Employer Liable for Misrepresenting Position

I tend in this blog to focus on recent case law, a trend I do not intend to stop. However, from time to time, it is interesting to focus on the classics, the foundations of Canadian employment law.

One of the key cases in this area is Queen v. Cognos Inc., 1993 CanLII 146 (SCC), [1993] 1 SCR 87; a case often thought of as establishing the test for the tort of negligent misrepresentation. And, while it is true that Cognos is the leading case on that point, Cognos was also an employment case and the facts underlying it are unfortunately more common than they should be.

Facts

As Justice Iacobucci observed at the outset of his reasons for decision:

[The case involved] the application of the tort of negligent misrepresentation to a pre-employment representation made by an employer to a prospective employee in the course of a hiring interview. Specifically, this Court is being asked to determine in what circumstances a representation made during a hiring interview becomes, in law, a "negligent misrepresentation".  A subsidiary question deals with the effect of a subsequent employment agreement signed by the plaintiff, and its provisions allowing termination "without cause" and reassignment, on a claim for damages for negligent misrepresentation.

In short, Cognos was looking to hire an accountant to assist it with a new software product that it was developing called Multiview. It placed an advertisement in the Globe and Mail, a national newspaper, and one of the applicants was Mr. Douglas Queen, the eventual plaintiff in the case.

During Mr. Queen’s interview with Cognos the Manager of Product Development for the new product line made certain representations to Mr. Queen about the project and the successful candidate’s role within the development of same. Among those representations were: that the position was one drawing upon Mr. Queen’s accounting background, that the project would last no less than two years, and that, by inference, the project actually existed.

Mr. Queen was offered the position with Cognos, which he accepted.

The problem was that the project had not been approved by Cognos’s board at the time that the position was offered to Mr. Queen. Thus, barely five months after his arrival in Ottawa from Calgary, Mr. Queen was advised that there would be a reassignment of personnel involved with Multiview project owing to diminished research and development funding. Mr. Queen was informed that, unless a position was available for him in Cognos’s finance and administration department, he would most likely be laid off.

Mr. Queen was transferred within Cognos a few times but was ultimately terminated from its employment exactly eighteen months after he started with them.

Mr. Queen sued Cognos and in a judgment rendered on December 31, 1987, Justice White of the Ontario High Court of Justice (now called the Superior Court of Justice) upheld Mr. Queen's claim and awarded him $67,224 in damages: (1987), 63 O.R. (2d) 389, 18 C.C.E.L. 146. On May 1, 1990, Cognos’s appeal to the Court of Appeal for Ontario was allowed; the trial judgment was set aside and replaced by a judgment dismissing the action with costs: (1990), 74 O.R. (2d) 176. Those decisions are summarized in the Supreme Court of Canada’s decision, but will not be here.

Issues

Mr. Queen sued in tort. As Justice Iacobucci explained:

At no time did he argue breach of contract, breach of collateral warranty or any other contractual cause of action against the respondent. He did not dispute the fact that some of the terms of his employment contract appeared to be inconsistent with the representations made by Mr. Johnston.  However, it was his understanding from the interview that the Multiview project was a reality and that its existence was not contingent on the happening of some future event.  He testified that were it not for the representations made during the interview as to the nature and existence of the employment opportunity, he would not have left his secure position in Calgary.

Justice Iacobucci put the case this way:

(1) Disregarding for now the employment agreement signed by Mr. Queen, did Cognos or its representative Mr. Johnston owe a duty of care to Mr. Queen during the pre‑employment interview of February 14, 1983, with respect to the representations made to Mr. Queen about Cognos and the nature and existence of the employment opportunity being offered?

(2) If so, again disregarding for now the contract between the parties, did Cognos or its representative Mr. Johnston breach this duty of care in all the circumstances of this case?

(3) If so, should the answers given to questions 1 and 2, or the result that would normally follow from such conclusions (i.e. liability of Cognos for the damages caused to Mr. Queen, fixed by the trial judge at $67,224, upheld by the Court of Appeal, and unchallenged before this Court), be different in any way in view of the fact that Mr. Queen signed an employment agreement after the negligent misrepresentations containing, inter alia, a termination "without cause" provision (clause 14) as well as a reassignment provision (clause 13)?

Justice Iacobucci was of the opinion that questions 1 and 2 should be answered in the affirmative and that question 3 should be answered in the negative. The appeal was allowed and Justice White’s judgment in favour of Mr. Queen and granting him damages in the amount of $67,224 was restored.

Supreme Court of Canada’s Analysis

The Test for Negligent Misrepresentation

As Justice Iacobucci explained, in order to be successful in a claim for negligent misrepresentation in Canada the plaintiff must prove five things:

1. there must be a duty of care based on a "special relationship" between the representor and the representee;
2. the representation in question must be untrue, inaccurate, or misleading;
3. the representor must have acted negligently in making said misrepresentation;
4. the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and
5. the reliance must have been detrimental to the representee in the sense that damages resulted.

