Withholding information in a new hire can get you a company in trouble

by Michael Haberman on September 22, 2016 · 0 comments


Not disclosing information to a candidate that could alter their decision is not only unethical but it could be found to be illegal too.

Not disclosing information to a candidate that could alter their decision is not only unethical but it could be found to be illegal too.

I came across an article by attorney Shep Davidson of Burns & Levinson, LLP that reminded me of a personal situation I was involved in while I was working for a software company. He article makes companies aware of the potential downfall of not being open and honest about potential opportunities.

Recruiting someone using incomplete information

In Davidson’s story the case involved a financial services firm that recruited another firm’s employee. The wanted him to handle a specific, new, fund. They, according to the employee being recruited assured him of the following:

  • The fund had a good plan and strategy
  • The company was committed to providing the time and resources necessary for success of the fund
  • The hiring company was moving carefully in order to be successful
  • The company was prepared to make a long term commitment to the fund.

This information was important to the candidate because the potential change in jobs required not only a resignation but then a major relocation.

Made the move… and oops

With the assurances the candidate received from the hiring company he tendered his resignation on July 5th with a start date of July 20th. On July 16th the candidate was informed that the company had changed its mind and was no longer going to pursue the fund. Their letter stated:

A recent assessment of the fund’s investment process, philosophy and performance led the CIO and others to conclude that the fund could not succeed without significant investments of time and resources to refine and develop the strategy to match [the companies] expectations. [Company] management assessed these factors and determined that the likelihood of Angleton successfully creating a differentiated product that met the firm’s risk/return standards and attracted a reasonable asset base was too low.

As you can imagine the candidate was none too happy and sued in Federal Court for misrepresentation. The company tried to have the charges dismissed but the judge rejected their claim saying “A party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated…” Shep Davidson’s take on this was “…if there are factors that that make a new opportunity risky, tenuous or uncertain, you had better disclose them if you want to avoid being in the position that [the company] now finds itself.”

My situation

Back when I was working for a software company I had a similar situation. We were hiring for a district manager. We recruited a top-notch sales person and made her an offer. She came back and said that she had heard “on the street” that our company was having some problems. She said she was hesitant to leave her current situation if our company was so tenuous. The Regional VP of Sales and I assured her we had heard no such rumors and our offer was solid. She accepted, resigned and went on vacation. The next week I learned that the company was indeed in tough financial straits and that I need to rescind all offers made, and we were to terminate employees currently in training classes. So I called my candidate on the beach in Florida on her next to last day on vacation and said “Sorry, the job no longer exists.” I am pretty sure she sued, but since I was then cut back as well (another story) I don’t know what the outcome was. I just know that I felt bad for the candidate and felt like I had been dishonest and unethical, even though I had operated off of information given to me.

Avoid non-disclosure

I agree with Davidson’s advice when he says “So, the next time, your company is trying to convince someone to join in a new business, keep in mind that while true optimism is fine, overstating and withholding important facts can lead to more than just some ruffled feathers.”


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