Pre-Employment Fraud Claims

An employer may not induce any employee to enter into an employment relationship by making promises that it does not intend to perform. This is true, even if the employee signed an agreement stating that employment is at-will, meaning the employment relationship can be terminated at will by the employer or the employee. A prior case holds that “an at-will employer does not have carte blanche to lie to an employee about any matter whatsoever in order to trick him or her into accepting employment.”

A promise to do something necessarily implies the intention to perform; hence, when a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable employment fraud. Fraudulent intent is often established by what is called “circumstantial” evidence, such as the employer’s hasty repudiation of a promise, its failure to even attempt performance, or its continued assurances after it was clear that it would not perform. An employee who proves fraud may be entitled to recover “out-of-pocket” damages. For example, when an employee leaves secure employment to accept a new job in reliance on a fraudulent promise of better pay, the lost salary and benefits that would have been earned in the former employment may be recoverable against the new employer.

California Labor Code section 970 prohibits employers from making false representations about work to persuade an employee to change his or her residence. This claim requires an employee to prove that: (1) the employer made a knowingly false representation to the employee regarding the kind, character or existence of work; and that (2) the employer induced the employee to change residences. The statute applies to any employment, and includes both permanent and temporary changes in residence.

One case nicely illustrates how this section applies in real life: An employer hired an employee pursuant to an at-will employment agreement to sell computer systems in California. The employer represented that the systems were in place and operational in California, that the employer was providing customer service, and that the employer received an endorsement for its product. Based on these representations, which turned out to be untrue, the employee moved to California to accept the position. He sold the systems, which some customers returned due to a defect, but still met his sales quota. Two years later, after more customers began returning their defective systems, the employee failed to meet his sales quota and his employment was terminated. In this case, the employee was able to prove that the employer violated section 970 and recover damages. Because the employee relocated to accept the position, the employee was allowed to recover double damages, as a penalty under Labor Code section 972.