Misrepresentation vs Non-Disclosure

Can an employer terminate employment if an employee fails to disclose that they were dismissed from their previous role?

Is there an obligation for a prospective employee to disclose information that may be important to your decision of whether to employ them? Can you dismiss them if they fail to disclose such information?

A recent Employment Court case addressed the issues of misrepresentation and disclosure, in terms of where the line is between a candidate’s obligation to make a full proactive disclosure and an employer’s obligation to enquire.

Ford v Henry Brown and Company Ltd

Mr Ford was employed by Henry Brown and Company Limited (“HBC”). Several months into the employment relationship issues arose and Mr Ford raised two personal grievances against HBC. HBC denied the claims and became concerned with Mr Ford’s attitude, behaviour and communication.

HBC decided to contact the referee Mr Ford provided during his recruitment. The referee was no longer employed there, and the call was redirected to Mr Ford’s former manager who told HBC that Mr Ford’s employment had been terminated due to misconduct. A disciplinary process commenced, and Mr Ford’s employment was terminated by HBC on the basis that Mr Ford failed to disclose that he had been dismissed from his previous employment for misconduct, which was a misrepresentation that breached the trust and confidence HBC had in him. 

There was a lack of recruitment documentation, and it was disputed whether Mr Ford was asked, or was obliged to disclose, why his previous employment ended. However, HBC did contact one of Mr Ford’s referees before he was offered the role.

Was the dismissal justified?

The case was anchored on the interpretation of a misrepresentation clause in the employment agreement, which HBC relied on to terminate employment.

Representations

In appointing you we have relied on your representations as to your qualifications and experience. You confirm that those representations are true and correct and that you have disclosed everything, which if disclosed, may have been material to our decision to employ you. You also acknowledge that we may take disciplinary action against you, including dismissal, if your representations were misleading or incorrect.

Mr Ford claimed that this clause did not require him to disclose why his previous employment ended and there was no obligation of good faith requiring him to volunteer this information. The Employment Relations Authority confirmed that there is no obligation of good faith during recruitment. However, the Authority did accept HBC’s account that Mr Ford was asked why his previous employment ended and the clause’s reference to disclosure of ‘everything’ which is material to the decision to employ a prospective employee should be interpreted broadly to include why Mr Ford’s previous employment ended.

Mr Ford challenged this determination in the Employment Court.

The Employment Court did not accept that Mr Ford was asked why his previous employment had ended. However, it was accepted that HBC asked Mr Ford’s referee why Mr Ford’s previous employment had ended and was informed that his employment ended due to issues with the general manager and health and safety. While there was a clear interest in why Mr Ford’s previous employment ended, it was unclear why HBC did not seek permission to contact Mr Ford’s previous manager to establish, to its own satisfaction, why Mr Ford’s previous employment came to an end.

The Court did not accept that the Representations clause in the employment agreement required a proactive disclosure of ‘everything’ that may be relevant to the employer’s decision to offer employment. In such circumstances “qualifications and experience” would not have been specifically referred to. The Court questioned the practicalities of the expectation for a candidate to know what “may” be important to the employer and accordingly what they had to disclose. The Court considered that such an open-ended interpretation would cause significant uncertainty.

The Employment Court found that Mr Ford was unjustifiably dismissed. Mr Ford was awarded 9 weeks lost wages under s 128(2) and $9,000 as compensation for hurt and humiliation under s 123(1)(c)(i).

The Court declined to reduce the award of remedies on the basis of contribution as it was not considered that Mr Ford’s failure to ‘front foot’ amounted to blameworthy conduct.

Key Lessons:

• There is no obligation of good faith between a candidate and a prospective employer.
• It is not for the employee to know what information an employer may consider relevant or material to the decision to offer employment.
• If there is information that is material to the decision to offer employment, it is expected that enquiries will be made to the extent that would allow the employer to be sufficiently satisfied. This would include follow-up enquiries, checks and requesting to contact relevant references.
• Where there is any ambiguity in the interpretation of a clause in the employment agreement, the ordinary rules of construction suggests that, where the employer drafted the employment agreement, any ambiguity in its terms should be interpreted in favour of the employee. 

Practical Tips:

1.   If it is important, ask about it – be direct and get the specifics:

• How / why did your employment end with your previous employer?
• Did you resign from your previous role and why?
• Were you subject to any performance or disciplinary processes in your previous role? What was the outcome?

2.   Require relevant referees:

• Require a higher-level referee – a manager or supervisor that worked with the candidate for a good period of time.
• Verify the status of the referee – are they still employed at the Company? What is their role? How long did they work with the candidate? What was their relationship to the candidate (colleague, manager, subordinate, supervisor etc.)?

3.   Leave a paper trail:

Ensure there is documentation of what the candidate is asked and their responses at the time it occurred.

4.   Tailored terms of employment:

If there is information that is considered material to the decision to offer employment, this should be clear and specified in the employment agreement as part of a representations and disclosure clause or as a condition or warranty of employment. The recruitment process and position description should reflect that this information is considered material.

5.   Trial Period:

A trial period, properly implemented, mitigates the risk that a candidate is not suitable for the role by affording employers the opportunity to observe their performance in the role for up to 90 days. 

For further advice on pre-employment obligations and ensuring employment documentation is fit for purpose, DTI Lawyers specialist employment lawyers are available by phone on 07 282 0174 or email [email protected].