Federal Court finds advertising agency engaged in misleading and deceptive conduct in promises used to recruit executive

Employers are being warned to be very careful about the statements they use to try and recruit gun staff, after the Federal Court found a Sydney advertising firm engaged in misleading and deceptive conduct under the Trade Practices Act by making inaccurate statements about the firm’s financial position.

Andrew Moss was running his own independent advertising and research consultancy when in October 2005 he was persuaded to join Sydney advertising agency Lowe Hunt, now known as Lowe Sydney.

Moss claimed in the Federal Court that Lowe Hunt had engaged in misleading and deceptive conduct by making four specific representations to Moss about the position of the advertising firm:

– That Lowe Hunt was “a financially successful agency in Australian advertising at the time”.
– That Lowe Hunt “was in a great position during that period (making it a desirable employer) and was likely to be successful financially in the future”.
– That a string of redundancies made before Moss started placed the firm “in a very healthy financial position”.
– And that savings flowing from the redundancies would “translate the balance sheet from a $1 million-plus loss to a $1 million operating profit”.

Moss was made redundant 18 months after joining the firm, and launched legal action claiming he has lost the “opportunity to continue, develop and grow” his own company, called Pegasus.

According to the court judgement, Lowe Hunt conceded that the third and fourth representations, made by then managing director Ben Colman, “were in fact made and that in making them Lowe Hunt… had engaged in conduct that contravened section 53B of the TPA”.

But while Lowe Hunt disputed that the first two representations constituted misleading and deceptive conduct, Justice Anna Katzmann found in favour of Moss and awarded him total damages of $306,740, plus costs.

“In all the circumstances, I think it is most unlikely Mr Moss would have accepted Mr Colman’s offer but for his repeated assurances about the strength of the business and the implicit representations concerning its financial security,” Katzmann said.

“It is also more likely than not that Mr Moss accepted the offer of employment on the faith of misleading or deceptive representations about the financial security of the business.”

And in a stark lesson for employers, Katzmann said Lowe Hunt needed to be much more candid with Moss during the courting period.

“To make glowing statements of this kind without qualification at any stage in this process was misleading, especially when one of them was admittedly false. This was a situation in which silence was apt to mislead. The circumstances here called for disclosure. That does not necessarily mean that Lowe Hunt had to open its books to Mr Moss for inspection. But it should have been candid with him before he entered into a contract of employment.”

Lowe Sydney was contacted for comment this morning but chief executive Stephen Pearson is overseas and was unable to comment prior to publication.

Ben Colman, whom Katzmann described as “an unimpressive witness” with whom it was “difficult to know when he was telling the truth”, also declined to comment when Smart Company contacted him this morning. He now runs his own agency, Colman Rasic.

Employment law expert Rob Stevenson, from Australian Workplace Lawyers, says he has seen an increase in legal action taken by employees who claim employers have made misleading representations during the hiring phase.

One of the more prominent examples is at retailer Country Road, where former chief executive John Cheston has launched Federal Court action against his former employer claiming he was misled about the company’s financial position prior to joining in July. Country Road is fighting the claims.

Stevenson says the economic climate – where a company’s financial position can deteriorate quickly – could partly be to blame, as could a general trend towards increased litigation.

“I think people are increasingly aware of their rights to take legal action in circumstances where they are suffering a significant loss themselves.”

Stevenson says employers need to be very careful about representations made to prospective employees, and should not seek to put an inaccurately positive spin on the company’s position.

And the more senior the potential employee, the more careful and employer needs to be.

“The greater the financial stakes involved, the more willing people are to take legal action,” Stevenson says.