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Court Grants Summary Judgment Dismissing Fraudulent Inducement Claim By An At-Will Employee

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  • Posted on: May 20 2020

Successfully pleading a fraud-in-the-inducement claim in the context of an employment at will relationship is difficult, if not impossible. The reason, as is often the case in non-employment cases, has to do with pleading justifiable reliance. Employees at will are generally unable to establish reasonable reliance on a prospective employer’s representations. Recently, Justice Peter P. Sweeney of the Supreme Court, Kings County reiterated this principle by granting summary judgment to the defendants in a case in which the plaintiff sought unpaid salary and commissions. Moore v. Scherer, 2020 N.Y. Slip Op. 31357(U) (Sup. Ct., Kings County May 11, 2020) (here). 

Applicable Law

Like most states in the country, New York is an “employment at will” state.  This means that if there is no written agreement between the employer and employee (such as, a collective bargaining agreement) governing when the employer can fire the employee, the employer has the right to fire the employee at any time for any reason. Smalley v. Dreyfus Corp., 10 N.Y.3d 55, 58 (2008) (here). The Court of Appeals has “repeatedly refused to recognize exceptions to, or pathways around, these principles.” Id.  Thus, when an employee at will is fired, the employee has no legal recourse even when the termination is arbitrary, unfair or unreasonable. 

There are a few exceptions to an “employment-at-will” relationship.  For example, employers cannot discharge an employee in violation of any law that prohibits discrimination.  Additionally, an employer cannot discharge an employee: in violation of the company’s employee handbook; in retaliation for whistleblowing a violation of law to a supervisor or to a public agency; for participation, on his/her own time, in lawful political or recreational activities; in retaliation for filing a Workers’ Compensation or Disability Benefits claim or testifying before the Workers’ Compensation Board; and because of the employee’s absence from work to fulfill a jury duty obligation.  Under any of the foregoing circumstances, an employee at will may sue his/her employer for damages and/or reinstatement for wrongful termination.

Generally, employees at will may not claim that they were induced to accept their position based on the belief that they would enjoy continued employment (see Montchal v. Northeast Sav. Bank, 243 A.D.2d 452, 453 (2d Dept. 1997)), “even where the circumstances pertain to a plaintiff’s acceptance of an offer of a position rather than his or her termination.” Guido v. Orange Regional Med. Ctr., 102 A.D.3d 828, 831 (2d Dept. 2013).

Where a plaintiff is offered only at will employment, he/she will generally be unable to establish reasonable reliance on a prospective employer’s representations, an element necessary to the recovery of damages under a fraud-in-the-inducement theory of liability. See Epifani v. Johnson, 65 A.D.3d 224, 230 (2d Dept. 2009); Stone v. Schulz, 231 A.D.2d 707, 708 (2d Dept. 1996).

Moore v. Scherer

Background

Moore involved an at will employment relationship between Plaintiff Musa Moore (“Moore”), a political consultant and lobbyist, and Defendants State & Broadway, Inc. (“S&B”), an Albany-based lobbying firm, and S&B’s founding member, Defendant Larry Scherer (“Scherer”). As discussed below, Moore claimed that he was fraudulently induced to enter into the employment relationship with S&B.

The events giving rise to Moore’s fraudulent inducement claim arose in late 2015.

In November 2015, Moore and S&B entered into an employment contract pursuant to which Moore was to commence employment with S&B at an annual salary of $80,000. The contract also entitled Moore to forty percent (40%) of all revenue received from any new clients that he brought to S&B, health benefits (which Defendants contended Moore declined), the option to join S&B’s 401(k) plan after six months, two weeks of annual vacation days, and three personal days. In pertinent part, the contract provided that Moore was an employee at will: “Employee understands that this contract constitutes employment at the will of the employer and mutual understanding between the parties” and that “[t]his Agreement constitutes the complete understanding between the parties, unless amended by a subsequent written instrument signed by the employer and the employee.”

Defendants contended that at the time the contract was signed, Moore represented that he was a party to a consulting contract with the New York State Public Employees Federation (“PEF”). According Defendants, Moore claimed to be a government relations consultant engaged in political consulting since 2000, who represented candidates running for public office, particularly, in Kings County, New York. Moore estimated that he would generate revenues of $50,000 and could bring the PEF contract to S&B when he began working for the firm. Defendants maintained that the parties understood the employment contract was contingent upon Moore securing the PEF contract for S&B.

