HR Management & Compliance, Recruiting

Idaho At-Will Employees Have Standing to Sue Employer for Fraudulent Hiring

The Idaho Supreme Court recently rendered a decision highlighting an important distinction between wrongful discharge and “fraudulent hiring,” the latter of which allows at-will employees to sue their former employer.

Background

Employment in Idaho is presumed to be “at-will” unless contractually stated otherwise. In other words, with very few exceptions, an employment relationship has no set length, and either party may end it at any time, with or without notice or cause.

At first glance, the recent supreme court opinion may look like another narrow exception to the at-will employment presumption. On closer inspection, however, we find the ruling instead creates an “important distinction between a fraud-in-hiring claim and a wrongful discharge claim that makes the former permissible and the latter limited in an at-will relationship.”

Facts

The J.R. Simplot Company hired Erik Knudsen to work as a packaging engineer. The position quickly morphed into a startup manager job for a project in Grand Forks, North Dakota. Simplot and Knudsen disagreed about the nature of the employment, which eventually led to his discharge.

Afterward, Knudsen sued Simplot alleging fraud, promissory estoppel (i.e., he relied on a promise that wasn’t fulfilled), breach of the covenant of good faith and fair dealing, and negligent infliction of emotional distress. The trial court granted the employer’s request for summary judgment (dismissal without a trial) on all of the claims. It denied the company’s request for attorneys’ fees as well as the former employee’s request to reconsider.

Court’s Decision

On appeal, Knudsen argued two alternative theories of fraud: “(1) Simplot affirmatively misrepresented the packaging engineer position or (2) Simplot breached a duty to disclose the nature of the position for which it was hiring.” Before addressing the theories, however, the supreme court addressed the initial issue of whether an at-will employee can maintain a claim against his former employer for fraudulently misrepresenting the nature of the job he was hired to perform.

The court concluded an at-will employee’s fraudulent hiring claim is viable and distinguishable from wrongful discharge. The court noted fraud-in-hiring claims stem from a potential employer’s actions and representations that lead to an employment relationship. A wrongful termination claim, on the other hand, deals with ending the relationship. Alternately stated, an employer has the ability to terminate an at-will-employee relationship, but it doesn’t have the unfettered right to make representations (true or false) to initiate the employment:

[J]ust because an employer may terminate an at-will relationship, it did not follow that an employer had an unfettered ability to make any representation, true or false, to form that relationship.

The court’s decision came down to whether Knudsen presented enough evidence to show Simplot “either affirmatively or by omission misrepresented the position.” The court also stated, “the inquiry must concentrate on the conduct leading to the formation of the employment relationship rather than after-the-fact actions or statements that led to the termination of the relationship.”

The court concluded Simplot made no affirmative misrepresentation. The job description provided to Knudsen was quite broad and didn’t limit his tasks to those solely of a packaging engineer. Further, the description specifically included a program management requirement. No genuine issue of fact was raised with regard to his reliance on the description, which included the project management duties.

The supreme court also found Simplot had no duty to let Knudsen know he would be tasked with the startup manager duties. Thus, it affirmed the trial court’s granting of summary judgment to the employer on both theories. At the same time, however, it specifically made the important distinction between a limited wrongful discharge claim and a viable fraudulent-hiring claim by an at-will employee. Erik Knudsen v. J.R. Simplot Company.

Takeaways for Idaho Employers

Knudsen’s case confirms the Idaho Supreme Court will continue to uphold the at-will rule in its review of wrongful termination claims. You should be aware, however, the at-will rule won’t necessarily shield your organization from potential liability for representations made in the formation of the employer-employee relationship.

Although we don’t expect a rush of fraudulent hiring claims (given the difficulty in proving the employer made an affirmative misrepresentation), the court ruling does highlight the potential for a lawsuit related to the duty to disclose to avoid misleading employees. Therefore, you should continue to keep your job descriptions current and accurate. In addition, be prepared to:

  • Address any concerns related to the duties listed in the job description;
  • Keep a clear record of statements any prehire might make about the listed duties; and
  • Avoid making any statements that might be construed as a promise at the time of hire, especially regarding the duration or permanency of employment.

Following the steps will save you time and expenses in the long term and provide a reasonable defense should an employment dispute arise out of the initial discussions.

Serena Buchert is an attorney in Parsons Behle & Latimer’s Boise office. You can reach her at sbuchert@parsonsbehle.com.