In May, the Federal Trade Commission announced that Sketchers will pay $40 million to settle charges that it deceived customers by asserting that its Shape-up shoes could help people get into shape, lose weight and tone their buttock and legs. While I’m sure that most of the public didn’t really believe a pair of shoes could sculpt one’s backside to resemble that of Kim Kardashian, many of Sketchers’ representations to consumers were evidently fraudulent. So what does this have to do with employment law?
Occasionally employers make fraudulent statements that have economic consequences for workers who rely on them. For example, a worker gives an employer her notice of resignation because she was offered a better paying job. Supervisor tells worker if she stays, she will receive a promotion and pay raise. Relying on the supervisor’s statements, the worker decides to stay and forego the other job opportunity. If the employer fails to give the promised promotion or pay raise, does the worker have a fraud claim?
As we were reminded in a recently decided case from the Fifth Circuit, Sawyer v. EI DuPont de Nemours & Co., Texas law does not allow “at-will” employees to sue their employers for fraud or fraudulent inducement. In the Sawyer case, some DuPont employees were told their jobs were being spun off to a wholly owned DuPont subsidiary. If employees agreed to be transferred to the subsidiary, they would no longer be DuPont employees, but would continue working in the same unit, with the same pay and benefits, and protected under a new collective bargaining agreement (CBA) that was identical to the one they had at DuPont. Employees sought assurances from DuPont that the subsidiary would not be sold. DuPont officials repeatedly stated that a sale was “highly unlikely,” and the subsidiary would remain part of DuPont.
A short time after workers transferred to the new subsidiary, DuPont announced it was selling the subsidiary to a third party. The new owners, who were not bound by the collective bargaining agreement, later reduced the employees’ pensions, salaries and benefits. It was later discovered that DuPont and the new owners were in negotiations over the sale of the subsidiary even before the DuPont employees were transferred. Employees sued DuPont for fraud and fraudulent inducement, asserting that DuPont fraudulently misrepresented the sale of its subsidiary, and employees relied on this misrepresentation to their detriment when they voluntarily agreed to terminate their employment at DuPont, and transfer to its subsidiary.
The Fifth Circuit upheld a dismissal of the Plaintiffs’ claims, relying on Texas cases which have held that at-will employees are barred from asserting fraud claims against their former employers. (The larger debate in the Sawyer case may be whether these DuPont employees were actually “at-will” employees due to their CBA, but that’s a matter for a separate discussion). A person bringing a fraud or fraudulent inducement claim must prove “reliance” on a false representation. Since “at-will” employees have no guarantees to future employment, courts have held that they cannot establish a justifiable reliance on alleged misrepresentations by employers – no matter how fraudulent.
“That’s not a lie, it’s a terminological inexactitude. Also a tactical misrepresentation.”
— Alexander Haig