October 1995

Workplace Labor Update - Employer Liable for Not Disclosing Employment Terms – October 1995

5 min

Maryland’s intermediate appellate court has held that an employee can sue his former employer for fraud and negligent misrepresentation arising out of the employee’s termination for refusing to sign an employment contract containing material terms which the employer failed to disclose during pre-employment negotiations. Lubore v. RPM Associates, Inc., 109 Md. App. 312 (1996). RPM Associates terminated Lubore because he would not sign an employment agreement.

According to Lubore’s complaint, one of the principal owners of RPM, Jeffrey Simpson, told Lubore in the Fall of 1994 that because of its growth, RPM needed to employ a marketing and sales executive. Simpson asked Lubore if he would be interested in a position with RPM directing business development operations beginning in January 1995. From September 1994 to January 1995, Lubore and Robert Miller, the principal owner of RPM, participated in extensive discussions and negotiations over the terms and conditions of a potential employment relationship.

In late December 1995, the parties discussed an outline of an employment contract and both parties also made clear their understanding that if Lubore went to work for RPM he would be leaving a lucrative and stable position with another company. Lubore and Miller then discussed the structure of a compensation and equity package, and the nature of Lubore’s duties. The negotiations culminated on January 21, 1995, when RPM faxed Lubore a letter offering him employment as a Business Development Vice President. The letter described duties and compensation (a six-figure salary, bonuses, and a small percentage of equity in the company) consistent with the specifics discussed in their previous meetings and writings.

The next day Lubore spoke with Miller to clarify some of the terms of the offer and then accepted it. Between January 22, 1995 and March 15, 1995, Lubore telephoned Miller several times to request written confirmation of the terms of the offer. Miller responded on February 15, reaffirming the terms and notifying Lubore that “Finally, there is a contract that must be signed by each employee.” On March 1, Lubore began working. On March 2, Lubore received a fifteen page fax from Miller entitled “Employment Agreement” containing previously undisclosed terms such as a $1,000,000 liquidated damages provision, a provision allowing RPM to terminate his employment at will, and an extensive non-competition and non-solicitation clause. Lubore continued to work for RPM while attempting to resolve the disagreement, but on March 23, RPM terminated Lubore’s employment for not signing the agreement.

Lubore filed a complaint for breech of contract, fraud and deceit, and negligent misrepresentation. The circuit court dismissed all of the claims for failure to state a claim because it found that theirs was an at-will employment relationship terminable at the pleasure of either party.

On review, the Court of Special Appeals found that the complaint sufficiently alleged the existence of an offer, an acceptance, and a contractual relationship between Lubore and RPM. The court found that the January series of letters were intended to fix the terms of the agreement and that the “contract to be signed by each employee” was to be a document memorializing that agreement. The court upheld the dismissal of the breach of contract claim, however, because although it found there was an employment contract between the parties, it was of an indefinite duration and therefore terminable at will.

As to the fraud and deceit claim, the Court of Special Appeals found that the complaint contained allegations which, if true, would be sufficient to establish the elements of a deceit claim. The elements of such a claim are a duty to disclose a material fact, a failure to disclose that fact, an intent to defraud or deceive Lubore, Lubore’s justifiable reliance on the concealment, and damages from the concealment. The court noted that in Maryland the law is clear that a partial or fragmentary disclosure, that misleads because of its incompleteness, is actionable. The duty element was satisfied, the court stated, because through verbal and written assurances in January 1995, RPM led Lubore to believe that the terms of his employment would be consistent with those which they had discussed and agreed upon in January. The undisclosed terms, such as the $1,000,000 liquidated damages provision and non-competition clauses, were obviously material, the court noted.

The court further found that Lubore properly alleged that RPM concealed these facts with the intent to deceive and that he justifiably relied on the concealment, as evidenced by the fact that RPM succeeded in luring him from a lucrative and stable position with another company. The court further determined that the damages element was satisfied because Lubore suffered to his financial detriment by leaving a lucrative job and would not have done so but for RPM’s deceit.

With regard to Lubore’s claim of negligent misrepresentation, the court found that he had sufficiently alleged facts which, if true, would entitle him to relief. The court found that a special relationship arises out of pre-contractual employment negotiations between two high-level executives, such as Lubore and Miller. Lubore had a stake in receiving accurate information from RPM, and RPM should have known that negligently transmitting false information could result in significant economic harm to Lubore. The court found that RPM’s statements were negligent misrepresentations not because they were purely false, but because they negligently misled by virtue of omitting material facts.

This case demonstrates the importance that an employer’s pre-employment communications with an employee accurately reflect the expected actual terms and conditions of employment.