In accordance with general principles of law, rescission of a contract is generally allowed only in narrow situations, such as where a party is fraudulently induced into entering into the contract. Rescission may also be permitted where there is a willful, material and substantial breach of the contract which essentially defeats the purpose of the contract.
In the employment context, a court may be inclined to rescind an employment contract where an employee misrepresents certain aspects of his employment history in order to secure a position. However, before a court will rescind a contract on this basis, the employer is usually required show that he relied on the employee’s oral or written misrepresentations, and that such reliance was reasonable.
In one such case, National Medical Health Card Systems, Inc. v. Fallarino, the Supreme Court of New York found that the employee’s misstatements as to his prior employment could not serve as a basis for his termination. In that case, the employer only realized that the employee had made misrepresentations in his resume after the employee had already been terminated. Nonetheless, the Court held that the employer’s reliance on the employee’s misrepresentations was not reasonable. Specifically, the Court found that the employer failed to exercise due diligence in investigating the employee’s background despite that it had an ample opportunity to do so and that information about the employee’s prior employment was readily available. In fact, the Court noted that during the interview, the hiring coordinator focused on only one of the employee’s prior positions, which happened to be legitimate, and did not inquire into his other prior experience. In addition, and although the employee had provided more than one reference, the employer’s agent contacted only one of the references provided. Accordingly, the Court found that the employment contract could not be rescinded because the employee did not defraud the employer.
Employers beware—the mere fact that an employee made false statements about his employment history does not necessarily mean that a court would hold him liable for fraud, justifying the rescission of the employment contract. Rather, the courts place a burden on the employer to exercise due diligence in evaluating an employee’s credentials.
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© 2008 Nissenbaum Law Group, LLC
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