Did the Employer Lie to the Employee?

Posted in: Business Law

Before taking an extra-early retirement, an employee was told by his supervisor that the employer would not offer a voluntary separation package. However, six weeks after the employee retired, the employer offered a separation package to 240 of the 4,700 employees in his department. Had the employee not retired early, he would have been eligible for the package. The appellate court held that the employee was not the victim of fraud. The employer did not have a duty of accurate disclosure under 29 U.S.C. § 1002(21) (A) in the period preceding the plan’s adoption.

The following are possible scenarios concerning such employer’s disclosure.

  1. The employee does not ask and the employer does not offer the information.
  2. The employee asks and the employer’s representative does not tell the employee that “Had the employee not retired early, he would have been eligible for the package.
  3. The employee asks and the employer’s representative tells him that if he did not retire early, he would be entitled to the payment.

What should be the general guideline in such cases?

Underlying the guidelines is the nature of the employer or any long-term contract party in describing its intentions to the other party, when those intentions affect the other party’s behavior and future rights. We identify the employer’s representative with the employer.

In this case:

  • The legal relationship was held to be a contract under all three scenarios.
  • The fact that the relationship was long-term was irrelevant;
  • The fact that the important fact was new and was not publicized was irrelevant.

Presumably the employee could have found out about the new terms involved in retirement not only from the employer’s representative but from the union—his own representative. In other words, he did not do his own fact-finding, and should not have relied on the other contract party. The duties of that party were to tell the truth when asked, rather than offer information against the other party’s own interests. In fact, such a duty would open a Pandora’s Box, requiring full identification with the employee’s interests. This situation does not fall under the contract exceptions of helplessness.

However, in this case, there was an additional element that might be considered. The relationship of the employer-employee was long term. The employee was, to a great extent, the fiduciary of the employer. The employee gave notice, which was important to the employer, who had to replenish the employee’s services. A contract would require the employee to notify his employer of his leaving. Why not require the employer to reciprocate and inform this employee about the terms of his leaving, even though these were not present terms but future terms?

Reality may stand in the way of this requirement when the employer has numerous disgruntled employees. If they knew of the payment they may resign, en mass. Therefore, one might look for another source of information for employees that are planning to leave. It is interesting that in the case mentioned above the organization of the employees was not mentioned. After all, that organization was the one to negotiate the deal with the employer. That is, unless the agreement between this organization and the employer required that the employees’ organization not publicize the deal, the organization might have had an obligation to disclose the information to the employee. In that case it might be the representatives of the employees who have violated their duty to the employees whom they represented and have enabled the employees to receive the information in a private rather than a public fashion,

Classifying the legal relationships among the parties may help resolve the issue. A long-term contract of inter-dependence may mature into a trust relationship and carry the features of fiduciary relationships and duties, including disclosure.

For example, marriage is a type of contract as well. The rules governing the relationship are varied and “contractual” depending upon the parties’ agreements. Yet these agreements are “wrapped” in numerous rules, especially upon a divorce. That is because the nature of the relationship, power structure, and commitment are recognized by law. To be sure, marriage is not a governing precedent to regulate the employee-employer case, but it shows a possible combination of a binding contract in long-term relationships. The employer-employee contract in this case might take into consideration the length of the relationship and inter-dependence of the parties.

There is one more important consideration: The supervisor is a fiduciary of the employer. He or she must serve the interests of the employer, subject to legal requirements. Disclosing the date to the departing employee would have been costly to the employer. The supervisor, as an employee of the employer, owed the employer a duty of care and loyalty. Would he violate that duty by disclosing the importance of the date resulting in payment by the employer?

The answer could be that fiduciary duties do not include a duty to violate the law, including contract and fiduciary duties owed by law to an employee. But if, as it seems, the employer did not violate these duties, the supervisor may remain silent and represent the interests of the employer rather than those of the employee.

Finally, there is the employer’s cost/benefit of the supervisor’s silence. Short term, the employer gained by avoiding paying the plaintiff employee and gained as well through a measure of secrecy. Not all employees would learn about the payment upon leaving.  Besides, the case would shut the door to other claims by employees who would not know about this payment. It would prevent the exodus of employees who might rather be paid. Depending on the employer’s future plans, this might be in its interests.

Yet, another effect of this case on the employer might be long term. It is the quality of the relationship with remaining and future employees. This effect is not legal in nature. Yet the word might spread among the employees: First, employees should ask and receive far more information before leaving. Or, perhaps, in general: employees should ask and receive information about currently unknown terms of employment.

However, this result does not involve the law; it involves the employer’s relational-culture, and perhaps the employer’s financial situation and future plans. It is the trusting relationship between the employer and its employees. The employer in this case gained the payment it would have paid the leaving employee. But it may have lost much more, unless it was planning to shut down its business altogether, because of the resulting ill will between the employer and employees.

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