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Employers, be careful what you say during pre-employment discussions, it may cost you

interviewThe Supreme Court of British Columbia recently decided that misleading or inaccurate statements made by an employer during pre–employment discussions can result in liability for negligent misrepresentation.

In the case before the court, an erroneous statement was made by the representative of the Defendant employer during a pre–employment phone conversation. The statement in question was in reference to the Plaintiff’s eligibility for the Defendant’s long–term disability (“LTD”) benefits plan. As a result, damages awarded to the Plaintiff for the negligent misrepresentation totalled nearly $100,000.

At the time the erroneous statement was made, the Plaintiff, Cary Feldstein, was a prospective employee of the Defendant, 364 Northern Development Corporation.

The Plaintiff suffered from Cystic Fibrosis—a chronic, degenerative disease primarily affecting the lungs—with which he was diagnosed at the age of nine. Due to this medical condition, the Plaintiff had advised that he would only accept employment that provided sufficient LTD benefits for which he was eligible, despite his pre–existing condition.

The Plaintiff first met with the Defendant’s representatives in April 2012 and was called back for a second interview two days later. During the second interview, the Plaintiff inquired with Mr. Nizker, the Defendant’s Chief Information Officer, whether the Defendant offered employee benefits.

Mr. Nizker provided the Plaintiff with a summary of the Defendant’s benefit offerings, which outlined the LTD benefits that the Plaintiff would receive in the event that he became disabled. The expected LTD benefit met the needs of the Plaintiff, however, it stated under the heading “Proof of Good Health” that approval was required for coverage in excess of $1,000.

The erroneous statement, that led to the negligent misrepresentation claim, was allegedly made during the phone conversation that followed the delivery of the benefits summary. The Plaintiff  testified that when he asked Mr. Nizker what constituted “Proof of Good Health” for the purpose of LTD benefits, Mr. Nizker’s response was that “Proof of Good Health” was related to the three–month waiting period needed in order to have the plan in effect.

The Plaintiff understood this explanation to mean that working for the Defendant for three months, without illness, would constitute “Proof of Good Health” for the purposes of obtaining LTD benefits, notwithstanding his pre–existing condition or the lack of a medical exam or questionnaire. Because Mr. Nizker gave this explanation immediately, and with clarity and certainty, the Plaintiff testified that he found the explanation to be credible and satisfactory, and did not see the need to make any further inquiries.

When the Plaintiff became seriously ill due to his condition and tried to access the LTD benefits, he was only eligible for a monthly benefit of $1,000, instead of the expected $4,669, less his Canada Pension Plan benefits. This was because he had failed to fill out a health questionnaire when initially enrolling in the benefits plan in April 2012—which he was never informed was required.

In response, the Plaintiff brought a claim for negligent misrepresentation, requiring that the following five questions to be answered in the affirmative:

  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?

First, the Court recognized that the duty of care between an employer and prospective employee exists and is well–established in Canadian case law.

Second, the representation by Mr. Nizker, that “Proof of Good Health” was related to the three–month waiting period needed in order to have the plan in effect, was deemed to be an “the inaccurate, untrue, or misleading” statement. It was an implied representation that led the Plaintiff to believe that working for the Defendant for three months, without illness, would constitute “Proof of Good Health” for the purposes of obtaining LTD benefits, notwithstanding his pre–existing condition or the lack of a medical exam or questionnaire. The Court found that a reasonable person in the circumstances of the Plaintiff would have drawn this same inference.

Third, the Defendant was found to have acted negligently because Mr. Nizker’s conduct fell below the standard of care required in the context of hiring an employee. Mr. Nizker knew little about insurance policies when he made the statement, and while knowing that LTD benefits were essential to the Plaintiff, he appeared to take no steps to verify the accuracy of the information provided.

Fourth, the Court accepted that the Plaintiff reasonably relied on the information communicated by Mr. Nizker regarding the details of the LTD benefits. The Plaintiff had every reason to believe that the person in charge of hiring for this position, Mr. Nizker, would provide accurate and complete details about the Defendant’s benefits plan. Had the Plaintiff not been mislead, he would have found the Defendant’s LTD benefits to be inadequate and would not have accepted the offer of employment.

Lastly, as a result of the misrepresentation, the Court found that the Plaintiff suffered damages for the loss of LTD benefits, as well as for mental distress, and awarded the Plaintiff $93,336.80 in compensation.

By: Marty Rabinovitch and Jeffrey H Spiegel, Student-at-Law

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Devry Smith Frank LLP

Employment and labour lawyers at Devry Smith Frank LLP
Devry Smith Frank LLP (DSF) is the largest full service law firm in Toronto outside of the downtown core. They offer a broad range of legal services to individual, business and corporate clients in most areas of corporate and personal law. Their firm’s employment law group covers a broad spectrum of HR law, including employment and labour law, occupational health & safety, human rights, workers’ compensation and much more.Lawyers at Devry Smith Frank LLP lead by Marty Rabinovitch B.A.H., LL.B. will be covering issues surrounding employment and labour law and human rights on First Reference Talks. They also provide training, seminars and conferences on the above topics. Read more .
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