The Alabama Supreme Court recently upheld an award of $600,000 in compensatory damages to an “at will” employee who sued his employer for fraud. See Farmers Insurance Exchange v. Morris, No. 1121091, 2016 WL 661671 (Ala. Feb. 12, 2016). In Morris, the employee was working as an independent insurance agent at his father’s insurance agency. He wanted to continue working for his father, but also join Farmers Insurance Company as an agent. He repeatedly asked Farmers representatives if he could work for both his father and Farmers. He was told that such a relationship was permissible. Although there was conflicting evidence, the jury found that the employee was ultimately terminated by Farmers because of a conflict of interest policy which actually prohibited the employee from working for both Farmers and his father.
The employee argued that Farmers fraudulently induced him into giving up business with his father’s agency — business which Farmers retained after termination. A crucial element of fraud is detrimental reliance — the recipient of a promise takes detrimental action in reliance on the promise. In this case, the employee claimed that he detrimentally relied upon Farmers’ promise that there was no conflict of interest.
Farmers argued that the employee was an “at will” employee of Farmers, who could be terminated from employment at any time. As a result, he could not rely upon his belief that he would continue to work at Farmers and receive payment from Farmers in the future. The Alabama Supreme Court rejected that argument: “When an employee leaves one job for another based on a representation by the new employer regarding the new job that is not true at the time it is made, the new employer cannot hide behind the fact that Alabama law enforces or reads into the new employment contract an ‘at will’ clause to avoid the consequences of its fraud.”
The key lesson for employers is to attempt to learn all of the promises made to potential employees in the course of interviews. This can be a difficult task, but the key is documentation. In the course of interviews, executives need to make comprehensive notes of the questions asked by applicants and the answers given by the executive. With that documentation, employers can better defend potential claims for fraud based upon the interview process.