Beware of Pre-employment discussions

A recent Federal Court of Australia (‘FCA’) decision has somewhat clarified the application of the Australian Consumer Law to representations made to prospective employees designed to entice the employee into accepting an offer of employment.

In Rakic v Johns Lyng Insurance Building Solutions (Victoria) Pty Ltd (Trustee) [2016] FCA 430, the FCA held that certain conduct which occurred during the pre-employment negotiation phase was in fact, conduct in “Trade or Commerce” within the meaning of the Australian Consumer Law.

The Applicant, Ms Rakic was employed between 2013 and 2014 as the General Manager of Johns Lyng (‘the Employer’). In the month prior to the commencement of Ms Rakic’s employment, the Employer made representations to Ms Rakic pertaining to its profitability, assuring Ms Rakic that the employer would maintain its profitability and that sales would likely increase or remain consistent (‘the Representations’).

The Representations directly related to Ms Rakic’s employment, as her salary was substantially lower than her salary expectation and the salary received in her previous job, but the difference was compensated by a 2.5% profit share.

In the 2013 – 2014 financial year, the Employer failed to meet the profit it had represented to Ms Rakic and terminated Ms Rakic’s employment in circumstances of redundancy.

The FCA found that Ms Rakic relied on the Employer’s misrepresentations (which were without basis) in accepting the Employer’s offer of employment; she suffered detriment in leaving her previous stable employment and accordingly the Employer had breached the Australian Consumer Law. Ms Rakic was awarded $333, 422 for loss and damage and an additional $16,529 for a separate cause of action pertaining to her contractual entitlements.

The decision is a reminder that employers must tread carefully during pre-employment discussions and negotiations, whether formal or informal, particularly where the employer is making a representation without knowing, or being reckless as to the truth of, such representation. For more information on managing pre- employment negotiations, please contact Nick Stevens, Megan Cant or Jane Murray.

Published June 2016

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