Don't lie to applicants

If you are ever tempted to downplay the bad news in an interview, the California Supreme Court has bad news for you. The Court ruled that making misrepresentations to applicants is grounds to sue for punitive damages. You should reveal any material information that would affect a reasonable person's decision whether or not to accept employment. And don't make promises about future compensation, job security or promotional opportunities.

Case Excerpts

Andrew Lazar alleged as follows:

Lazar was born in New York in 1950. He lived and worked in Long Island, New York until 1990. >From 1972 to 1990, he was employed with a family-owned restaurant equipment company. As of 1990, he was president of the company, earning $120,000 annually and living in New York with his wife of 21 years and his two children, ages 17 and 15.

In September 1989, a vice-president of real party in interest Rykoff-Sexton, Inc. (Rykoff or defendant) contacted Lazar and tried to persuade him to come to work in Los Angeles as Rykoff's West Coast general manager for contract design. Rykoff, through its vice-president and, later, through its president and its chief executive officer, intensively recruited Lazar through February 1990. For recruitment purposes, Rykoff brought Lazar and his wife to Los Angeles to visit Rykoff's offices, to visit realtors and to see the city.

During this recruitment process, Lazar told Rykoff he was concerned about relocating to Los Angeles, as the move would entail relinquishing a secure job as president of the family company where he had worked all his adult life, separating his children from their friends at an important time of their lives and leaving his home of 40 years. As a condition of agreeing to relocate, Lazar required Rykoff's assurance that his job would be secure and would involve significant pay increases.

In response to Lazar's concerns, Rykoff made representations to Lazar that led him to believe he would continue to be employed by Rykoff so long as he performed his job and achieved goals. Rykoff represented that Lazar would enjoy continued advancement within the organization, would be welcomed as part of the Rykoff "family" and, as a Rykoff employee, would enjoy security and a strong future. Rykoff represented that Lazar would have a long-term relationship with the company. Additionally, Rykoff implied the current head of the department in which Lazar would work had plans to retire and Lazar would be groomed to assume that position.

Rykoff further represented that the company was very strong financially and anticipated solid growth and a stable, profitable future. In particular, Rykoff represented that the department in which Lazar would work was a growth division within the company and that Rykoff had plans to expand it. Rykoff also stated Rykoff would pay Lazar $130,000 annually to start and, if Lazar performed his job, his yearly income would quickly rise to $150,000. Rykoff told Lazar he would receive annual reviews and raises accordingly.

Lazar asked for a written employment contract, but was refused. Rykoff stated a written contract was unnecessary because "our word is our bond." In or about February 1990, Lazar accepted Rykoff's offer of employment on terms including the foregoing.

Rykoff's representations to Lazar regarding the terms on which he would be retained, Rykoff's financial health and Lazar's potential compensation were false and, when making them, Rykoff's agents knew they were false. Rykoff had in the immediately preceding period experienced its worst economic performance in recent history, and the company's financial outlook was pessimistic. In fact, Rykoff was planning an operational merger that would eliminate Lazar's position. Rykoff had no intention of retaining Lazar so long as he performed adequately. Instead, Rykoff secretly intended to treat Lazar as if he were an "at will" employee, subject to termination without cause. Rykoff knew the promised compensation increases would not be given, as company policy limited annual increases to 2 to 3 percent.

Based on Rykoff's representations, Lazar resigned his New York position and, in May 1990, commenced employment at Rykoff. The following month, Lazar bought a home in California and moved his family there.

Lazar performed his job at Rykoff in an exemplary manner. He obtained sales increases in his assigned region, and soon after he commenced employment his West Coast region achieved its sales budget for the first time. Lazar accomplished continued improvement in sales and lowered overall operating costs within his department.

In April 1992, Rykoff failed to pay Lazar certain bonus compensation to which he had become entitled under a company incentive program. Subsequently, in July, Lazar was terminated. Rykoff told Lazar his job was being eliminated owing to management reorganization. A Rykoff vice-president told Lazar his termination was not performance related and was for cause.

The Rykoff vice-president further stated Lazar could leave the company with dignity by tendering a letter of resignation and by keeping his regular status (and all the appearances of job stability) for three months so that he could better search for a new job. In fact, Lazar was given a desk in Rykoff's warehouse, where noise from forklifts made use of the telephone an absurdity. The fact Lazar was leaving Rykoff was not maintained as a secret and became common knowledge. Lazar has been unable to find comparable employment.

As a consequence of Rykoff's conduct and Lazar's reliance on Rykoff's representations, Lazar lost past and future income and employment benefits. He lost contact with the New York employment market so that reemployment there is difficult or impossible. Lazar is burdened with payments on Southern California real estate he can no longer afford. Lazar and his family have experienced emotional distress, with both psychological and physical manifestations.

Lazar further alleged Rykoff acted with oppression, fraud, or malice within the meaning of Civil Code section 3294.

Based on these allegations, Lazar set forth causes of action for: (1) violation of Labor Code section 970 (false representations to induce relocation), (2) wrongful termination in violation of public policy, (3) fraud and deceit, (4) negligent misrepresentation, (5) breach of contract, (6) promissory estoppel, (7) intentional infliction of emotional distress, and (8) negligent infliction of emotional distress.

Lazar's allegations, if true, would establish all the elements of promissory fraud.

As to his fraud claim Lazar may properly seek damages for the costs of uprooting his family, expenses incurred in relocation, and the loss of security and income associated with his former employment in New York.

Lazar, therefore, may proceed with his claim for fraud in the inducement of employment contract, properly seeking damages for "all detriment proximately caused" thereby (Civ. Code, section 3333), as well as appropriate exemplary damages (Civ. Code, section 3294).

LAZAR v. SUPERIOR COURT (RYKOFF-SEXTON) (Supreme Court of California, January 29, 1996)

Information here is correct at the time it is posted. Case decisions cited here may be reversed. Please do not rely on this information without consulting an attorney first.