Fraud and Negligent Misrepresentation Tort Theories and Employment Law

• Publication year: 2000
• Pages: 79
• Citation: Vol. 29 No. 6 Pg. 79

29 Colo.Law. 79 Colorado Lawyer 2000.

2000, June, Pg. 79. Fraud and Negligent Misrepresentation Tort Theories and Employment Law

---

79

Vol. 29, No. 6, Pg. 79

The Colorado Lawyer
June 2000
Vol. 29, No. 6 [Page 79]

Specialty Law Columns
Labor and Employment Review
Fraud and Negligent Misrepresentation Tort Theories and Employment Law
by John R. Webb, Matt A. Mayer

In Colorado, litigation involving personnel policies and practices primarily has developed under traditional concepts of implied contract law. For example, in Wing v. JMB Property Management Corporation,1 the court dismissed a tort claim that the property management firm had negligently terminated Wing in contravention of its personnel policies. More recently, in Williams v. Continental Airlines, Inc.,2 the court reaffirmed that personnel policies only created contract claims

However, cases in other jurisdictions highlight new risks of liability that involve fraud or negligent misrepresentation This article discusses four major areas of potential employment claims in which fraud or negligent misrepresentation may alter the liability calculus. These four areas are liability for representations, at-will employment, non-compete agreements, and the duty to disclose

Fraud and Negligent Misrepresentation Claims

A claim for fraud involves the knowing or reckless misrepresentation by an employer of an existing material fact for the purpose of inducing reliance.3 The employee must show reasonable reliance on the statement the employer made. In some circumstances, Colorado statutory law provides for actual damages and attorney fees.4

A claim for negligent misrepresentation involves false statements made with an expectation of reliance.5 The claimant must show reasonable reliance resulting in damages.6 A negligent misrepresentation claim cannot be based on a promise to do something in the future, unless the promisor had no present intention to fulfill the promise.7 However, the affirmative defense of contributory negligence can be raised.8 Colorado law has been interpreted to require a third-party transaction to establish a negligent misrepresentation claim in the employment context.9

Many employers use disclaimers in applications and offer letters and employee handbooks stating that the employment relationship is at-will.10 Disclaimers usually will defeat implied contract claims.11 However, an employer probably cannot limit its liability for fraud or negligent misrepresentation with disclaimers because the claim sounds in tort, not contract.12 In those cases, the focus becomes the reliance on and materiality of alleged statements.

Employment Law Issues

Liability for Representations

Although the parties understand that during the interview process both parties are trying to "sell" themselves, courts have held that statements made or information not disclosed during this process can create liability for the employer. The employer may be bound, even when the applicant cannot identify the specific agent of the employer who made the statement.13 However, courts seem less inclined to recognize employers' claims that are based on pre-employment misrepresentation by applicants.

In Bock v. American Growth Fund Sponsors, Inc.,14 the employer allegedly promised that, if the applicant accepted employment, he would receive stock and control of the company when the principal died. The applicant accepted the job, but was later terminated. The court held that the employer's statements could be imputed to the company and supported a fraud claim.15

In contrast, employers should be cautious about relying on statements applicants make. Courts seem to imply that employers should expect potential employees to exaggerate their credentials when they are interviewing. For example, in Todd v. Martinez Paint & Body, Inc.,16 the employer tried to...