The Court affirmed Justice White’s trial decision that these five elements had been made out in Mr. Queen’s case.

The Fact that a Contract was Later Entered Into

Cognos’s primary argument was that the fact that Mr. Johnston had been negligent in his representations should be irrelevant because Mr. Queen had entered into an employment agreement with Cognos that contemplated that he could be terminated on the provision of one month’s notice.

On this point Justice Iacobucci held that:

The fact that the alleged negligent misrepresentations are made in a pre‑contractual setting, such as during negotiations or in the course of an employment hiring interview, and the fact that a contract is subsequently entered into by the parties do not, in themselves, bar an action in tort for damages caused by said misrepresentations. [Citation omitted.]

Cognos’s second argument was that the contractual provisions should govern the extent of its liability. Cognos attempted to rely upon two provisions in its agreement with Mr. Queen in order to limit their liability:

TRANSFER

13.Quasar Systems [later renamed Cognos] reserves the right to reassign you to another position with the Company without reduction of your salary or benefits and upon one month's notice to you.  Should such reassignment require your permanent relocation to another city, the Company will reimburse you for your expenses in accordance with the then current relocation policy.

 TERMINATION NOTICE ‑‑ ONE MONTH

14.This Agreement may be terminated at any time and without cause by Quasar Systems Ltd. or by you.  In the event of termination, Quasar Systems Ltd. will give you one month's notice of termination plus any additional notice that may be required by any applicable legislation.  Similarly, you shall give Quasar Systems Ltd. one month's notice if you voluntarily terminate this Agreement.  Quasar Systems Ltd. may pay you one month's salary in lieu of the aforesaid notice in which event this Agreement and your employment will be terminated on the date such payment in lieu of notice is made.

In rejecting the argument that articles 13 and 14 of Cognos’s agreement with Mr. Queen were either waivers of their responsibility to Mr. Queen or determinative of his remedies Justice Iacobucci held that:

Although I am not prepared to hold that nothing less than the clearest and most express disclaimer will suffice to negate a duty of care, something more than clauses 13 and 14 is definitely required.  These provisions relate to the rights and obligations of the parties in the event of the appellant's termination or transfer. They have nothing to do with representations made during pre‑ or post‑contractual negotiations, let alone disclaimers for said representations.

Justice McLachlin’s decision

In the result Mr. Queen’s appeal was allowed and he was victorious. Justice Sopinka was the only justice to sign on to Justice Iacobucci’s decision in full. Justices La Forest, L'Heureux‑Dubé and Gonthier concurred with the result but disagreed that the case was one of concurrency. Nothing more was offered by them on the point. For her part, Justice McLachlin (as she then was) added the following to Justice Iacobucci’ decision:

I agree that the pre-contractual representation was different in scope and effect from the contractual obligation.  The matter is not merely one of semantics. It turns on the plaintiff's assessment of the risk involved in leaving his employment and joining Cognos.  When a person is deciding to enter a contract with terms governing termination, he or she makes an assessment as to the risk of such termination occurring.  A stringent term as to termination may not deter the person from entering into the contract if he or she is satisfied that the risk of termination materializing is low.  The representation at issue in this case concerned the risk of termination coming about.  The representation was not that Cognos would not have the discretion to terminate or transfer the plaintiff on one month's notice.  Rather, by implying that the Multiview project was a reality, that it had the financial support of Cognos, and that it had passed through the feasibility and costing stage, Johnston on behalf of Cognos caused the plaintiff to be misled as to the level of the risk to the plaintiff that Cognos might at some point choose to exercise its termination power under the employment contract. The plaintiff, believing Johnston, concluded that the risk of being transferred or terminated was low. [Emphasis added.]

Commentary

The decision in Queen v. Cognos is an important one not only for anyone wishing to advance a case for negligent misrepresentation but for employment lawyers in particular.

As mentioned, unfortunately it is not uncommon for such misrepresentations to still be made; especially in the case of start-ups or companies expanding into new markets.

The case is further helpful because it affirms the position that the extent of the employer’s liability is not tied to wrongful dismissal concepts of notice, but rather to the reasonable expectation of the parties on loss. Contractual provisions limiting notice are therefore irrelevant.

Takeaways

The takeaways for employees are: first and foremost is pays to conduct one’s own due diligence on a position. While legal remedies are one thing, not getting into such a situation is probably better. Second, if an employee has been induced into accepting an offer that may have been too good to be true, the employee may have recourse to remedies outside the traditional employment law realm.

The takeaway for employers is that it pays to be cautious about what is represented to potential employees. If the employer is found to have misrepresented the position, then the employer may be found liable for far more than was initially contemplated.

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As always, everyone’s situation is different.  The above is not intended to be legal advice for any particular situation and it is always prudent to seek professional legal advice before taking any decisions on one’s own case.

Sean Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer.  He tweets from @SeanBawden.