Canadian employers which provide inaccurate or misleading information during the hiring process can be held liable for their broken promises. The recent British Columbia Court of Appeal decision in Feldstein v 364 Northern Development Corporation is a stark reminder that a negligent misrepresentation during the hiring process can be costly.

Facts

Mr Feldstein applied for a software engineer position with 364 Northern Development Corporation. Before accepting the position, he asked the company's chief information officer (CIO) about the eligibility requirements for its long-term disability (LTD) plan. This was important to him as he suffered from cystic fibrosis and expected that he would require substantial LTD benefits in the future.

The CIO provided Feldstein with a brochure summarising the company's LTD benefits. It contained a 'proof of good health' clause. When asked what this clause meant, the CIO explained that Feldstein would qualify for LTD benefits after three months of working for the company. Based on this information, Feldstein accepted the position and signed an employment contract.

The employment contract contained an 'entire agreement' clause. It said that the contract superseded all prior communications, understandings and agreements between the parties. The contract contained no details of the benefits plan.

Shortly after accepting the position, Feldstein's health deteriorated significantly. He applied for LTD benefits, expecting to receive full coverage of up to C$5,000 per month. Instead, he was eligible for only C$1,000 per month, which, after applicable deductions, amounted to less than C$36.56 per month.

It turned out that a complete medical questionnaire was required to establish 'proof of good health'. Because Feldstein had not completed the medical questionnaire, he was not entitled to full LTD benefits. He sued the company for negligent misrepresentation.

Decision

The trial judge found that the company had made negligent misrepresentations regarding eligibility under its LTD plan. The test for negligent misrepresentation requires that the following elements are met:

  • Duty of care – the company conceded that it owed Feldstein a duty of care as an employer making representations to a prospective employee.
  • Inaccurate, untrue or misleading representation – the court concluded that the CIO's explanation of 'proof of good health' was clearly inaccurate. The explanation given would mislead a reasonable person into believing that full LTD benefits would be available after three months of continuous work at the company without the need to complete a medical questionnaire.
  • Negligent in making the representation – the court found that the company was negligent in making the representations about its LTD benefits. The CIO took no steps to verify the accuracy of the information that he provided. The employer also failed to provide Feldstein with the medical questionnaire required by the insurer.
  • Reasonable reliance on the representation – the court concluded that it was reasonable for Feldstein to rely on the information the CIO provided.
  • Reliance resulted in damages – finally, the court concluded that in light of Feldstein's health concerns, he would not have accepted an employment offer that did not provide adequate LTD coverage and acceptable eligibility requirements.

The company argued that the 'entire agreement' clause in the employment contract meant that Feldstein could not sue for negligent misrepresentation. The court rejected this argument – the clause did not specifically exclude liability for negligence. Further, the CIO's statement relating to the meaning of 'proof of good health' did not become an express term of the employment contract; it was a matter outside of the contract. Therefore, the court concluded that the clause could not exclude liability for the pre-contractual misrepresentation.

The trial judge awarded Feldstein C$83,336.80 as compensation for lost LTD benefits and C$10,000 for aggravated damages.

Appeal

The company appealed the trial judge's decision. The British Columbia Court of Appeal concluded that the company had failed to establish that the trial judge had erred in applying the test for negligent misrepresentation, and therefore upheld the trial judge's award of damages for loss of benefits.

However, the aggravated damages award was found to be inappropriate. Such an award requires that the employer's conduct be high-handed. While the information provided was misleading, the court found no evidence that the company had acted in a deliberately deceitful or high-handed manner. As such, the court overturned the C$10,000 award for aggravated damages.

Lessons for employers

This decision highlights the importance of ensuring that accurate information is provided to prospective employees during the hiring process. Those responsible for recruitment must exercise discretion to determine when someone else in the company (or even a third party) may be best suited to answer a prospective employee's questions.

When in doubt, information should always be verified before it is shared with a candidate. Taking such precautions can save an employer from unintended and costly consequences.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.

For further information on this topic please contact Nicole Singh at Fasken Martineau DuMoulin LLP by telephone (+1 416 366 8381) or email (nrsingh@fasken.com). The Fasken Martineau DuMoulin LLP website can be accessed at www.fasken.com.