At-Will Employee May Proceed With Lawsuit Against Employer For Intentionally Promising Compensation Terms It Did Not Intend To Honor

Issue

In Agosta v. Astor, (2004 Daily Journal D.A.R. 8407, Cal.App. 4 Dist, July 12, 2004), the California Court of Appeal addressed the issue of whether an at-will employee may sue an employer for fraudulent inducement where the employer persuaded the employee to enter into a contract for employment by promising compensation terms that the employer never intended to honor.

Facts

N. Arthur Astor, who owns and operates two radio stations, offered Len Agosta a position as general sales manager at one of his stations. Agosta, who was then working as an account executive for a communications company, told Astor that he wanted long-term employment, a position as the general manager of sales for both stations, a base salary, and commissions. Although Agosta rejected Astor’s initial offer, he accepted a second written offer providing that he would work as general sales manager for both stations, receive a base salary of $6,000 per month, and receive equity and bonuses. The final written agreement contained the terms previously agreed upon by the parties, with one variation. However, it also classified Astor’s company as an “at-will” employer and pronounced that either party could terminate employment upon notice to the other party. Agosta signed the agreement without questioning the at-will provision.

Less than one month after Agosta began his new employment, Astor changed the terms of employment. Agosta objected to the changes and Astor terminated his employment. Agosta brought a lawsuit against Astor for misrepresentation, fraudulent inducement, breach of implied covenant of good faith and fair dealing, and defamation. The trial court granted summary judgment in favor of Astor on all but the defamation cause of action. It found that, because Agosta was an at-will employee, he could not have justifiably relied on Astor’s representations of long-term employment.

Appellate Court Decision

The Court of Appeal found that the trial court erred in granting summary judgment on Agosta’s claims of misrepresentation and fraudulent inducement. The elements of fraud are (a) a misrepresentation, (b) knowledge of the falsity of the misrepresentation, (c) an intent to defraud, (d) justifiable reliance by the recipient of the misrepresentation, and (e) resulting damages. The Court noted that a “promise to do something necessarily implies the intention to perform.” If a promise is made without an intention to keep the promise, the result is an implied misrepresentation of fact that may rise to the level of actionable fraud. If the promise is used to induce another to enter into a contract, a plaintiff’s claim does not depend on whether the contract he or she entered into is ultimately enforceable.

The Court found that Agosta could not have justifiably relied on Astor’s promise of long-term employment because of the express at-will provision in the agreement. However, Agosta could have justifiably relied on the written promises regarding compensation terms. The Court opined that fraudulent inducement that causes damages unrelated to an employee’s discharge is an actionable tort, regardless of whether the employee was an at-will employee. Such damages could include the expense and disruption of moving, and in Agosta’s case, the loss of security and income from his former employment. The Court concluded that at-will employers do “not have carte blanche to lie to an employee about any matter whatsoever to trick him or her into accepting employment.”

However, the Court determined that the trial court properly granted summary judgment on Agosta’s claim of breach of the covenant of good faith and fair dealing. It opined that, because at-will employment gives an employer the freedom to terminate the employment if he or she so chooses, “the employer does not frustrate the employee’s contractual rights merely by doing so.” The Court sent the matter back to the trial court so that Agosta can proceed on his misrepresentation and fraudulent inducement claims.

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