For various reasons, Moore could not bring PEF in as an S&B client. When this became apparent, Moore agreed to accept a $50,000 decrease in his annual salary. On December 11, 2015, Jacqueline S.L. Williams, the co-founder of S&B and Scherer’s partner, advised S&B’s payroll company to reduce Moore’s salary from $80,000 to $30,000. Defendants maintained that Moore agreed to the reduction of his salary, without complaint until August 10, 2016, when he was terminated.

Defendants contended that S&B terminated Moore’s employment because, on August 9, 2016, they discovered that Moore was seeking to void his contract with S&B and open his own lobbying firm, “Moore Consultancy,” and that he had already solicited S&B clients to void their contracts with S&B and re-sign with his new entity.

After he was terminated, Moore commenced the action, alleging causes of action against Defendants for breach of contract and fraud in the inducement. With respect to the cause of action for breach of contract, Moore alleged that he performed all his duties under the employment contract and that Defendants breached the contract by failing to pay him his salary and his earned commission. He alleged that at the time he was terminated, he was owed $40,222.22 in salary and $39,600.00 in commissions.

With respect to his cause of action for fraud in the inducement, Moore alleged that in November of 2015, S&B represented to him that once he brought in $50,000 in revenues, he would be made an equal partner and a shareholder, which would entitle him to profits exceeding the salary and commission he was entitled to under the contract. Moore alleged that these representations were false, that Defendants knew them to be false, that he reasonably relied on these representations when entering into the employment contract, that by June of 2016, his efforts generated revenues in excess of $50,000 and that when he asked to become a full partner, Defendants reneged on the bargain. On the fraud-in-the-inducement claim, Moore sought compensatory damages of approximately $102,465 and punitive damages exceeding $300,000.

Defendants moved for summary judgment dismissing Moore’s complaint in its entirety. Moore cross-moved for summary judgment on both causes of action and sought judgment for unpaid salary and commissions in the amount of $110,707.71, plus interest.

The Court granted Defendants’ motion with respect to Moore’s fraudulent inducement claim and denied Moore’s cross-motion for summary judgment. 

We look at the Court’s decision with regard to the fraudulent inducement claim.

The Court’s Decision

The Court held that “as a matter of law, [Moore could not] demonstrate that he justifiably relied upon S&B’s alleged oral representations.” Slip Op. at *4. 

First, the Court noted that the alleged oral misrepresentations – i.e., once Moore generated revenues of $50,000, he would be made an equal partner and a shareholder entitling him to profits exceeding the salary and commission he was otherwise entitled to receive under the employment contract – conflicted with an express term in the employment agreement. As such, “the conflict negate[d] a claim of a justifiable reliance upon the oral representation.” Id. (citations omitted). 

Second, because Moore was an employee at will, he could not “establish reasonable reliance” on anything Defendants represented “for purposes of establishing fraud.” Id. (citations omitted). “Since there was no familial or fiduciary relationship between the parties,” explained the Court, “there [was] no basis to apply a different standard.” Id. (citations omitted).

Accordingly, the Court granted Defendants’ motion for summary judgment dismissing Moore’s fraud-in-the-inducement cause of action.

Takeaway

In Murphy v. American Home Prods. Corp., 58 N.Y.2d 293 (1983) (here), the Court of Appeals established the employment-at-will rule discussed above, under which an employer is legally permitted to terminate the employment relationship for any or no reason at all so long as the action is not motivated by “a constitutionally impermissible purpose,” proscribed by statute, or expressly limited by a contract of employment. In Smalley, the Court of Appeals reinforced these principles. 10 N.Y.3d at 58 (noting, “In the decades since Murphy, we have repeatedly refused to recognize exceptions to, or pathways around, these principles.”) (citations omitted) (here).  Based upon the employment-at-will principles, as the plaintiff in Moore learned, claims seeking recovery for alleged fraudulent inducement in connection with the offer of employment rarely succeed. 

Moore is also noteworthy because it shows what happens when a plaintiff claiming fraudulent inducement relies on an oral representation that conflicts with an express term in the parties’ contract – the reasonable reliance element is negated. 

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