Employers Can Legally Lie to Workers, Court Rules

NEW YORK (MainStreet) — Let the worker beware: in Texas it is now entirely legal to lie to your staff.

A recent decision from the Texas Supreme Court has ruled that at-will employees can't sue their employer for fraud over the loss of their jobs. In his opinion, Chief Justice Nathan Hecht held that "while an employee can sue an employer for fraud in some situations... [a] claim cannot be based on illusory promises of continued at-will employment."

In 2002 E.I. du Pont de Nemours announced plans to turn some of its operations into a separate subsidiary. Most of the affected employees were under a union agreement that gave them the right to transfer within DuPont if they preferred, a decision which would have cost the company an enormous amount of money to retrain the transfers and hire their replacements.

The employees were worried that if DuPont sold the new subsidiary it would hurt both their pay and retirement funds. To convince them to work in the subsidiary instead of transferring within the company, DuPont assured its employees that it had absolutely no plans to sell the spin-off. Based on this promise almost everyone moved to the subsidiary, which a few weeks later DuPont sold to Koch Industries. Koch cut both salaries and retirement packages. DuPont had, as it turns out, been negotiating this deal the entire time.

The Texas Supreme Court sees no problem with any of this.

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Writing for the court, Hecht noted that at-will employment in the state of Texas means that a worker can be fired "for good cause, bad cause or no cause at all." While this is true to some degree in every state except Montana, many have carved out exceptions to limit employer abuse. Two of the most common are the requirements of good faith and fair dealing, and the implied contract exception (when your employer makes a promise even if it's not in writing). Texas has specifically rejected both.

No fraud exception exists to at-will employment in Texas, Hecht ruled, meaning that DuPont was free to sell its subsidiary and effectively fire the entire staff without fear of consequence. The court also noted that fraud requires an element of reasonable reliance, which doesn't exist in at-will employment. Workers can't rely on any promise that involves them keeping their jobs because the employer is free to just fire them for something else instead.

"To recover for fraud," Justice Hecht wrote, "one must prove justifiable reliance on a material misrepresentation. A representation dependent on continued at-will employment cannot be material because employment can terminate at any time. Nor can one justifiably rely on the continuation of employment that can be terminated at will.

"'I will if I want to' is not fraud."

The Texas Supreme Court held, essentially, that fraudulent inducement is immaterial in at-will employment, because either way you're out the door. The employer could have gotten rid of you with or without the lie, so you can't claim fraud, because the deception was irrelevant.

Lawyers are fond of using hypotheticals to make a point, and ordinarily this is where I would do so to illustrate the dangers of giving employers a free hand to deceive their workers. It doesn't seem necessary here. DuPont has illustrated the potentially brutal consequences when employers, who already have most of the power in their workplaces, have no obligation to honesty. The company intentionally cobbled together this deception in order to save some money and keep people from exercising their rights. Holding that DuPont's lie was irrelevant ignores the protections that its workers would have had under their union agreement without it.

This cannot possibly end well. Certainly for employers a no-rules environment must seem appealing. No longer do they have to worry about lawsuits brought on by misunderstandings or vengeful ex-employees who claim that that their "best deodorant" award at the company picnic constituted a lifetime contract. However the law already anticipates situations like that (we lawyers have collectively been doing this for a very long time you know). Fraud requires willful deception. As a general rule you even have to know the potential consequences of your actions. A mistake, fabrication or changed circumstances won't cut it.

Do employers need protection against abusive lawsuits? Of course they do, and there's no reason not to continue evolving those protections. In fact that's why a case like this would ordinarily concern me; facts this one-sided often bring up the old legal axiom "bad cases make bad law." Judges faced with DuPont and Koch Industry's behavior might be tempted to create broader liability to protect employees against just this sort of abuse, and in the process, open up a Pandora's Box that we'd spend the next decade closing.

Instead Texas gets a ban that will further erode what little trust remains in the workplace. Employees already worry about what happens behind closed doors, now they need to cross examine everything they're told as well. Can it possibly be a good idea to give carte blanche to every bad actor out there who can save a dollar by tricking his workers? Trust matters, and decisions like this can only hurt that. From a common sense standpoint specifically approving of deception by an employer (even in the limited case where it "only" leads to job loss) is foolish, not to mention cruel.

From a legal standpoint, any decision that didn't award the employees their jobs back could have respected DuPont's right to fire everyone while still addressing the fraud it employed while doing so.

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Fraud is a dirty word for a reason. It means taking advantage of someone's trust, then watching them suffer for it. The idea that Texas has just given its stamp of approval to bosses who want to save some money by deceiving their staff should leave us all in need of a shower.

--Written for MainStreet by Eric Reed, a freelance journalist who writes frequently on the subjects of career and travel. You can read more of his work at his website www.wanderinglawyer.com.

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