Employers: Be Wary of Representations You Make When Negotiating Employment Contracts

Employers: Be Wary of Representations You Make When Negotiating Employment Contracts

Greg Dobney
Posted June 3, 2016 Category: Businesses

In 2014, the Supreme Court of Canada established beyond any doubt that all contracting parties have a duty to act honestly in the performance of their contractual obligations.  Of course, this duty extends to an employer and an employee when entering into a contract of employment.  In employment law, an employer also has a duty to act in good faith and with a sense of fair dealing towards its employees.  But what about representations made by an employer before an employment relationship is established?

An employer may be held to its pre-employment representations where the employee relies on those representations to his/her detriment. Antunes v. Limen Structures involved a wrongful dismissal claim brought by Mr. Antunes after only brief employment with Limen Structures.  What is particularly interesting about this case, however, is Mr. Antunes’ claim with regard to representations made by the principal of Limen Structures during negotiation of the employment agreement.  In the course of negotiations, the principal of Limen Structures represented to Mr. Antunes that, in his opinion, the company was thriving and was worth $10 million.  As part of his compensation package, Mr. Antunes was to receive 5% of the shares of Limen Structures (which would have a value of $500,000 based on the represented value of the company) and would have an opportunity to obtain a further 5% of shares in Limen Structures’ Residential Division.  Mr. Antunes did nothing to confirm the valuation of Limen Structures, nor did he inquire as to whether there would be any restrictive rules or conditions that would apply to his shares.

Mr. Antunes accepted the job, but was not issued shares in the company as promised.  After he started working, Mr. Antunes discovered that the company’s financial situation was not as the principal had represented.  After only five months of employment, Mr. Antunes’ employment was terminated.   Mr. Antunes sued for wrongful dismissal and included a claim for damages in relation to the shares that he was never issued.

The court found that Limen Structures had failed deal with Mr. Antunes honestly in its contractual negotiations with him.  Specifically, its principal had misrepresented the value of the company and its shares and had also misrepresented the existence of a Residential Division (there was no such division).  These misrepresentations played a role in the court awarding Mr. Antunes a reasonable notice period of 8 months after only working for 5 months.

The court went on to assess damages for the failure to issue the shares in accordance with the employment agreement.  In terms of valuing those damages, the court accepted Mr. Antunes’ evidence regarding the misrepresentations that had been made during negotiations.  The appropriate remedy was to place him in the position he would have been in had the representations been true.  While the contractual promise made to Mr. Antunes was for 5% of the company’s shares, Mr. Antunes’ expectation based on the misrepresentations was that these shares would have a value of $500,000.  Mr. Antunes was therefore awarded $500,000 in damages in relation to the shares that were never issued.

It is noteworthy that the only other person who had knowledge of the representations during negotiations (the principal of Limen Structures) did not testify at the trial.  The trial judge was therefore left with Mr. Antunes’ uncontradicted evidence.

The case is a lesson to employers to be wary of how their company is represented in the course of negotiations with prospective employees.  If pre-employment representations are inaccurate, the employer may be held to the representation and be liable to place the employee in the position as though the representation had been accurate.

Limen Structures has appealed the decision to the Ontario Court of Appeal.

Greg Dobney
Posted June 3, 2016 Category: Businesses

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