Question

An employee was approached by a “headhunter” who informed her that a direct competitor of her current employer was “very interested” in hiring her. The headhunter cited the details of an attractive compensation package that the rival firm intended to offer. Her supervisor heard of the impending job offer and the employee confirmed the information. The CEO initially told the supervisor to terminate the employee, but then re-considered after learning that the employee had never signed a non-competition agreement that would limit her ability to work for a competing firm. Saying to the supervisor that “I guess we have to pay the ransom,” the CEO proceeded to re-negotiate her compensation. In the course of these negotiations, the employee was told that, based on projected revenues for the upcoming year, the employee should not have any problem achieving her full bonus for the year. At the time that these negotiations were occurring, the company was operating with a negative cash flow and was experiencing numerous financial problems. The employee accepted the new compensation package and signed the requisite non-competition agreement. Several weeks later, the company announced a restructuring plan that eliminated the employee’s position. Does the employee have an actionable fraud claim? Why or Why not? Explain your answer.

Answer 1

The employee can show that the statements made by the CEO were made with an intention to deceive rather than for the intention of complying. The ceo decided to negotiate a new compensation package only when he came to know that the employee had not signed the competitive agreement otherwise he was ready to terminate the employee. The employee was assured of positive results of the company and her ability to receive full bonus but the ceo was aware that the company had a negative cash flow. After the employee has signed the competitive agreement the ceo eliminated the employee’s position. The employer should not make false promises unless they are willing to live up to the same. This case shows intentional misrepresentations which are an essential element of fraud claim. So the employee has an actionable fraud claim.