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Minnesota Supreme Court Narrows Negligent Misrepresentation Claims in Employment Negotiations

Posted by Attorney Stephen Hance | Mar 29, 2013 | 0 Comments

Imagine you have a job in a field you love, with a good salary, working for a well-respected company. Now imagine you're approached by a well-known executive of one of the most prestigious companies in your industry. This executive is a legend in the industry—a person you've admired for years. Miraculously, he has a job for you! He wants you to start right away at a substantial pay bump. He tells you he has the authority to make it happen and asks you, “Will you take the job?”  Of course, you say, “Yes.” You put in your two-week notice and sell your house in record fashion. The executive arranges to put you up in corporate housing until you find a permanent place. As you're driving the moving van to your new place, the executive calls to inform you that the offer no longer exists.

In summary, you quit your well-paying job to accept an offer for a better paying job, you sold your home, moved, and now you find yourself unemployed and homeless. So now what? Do you have a legal claim for negligent misrepresentation against the executive and the company? A recent Minnesota Supreme court case, Williams v. Smith, et al., Nos. A10-1802 and A11-0567 (August 8, 2012), indicates that in most cases, you probably do not.

The Williams case, which received substantial press because of the inclusion of University of Minnesota Basketball coach Tubby Smith as a defendant, arose from circumstances analogous to the hypothetical above. In the case, Williams alleged that Smith offered him an assistant coaching position at the University of Minnesota in 2007, and thanks to that offer, Williams quit his job at Oklahoma State University where he was making $158,000 a year.

In Minnesota, to prove a claim for negligent misrepresentation, a plaintiff must establish: (1) a duty of care owed by the defendant to the plaintiff; (2) the defendant supplies false information to the plaintiff; (3) the plaintiff justifiably relied on the information;  and (4) failure by the defendant to exercise reasonable care in communicating the information.

As to whether a duty of care is owed, Minnesota Courts in the past have recognized a duty in professional relationships such as accountant/client and attorney/client relationships, as well as for guardians, executors and corporate directors. Additionally, Minnesota Courts have also extended the duty to “special legal relationships” where one party inherently depends on information provided by another and where public policy requires recognizing the duty.

In Williams, the Minnesota Supreme Court definitively clarified that there is no inherent duty regarding negligent misrepresentation in arm's-length commercial transactions. The Court considered whether there was a special legal relationship such that public policy favored finding a duty. It ruled that there was no such relationship, comparing the hiring process as akin to the circumstances of an arm's-length commercial transaction.

The ruling focused on three factual characteristics of Williams' case:

First, according to the Court, Williams and Smith did not stand in a professional or fiduciary relationship to each other during their negotiations regarding prospective employment, and Smith was not acting as an adviser to Williams. The Court found that Williams had equal access to information regarding the scope of Smith's authority.

Second, the relationship between Smith and Williams does not support recognizing a special legal duty. The Supreme Court noted that they both had extensive experience in college athletics and both were equally capable of looking out for their own interests.

Finally, the Supreme Court found no public policy that weighed in favor of finding a duty just because it involved prospective employment with a governmental body. Citing cases from other states, the Supreme Court determined that, in general, in job negotiations, prospective employees should look out for themselves. The ruling went so far as to quote a Texas decision that said: “When a person enters into job negotiations he is looking out for himself…”. The Court found no reason not to extend the same logic to the relationship between a prospective government employer and the prospective employee as in Williams.

In the end, the judgment in excess of $1,000,000.00 that Williams obtained against the University of Minnesota was reversed and Williams was left with nothing for his losses.

This decision highlights the importance of conducting appropriate due diligence in commercial transactions and even in connection with the search for new employment. At Hance Law Firm, we welcome inquiries regarding your rights and/or duties relative to business relationships and we always strive to provide the best possible guidance.

About the Author

Attorney Stephen Hance

Steve represents and advises clients that are dealing with business and real estate disputes. Steve is an investor and business owner, and his approach is unique from other attorneys.

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