The Federal Court decision in Rakic v Johns Lyng Insurance Building Solutions (Victoria) Pty Ltd (Trustee) [2016] FCA 430 is yet another example of a Court treating pre-employment negotiations as conduct “in trade or commerce” for the purpose of a claim under Australian Consumer Law.

Implications for employers

Employers need to be careful when making representations to prospective or existing employees in the course of negotiations for an employment contract, particularly in respect of remuneration and profitability of the employer’s business. The weight of authority now suggests that pre-employment negotiations can be conducted in trade or commerce, meaning any representations found to be misleading or deceptive can lead to a claim under the general misleading and deceptive conduct provisions of the Australian Consumer Law.

It is a logical development of the law that where an employer is negotiating a contract for the supply of services with a prospective employee, particularly where that employee is senior and likely to have a significant effect on the economic prospects of the company, such negotiations will be found to be conduct in trade or commerce.

Background

Between April 2013 and February 2014, Ms Rakic was employed by Johns Lyng as a General Manager. Between March 2013 and April 2013, in the course of discussions which led to Ms Rakic accepting the position with John Lyng, the company made representations to her about the company’s profitability, including that:

  • sales were expected to be consistent or higher in the 2013 financial year than the previous two financial years;
  • the business would remain as profitable as it had been in the previous two years for at least the next 12 months; and
  • there was no reason of which John Lyng was aware that would mean it would not meet the 2013 financial year sales forecasts.

These representations were made through a series of communications between Ms Rakic and the directors of the company. This included a conversation with a director and an email from another director which set out the previous values for the 2.5% profit share and a forecast for what it would deliver for Ms Rakic in 2013. The representations were also found to be made through the company’s failure to disclose the deterioration in its profits and sales during early 2013.

The representations were material because Ms Rakic’s employment contract contained terms that included a salary of $100,000 less than her previous position but with a 2.5% profit share. Relying on the representations, Ms Rakic argued she left her previous job andaccepted employment with Johns Lyng.

Decision

The Federal Court found in favour of Ms Rakic and held that she relied on John Lyng’s deceptive and misleading representations about its financial position to leave her pervious employment and become John Lyng’s General Manager. Ms Rakic was awarded $332,422 in damages.

All three representations were found to have been made in the course of trade or commerce under the Australian Consumer Law.

Rakic v Johns Lyng Insurance Building Solutions (Victoria) Pty Ltd (Trustee) [2016] FCA 430