At-Will Employee States Fraudulent Inducement Claim

In Laduzinski v. Alvarez & Marsal Taxand LLC (App. Div. 1st Dept. Aug. 25, 2015), the Appellate Division, First Department permitted a fraudulent inducement claim to continue against a new employer who lured an employee away from another job.

Plaintiff voluntarily quit his job with J.P. Morgan to work for another entity (referred to by the court as “the Alvarez companies”). The managing director and head of the Alvarez companies (Perez) told plaintiff that they had “a lot of clients and were busy.” Plaintiff learned that this was not true. After working for the new company for a few months and shortly after surrendering his contacts to them, they fired plaintiff because there was no work for him.

The law, per the court:

In an action to recover damages for fraud, the plaintiff must prove a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury. …

An at-will employee, who has been terminated, can not state a fraudulent inducement claim on the basis of having relied upon the employer’s promise not to terminate the contract, or upon any representations of future intentions as to the duration or security of his employment. However, where an at-will employee alleges an injury separate and distinct from termination of the [his] employment, he may have a cause of action for fraudulent inducement… . The at-will employee must allege not that his employer wrongly fired him, but that [he] would not have taken the job in the first place if the true facts had been revealed to [him].

As illustrated by this case, this is a subtle, yet crucial, distinction. In finding that plaintiff stated a claim, the court explained:

Plaintiff alleges that Perez knowingly and purposely misrepresented the nature of the work plaintiff would be doing for defendants by telling him that he would be managing the sizeable workload of the company rather than bringing in business, when in fact defendants intended the opposite, that Perez made these representations to induce him to leave his employment and go to work for defendants, and that, in reliance on Perez’s misrepresentations, he left his stable and well compensated employment with J.P. Morgan, which brought about a setback in his career. All the elements of a claim for fraudulent inducement are alleged. The motion court erred in finding that plaintiff’s at-will employment status precluded an action for fraudulent inducement. …

Plaintiff does not allege that defendants wrongfully terminated him. He claims that they misrepresented the nature of the job that they were hiring him to do, that they were only hiring him to gain access to his contacts and that if they had told him this he would not have left his job at J.P. Morgan to work for them. Indeed, plaintiff’s injury preceded his termination.

Nor are plaintiff’s damages speculative, since he alleged that they stem not from his loss of employment with defendants, but from his loss of employment with J.P. Morgan. These damages represent the sum necessary for restoration to the position occupied before the commission of the fraud.

Furthermore, contrary to defendants’ argument, the alleged representations were not expressions of future expectations, which do not sustain a fraudulent inducement cause of action. Rather, defendants’ representations of present intentions constitute statements of material existing fact, which are sufficient to support a fraud claim.

A misrepresentation of present fact, unlike a misrepresentation of future intent to perform under the contract, is collateral to the contract, even though it may have induced plaintiff to sign it, and therefor involves a separate breach of duty.”

Here, as noted above, the alleged misrepresentations centered around the precise nature of plaintiff’s employment with defendants. Because plaintiff pleaded that Perez made his promise with a preconceived and undisclosed intention of not performing it, and because the promises largely focused on defendant companies’ financial health, the motion court erred in concluding that defendants’ representations were nonactionable future statements.

Finally, the court held that the contract’s merger clause – which states that “This Agreement constitutes the entire agreement between the parties with respect to subject matter and supersedes all previous understandings, representations, commitments or agreements, oral or written” – was “boilerplate language [that] is too general to bar plaintiff’s claim since it makes no reference to the particular misrepresentations allegedly made here by [defendants].”