A new California appeal court ruling shows how an at-will agreement with a new hire won’t shield you from claims that you intentionally misrepresented the employment terms to induce the person to come work for you. We’ll explain what happened.
Terms Under Negotiation
N. Arthur Astor owned two radio stations in Orange County and San Diego. Astor wanted to hire a new sales team and entered employment discussions with Len Agosta, an account executive for Clear Channel Communications.
Agosta rejected Astor’s first employment offer because the compensation was too low. Astor telephoned Agosta with a new offer, including enhanced compensation and responsibility. Agosta accepted but asked Astor for the offer in writing before resigning from Clear Channel. Astor faxed Agosta a document titled “Compensation Package,” and both Astor and Agosta signed it. The document didn’t specify how long Agosta was to hold the job or whether it was an at-will position. The next day, Agosta gave notice to Clear Channel.
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Agreement Changed, But Signed
A day later, Astor gave Agosta a new document titled “Compensation Plan.” Some of the terms varied from the earlier document, and it stated that it superseded prior written and verbal agreements and that Agosta’s employment was at will. Agosta expressed concerns about the changes, including that equity and bonus terms differed from the prior agreement, but he was told that the company would interpret the new compensation plan to correlate with the terms of the earlier agreement. Agosta signed and started work for Astor.
Employer Reneges, Gets Sued for Fraud
Within three weeks, Astor reneged on the pay and job responsibility terms Agosta believed he had agreed to. Agosta told Astor that he would not have changed jobs had he known Astor would repudiate their compensation deal. A few days later, Astor fired Agosta and then offered to rehire him for a lower-level job at a much lower salary. In fact, the new offer was worse than the initial job offer Agosta had rejected when he began employment negotiations with Astor. Agosta refused the offer.
Agosta then sued Astor for fraud, claiming Astor induced him to leave his Clear Channel position by misrepresenting the new position’s at-will and compensation terms. Astor said the court should dismiss the lawsuit because Agosta was an at-will employee, which means his employment terms could be changed at any time.
At-Will Provision Doesn’t Shield Against Fraud Claim
Now, a California appeal court has ruled that an employer that fraudulently induces an employee to enter into an employment agreement by promising terms the employer never intended to honor can’t avoid fraud liability merely because the contract contained an at-will provision. The court added that an at-will employer doesn’t have “carte blanche to lie to an employee about any matter whatsoever to trick him or her into accepting employment.” Agosta can now take his claims to a jury.
Watch What You Say
This case shows that what you say during the recruiting process can come back to haunt you, even if you require new hires to sign at-will agreements. To avoid problems, be straightforward with candidates regarding what the job entails, don’t exaggerate, and don’t make promises you don’t intend to keep. For more information on avoiding fraud in hiring.