her first paycheck.” Reliance and Employment At-Will As to the element of reliance and the effect of plaintiff’s at-will employment status, the court also found plaintiff had adequately alleged reasonable reliance based upon the nature of the damages she alleged. The court first acknowledged that an at-will employee who has been terminated cannot state a fraudulent inducement claim “‘on the basis of having relied upon the employer’s promise not to terminate the contract…, or upon any representations of future intentions as to the duration or security of [her] employment.’” (Citing Laduzinski, 16 N.Y.S.3d at 232.) Nevertheless, the court held plaintiff did allege the proper basis of reliance: Here, Plaintiff’s fraudulent inducement claim does not center around her termination from [employment with defendant]. … Both the alleged misrepresentation (that Plaintiff was being hired for the [lucrative] assignment) and Plaintiff’s alleged injuries (loss of income due to her hourly run assignments) are separate and distinct from her ultimate termination. As explained above, the representation at issue here was a concrete statement about the job [defendant] was hiring Plaintiff to do and was not mere speculation about future expectations. Commentary While such claims are not often successful, this case shows that courts will sustain fraudulent inducement claims in the context of prospective employment. Of course, where the offered employment is not at-will but rather a fixed term under a binding contract, the claims would face yet fewer obstacles.