Fraudulent Statements, Promises, and Actions in the Workplace

HNW fraudulent statements employment lawThe law on fraud and misrepresentation applies to the work force and to the employer, employee, and prospective employer/employee relationship. For example, in one case, an employee’s fraudulent misrepresentation claim was allowed to go to trial because it was a fact question for the jury whether employee’s reliance on employer’s alleged statements inducing him to accept employment was reasonable.

In another case, a plaintiff claimed he was fraudulently induced to stay with the McDonald’s franchise program after it had already been determined he would not be awarded a franchise. His claim, while having merit, was dismissed for failure to specify who made the allegedly false statements, when the statements were made, who decided not to grant him a franchise and when that was decided, whether the statements were made with the knowledge they were false, and whether the statements could be considered factual as a matter of law.

Let’s look at each element of a fraud claim in greater detail.

Material Misrepresentation

To qualify as fraudulent, the misrepresentation must be material and it must relate to a present or past fact. Opinions expressed on something by a person or promises with respect to future actions are normally insufficient to qualify as fraudulent. However, a false representation of a present and existing intention with respect to a future action can qualify as an actionable misrepresentation. To have a false state of mind, the accused person must have had no intention at the time he made the representation of fulfilling the promise. While a claim like this can be proved through indirect and generally circumstantial evidence, the burden is heavy:

Lack of present intention can be established by direct and circumstantial evidence of subsequent actions, behavior, and subsequent events or by evidence the representation was impossible to fulfill based upon known or highly probably contingencies or circumstances contemplated by the promisor at the time the promise was made. The burden of proof can be further met by the proof of actual non-performance.

Establishing Proof of Intent to Misrepresent

A plaintiff alleging legal fraud or misrepresentation must prove the accused person had actual knowledge of the falsity of the representation, with an intent that the other party rely upon the representation.  Thus, if a totally false representation is made unknowingly, an action for fraud will not lie. If there was an honest belief, however unreasonable, that a representation was true, there is insufficient basis for deceit.

Reliance Upon the Misrepresented Promises is a Must

There is a general rule relating to detrimental reliance and that rule is that it must be objectively reasonable. A misrepresentation is not actionable because it is not reasonable if a reasonable person after an inquiry by the victim would have revealed the truth. However, there are several cases holding that one who engages in fraud may not defend the conduct and promise by claiming the victim should have been more diligent (or smarter) in investigating the statement.

Other cases, however, hold that reasonable reliance is a must to win. Said the courts, (I’m paraphrasing):

“That reliance must have been justifiable. When facts to the contrary are not obvious and/or did not provide a warning making it patently unreasonable that a plaintiff would not pursue further the means or basis for further investigation, then the victim’s reliance is deemed reasonable but if the means for further investigation was readily apparent and, if pursued, would reveal the falsity of the representation, then a plaintiff’s claim can be defeated.

Where an individual to whom a false representation is made chooses to conduct an independent investigation of the subject matter, proof of reliance becomes more difficult since the party will be deemed to have relied upon his/her own investigation and he or she is charged with knowledge of whatever he/she could have discovered by a reasonable investigation. One court has defined the standard in the employment context as the following:

Was [P]laintiff’s reliance on the representation justifiable, for example, where facts to the contrary were not obvious or did not provide a warning, or should the plaintiff have reasonably pursued further investigation that would have revealed the falsity of the representation.

Detrimental Reliance and Economic Damages

Proof of actual monetary damages is no longer essential to a cause of action in fraud. The NJ Supreme Court abandoned the common law regarding proof of an economic loss.

Fraudulent conduct constitutes unfair dealing whether or not actual economic damages are incurred. A victim can vindicate his rights through an award of nominal damages and in appropriate cases punish a defendant through an award of punitive damages, legal fees, and court costs.

Abandonment of a damage claim does not eliminate the need to prove detrimental reliance, but it does permit a plaintiff to recover damages where he or she can prove he/she was harmed but cannot prove precisely to the dollar by how much was lost. Here’s how a jury would hear the law about fraud and damages.

[I]f you (jury) find that there was actionable conduct on the part of the defendant and you reasonably believe that he or she sustained damages, but they are not computable… but you feel that there has been sufficient evidence that he or she was damaged, you should enter an award of nominal damages.

If you would like to speak to us personally about possible fraud claim in your work place, please call Fredrick P. Niemann toll-free at (855) 376-5291 or e-mail him at He or a member of the office will be happy to speak and meet with you to address your matter.

Fredrick P. Niemann Esq.