It happens often. A potential candidate arrives at a job interview with a stellar curriculum vitae. She shares with you that she’s got a stable and secure job but might be interested in contributing to the success of your organization. Without hesitation or question, you decide that this is the person you’re looking for and an employment relationship is formed. Who didn’t hear about Yahoo’s situation with recent hire Scott Thompson when it was disclosed six months after the hiring that Thompson may not have had the qualifications set forth on this curriculum vitae. Surveys suggest that many job applicants lie on their resume and that education is the most frequently falsified qualification on a resume. Readers may recall recent news where the Nova Scotia College of Physicians and Surgeons revoked the licence of a psychiatrist who was caught practising without a licence in the United States and had just begun duties at Yarmouth Regional Hospital.

Thankfully, there are only a handful of cases that have litigated this issue in Canada, but that doesn’t mean it doesn’t happen. When it does happen, it’s typically resolved through negotiated exits, sparing both the employer and the employee public damage to their reputations. If the parties cannot agree and are forced into litigation, it should provide some comfort to employers that a fraudulent representation, when proven, may render the employment contract void or reduce overall liability.

Here’s what you need to know if you think it’s already happened and you’re facing a showdown on the issue.

When will a representation be fraudulent?

...A fraudulent misrepresentation is one which is made with knowledge that it is untrue and with the intent to deceive. It may even constitute a term of the contract. Whether it does or not is immaterial, since fraud gives rise to effects in the law of contract and the law of tort. A contract resulting from a fraudulent misrepresentation may be avoided by the victim of the fraud. In such instances, the apparent consent by the innocent party to the contract and its terms, is not a real consent. Whether or not the effect of such fraud is to induce a mistake (which might render the contract void), the consent of the innocent party may be revoked at his option.

Fridman, The Law of Contract in Canada, 3rd ed.

(Toronto: Carswell, 1994) pp 294 – 295

(emphasis added)

How do you prove fraudulent misrepresentation?

By establishing the following:

  1. The representations complained of were made by the employee to the employer;
  2. The representations were false in fact;
  3. The employee either made the representations knowing they were false or made them recklessly without knowing whether they were false or true; and
  4. The employer was induced to enter into the contract in question by the employee’s representations.

I wrote earlier that there have been reported decisions of fraudulent misrepresentation in Canada. The most interesting example is the Ontario decision in

Clark v. Coopers & Lybrand Consulting Group later endorsed by the Court of Appeal. In that case, a ‘consultant’ applicant submitted a curriculum vitae with very impressive qualifications including a PhD from the University of Illinois for a one-year ‘consultant’ position. If the one-year ‘consultant’ position worked out, he had the opportunity to become a partner. The employment agreement between "Dr. Clark" and Coopers & Lybrand provided for 90 days’ notice of termination. When Coopers & Lybrand looked more closely at "Dr. Clark’s" credentials, after he had started work, they discovered that he didn’t, in fact, have a PhD from the University of Illinois and so, terminated the contract. Mr. Clark brought an action for 90 days’ notice to which Coopers & Lybrand counterclaimed for the damages caused by Mr. Clark’s conduct (i.e., expenses for his replacement, loss of business opportunities and reputation). The court concluded that Mr. Clark misrepresented his credentials and that he wouldn’t have been hired, but for those misrepresented credentials. The court also ordered Mr. Clark to pay for some of the expenses Coopers & Lybrand incurred in replacing him and to also pay for loss of some business opportunities. Mr. Clark wasn’t required to indemnify for loss of reputation because the court said Coopers & Lybrand could have checked Mr. Clark’s credentials before they hired him.

What this means for you

All of this adds up to just a few words of advice: Don’t take everything you read at face value when it comes to hiring an employee – check credentials and qualifications that you require for the position before you hire! Indeed, the court in Clark v. Coopers & Lybrand sends this precise message to employers loud and clear. If you don’t take this ‘due diligence’ step at hiring, you risk the real life drama of hiring a Frank Abignale.