Fraud In The Hiring Process

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

In Meade v. Cedarapids, Inc., several employees were hired by the defendant employer and relocated to its Eugene, Oregon location. During the hiring process, the employer's representatives stated that the company was "ramping up" its Eugene Oregon location and expected continued growth. These statements were apparently untrue as the employer had a contingent plan to close the Eugene, Oregon plant. The employees expressly agreed that their employment was terminable at-will. After the plant closed and the plaintiff employees were terminated, they, together with their spouses, filed suit for fraud.

The Ninth Circuit determined that the former employees had enough facts to pursue a claim for fraud, even though the plant closure was merely contingent and they had signed an at-will employment agreement. 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.

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.