Misrepresentation in Employee Recruitment: Feldstein v. 364 Northern Development Corporation
Employee recruitment, and particularly recruitment for highly competitive positions, often requires a certain amount of salesmanship on the part of recruiters, and companies looking to land a sought-after employee may tote company culture, compensation and other benefits of employment as part of their recruitment strategy.
Of course, all of this is fair game. However, as one recent BC Supreme Court decision illustrates, recruiters also need to be careful that everything they are presenting to potential candidates is honest and accurate. As one Vancouver tech company recently found out in Feldstein v. 364 Northern Development Corporation, 2016 BCSC 108, being over-zealous and under-cautious in promises to candidates can lead to a negligent misrepresentation lawsuit and thousands of dollars in damages.
Mr. Feldstein was a highly qualified computer programmer. He had a university degree, a successful resume and a happy family. He also had serious health challenges, having been diagnosed with cystic fibrosis at the age of 9. Despite his very serious illness, Feldstein led a relatively normal life, although he was on a waiting list for a double-lung transplant.
Given his medical diagnosis and that at some point in his future he expected to require long term disability benefits, Feldstein was very particular about the employers he applied to. In fact, Feldstein made clear at trial that as a result of his condition, he would not accept employment unless it offered sufficient and appropriate LTD benefits and that coverage would not be contingent on the absence of any pre-existing health conditions.
When Feldstein applied with 364 Northern Development he immediately impressed his recruiters. He was open about his disability and candidly disclosed that he would occasionally need time away for medical treatment. Ultimately, he was offered a job with 364, but before accepting it Feldstein said that he would need to review the company’s benefit plan.
The LTD brochure 364 provided to Feldstein stated that coverage of $1000 a month was available to all employees, and that benefits in excess of $1,000 a month (based on salary) were available upon “Proof of Good Health”. Given Fledstein’s medical condition, this was clearly a concern. When he asked a senior manager with 364 for clarification as to what this entailed, he was told that “Proof of Good Health” related to the three-month waiting period needed in order to have the plan in effect. Feldstein understood this to mean that working at 364 for three months, without illness, would constitute “Proof of Good Health” for the purposes of obtaining LTD benefits under the 364 plan, notwithstanding his pre-existing condition or the lack of a medical exam or completed health questionnaire. As he found the explanation to be credible and satisfactory, Feldstein felt that there was no need to make any further inquiry.
Approximately one year after his initial hire, Feldstein experienced a significant decrease in lung capacity. In the months that followed, Feldstein made inquiries with his LTD provider in preparation for his anticipated lung transplant and disability leave. Eventually, Feldstein was approved for LTD, but only up to the “non-evidence maximum” of $1,000 a month. Feldstein was denied any additional LTD (valued at an additional $3,700) because he failed to complete a health questionnaire when enrolling for the program at the time of hire.
As one may expect, Feldstein was furious. Not only did 364 fail to provide him the necessary enrolment forms, but they misled him with respect to his admissibility under the LTD plan. Feldstein filed a lawsuit for negligent misrepresentation against 364, seeking compensation for the benefits he was denied under the LTD policy.
Law of Negligent Misrepresentation
To prove the tort of negligent misrepresentation, there is a well-established 5-step test:
1. Is there a duty of care based on a “special relationship” between the representor and representee?
2. Is the representation in question inaccurate, untrue, or misleading?
3. Did the representor act negligently in making that representation?
4. Did the representee rely, in a reasonable manner, on that representation?
5. Did the representee incur damages as a result of that reliance?
In this case, all of the 5 requirements for negligent misrepresentation were met. There was clearly a relationship between 364 and Feldstein which gave rise to 364’s duty of care when performing any acts that could foreseeably cause harm. It was also clear that the information presented to Feldstein by 364 was inaccurate or misleading.
When considering the standard of care that 364 was held to, the judge stated:
The applicable standard of care requires that Mr. Nizker, in making representations to Mr. Feldstein in the context of the hiring process, took such reasonable care as the circumstances required in order to ensure that the representations he made were accurate and not misleading.
I have no difficulty in finding that Mr. Nizker’s conduct fell below the requisite standard of care.
In making this finding, the court found that 364 negligently made the misrepresentations.
While Feldstein also clearly relied on the misrepresentation, the most interesting part of this decision was the damage assessment. After all, even if 364 had not made the misrepresentation, Feldstein wouldn’t have qualified for the LTD plan.
In assessing damages, the court accepted that Feldstein would not have accepted employment with 364 had he known that he did not qualify for extended LTD coverage. He would have continued his job search until he found an employer with an LTD plan that met his needs. To this end, the court assessed damages not based on what Feldstein expected to received with 364, but what Feldstein would have received at another employer. As a barometer, the court used the benefit coverage provided by Feldstein’s previous employer to assess damages.
In the end, the court awarded Feldstein $2,082.43 for 40 months, or approximately $83,000. The court also awarded Feldstein $10,000 in aggravated damages for the “extraordinarily distressing” disruption to Feldstein’s “carefully laid plans”.
In many ways, this case speaks for itself. While employers are encouraged to actively and aggressively pursue top talent, they must be guarded in overselling their company and in making promises to prospective employees. In this case, the lawsuit could have been avoided if the 364 manager had simply said “let me look into that for you” or “here’s a customer service line with our benefit provider.” Presenting information as fact when it clearly was not created a significant and unnecessary liability for the company.