Fraud In The Hiring Process


The Ninth Circuit Court of Appeal expanded an employer's liability for fraud in connection with representations made during the hiring process. The Court went as far as to allow a fraud claim not only by the former employee, but also the former employee's spouse.

In the case of Meade v. Cedarapids, Inc., an Iowa company, El-Jay, hired several employees in Iowa between August 1994 and April 1995 with the intention of having them move to Eugene, Oregon to work at the El-Jay facility.

During the interview process the prospective employees were told that El-Jay would be expected to grow 20% the following year; that El-Jay was running out of office space; that sales were up and expected to increase; and that El-Jay was a stable company with few downsizings and lay-offs. Further, the interviewees were told that El-Jay was ramping up and that future looked great for long term growth.

Fraud in the Inducement

Based on these assertions, Plaintiffs, the prospective employees, discussed accepting the employment offer and the move to Eugene, Oregon with their spouses. Each of the plaintiffs, accepted a job with El-Jay and moved to Eugene, Oregon.

In order for the Plaintiffs' to accept these positions they either had to quit a current job or forego other employment opportunities. At the time that plaintiffs were hired each of them signed an at-will employment agreement, acknowledging that their employment could be terminated by either party at any time.

The glowing statements of the health and continued growth of El-Jay were evidently not true. Before any of the plaintiff's had accepted a position with El-Jay, the parent company Cedarapids had contingent plans in place to expand the plant in Iowa and to close down the El-Jay operation in Oregon.

In May of 1995, El-Jay began a process of shutting down the Eugene plant. After the plant closed and the plaintiff employees were terminated, they, together with their spouses, filed suit for fraud.

At-Will Doctrine not Applicable to Pre-Hire

The Ninth Circuit reviewed the matter at the summary judgment stage where the lower court had granted judgment to the defendants. In over-ruling the lower court, the Ninth Circuit Court determined that the former employees had enough facts to pursue a claim for fraud under Oregon law. (See Riley Hill Gen. Contr. v. Tandy Corp. , 303 OR. 390 (1987)). The court said that there was enough evidence of false or misleading statements to be allowed to prove the case before a jury.

Further, the court found that the doctrine of at-will did not defeat plaintiffs justified reliance on defendants statements, because plaintiffs were not relying on statements of continued employment. They were relying on statements to induce them to enter the employment of El-Jay in the first place.

Spouses Also Have a Cause of Action

Importantly, the court also upheld the right of the former employees' spouses to also sue for fraud. The court recognized that marriage is a partnership and major decisions such as whether to move to a different city are made by both partners.

The court stated that "[o]nly a very foolish employer will try to persuade a prospective employee to relocate without addressing the concerns of the spouse." The Court found that there was sufficient evidence that the spouses would detrimentally rely on the representations at the time they were made.

Wrap-up

Oregon courts have continued to uphold the idea of pre-hire fraudulent inducement. In the matter of Cocchiara v. Lithia Motors, Inc., 353 OR. 282 (2013), the Oregon Supreme Court held that at-will status did not prevent an employee from bring a suit for fraud when a company made a promise of employment and then withdrew that promise. Other courts in other jurisdictions have similarly upheld a right to sue for fraud in similar circumstances.

Employers must be very careful of statements made in the hiring process , particularly where employees are relocating their residence. An employer not only faces a fraud claim from the former employee, but also his or her spouse thereby greatly increasing the extent of damages.