This tort is often used in the context of avoiding a harsh termination clause, or simply where the pre-contractual negotiations have caused the plaintiff damages due to detrimental reliance upon the spoken, or written words, or material omissions. The terms of a subsequent contract are also important, to determine if the action survives such exculpatory clauses, or it deals with the subject matter of the representation directly.
This tort claim is in addition to the torts reviewed here. It usually arises from statements made by the employer which led to the creation of the employment relationship.
Cognos
To establish a claim on this tort, the plaintiff must prove five elements as set out by the Supreme Court in 1993; 1
(1) There must be a duty of care based on a ‘special relationship’ between representor and representee;
(2) The representation in question must be untrue, inaccurate or misleading;
(3) The representor must have acted negligently in making said representation;
(4) The representee must have relied, in a reasonable manner, on said negligent misrepresentation; and
(5) The reliance must have been detrimental to the representee in the sense that damages resulted.
The claim in Cognos succeeded. The termination clause contained in the employment contract was of no consequence. The issue of the contents of such an agreement is an important issue to determine whether the pre-contractual representations are actionable, as discussed below. Often the plaintiff makes this plea in the expectation of avoiding a harsh termination clause in this contract.
Cognos did establish that pre-contractual discussions did meet the test of a “special relationship”. It was also shown that the plaintiff, Queen, had relied upon the representations made by the company that it was committed to the project for which he was hired, known as “Multiview”. This was shown to detrimental reliance. Queen resigned his employment in Calgary and moved to Ottawa to accept the job. Queen had also signed a contract containing a one month termination clause.
Six months after starting this employment, Queen was advised that the Multiview project was to be downgraded. He was then offered an alternate position. He was later given a written notice of termination effective 5 months from this date. The termination notice was rescinded and Queen was assigned to a position within another project. This too was reversed after some five months later, after which Queen secured the position of Manager of Finance. He was then given a second termination notice which ended his employment.
The trial judge found in his favour and awarded damages of $67,000. The damage claim was based on an assessment of the sum that was needed to put Queen “in the same position as he would have been if the negligent misrepresentation had not been made”. This is the fundamental approach to setting damages in a tort claim. 2
The damages included $50,000 for lost income, $252 for costs of obtaining new employment, $12,000 for the loss on the purchase and sale of his home in Ottawa and $5,000 for emotional distress. The Court of Appeal reversed and dismissed the claim.
The employer’s defence before the Supreme Court of Canada was that the “disclaimer” in the employment contract avoided the claim and further that the pre-hiring statements were not made negligently. Both arguments failed.
The Court did pay heed to the potential impact of the contract terms, which here, however, did not avoid the claim:
Indeed, as evidenced by my conclusion in BG Checo, such a contract can have the effect of negating the action in tort and of confining the plaintiff to whatever remedies are available under the law of contract. On the other hand, even if the tort claim is not barred altogether by the contract, the duty or liability of the defendant with respect to negligent misrepresentations may be limited or excluded by a term of the subsequent contract so as to diminish or extinguish the plaintiff's remedy in tort: see, for example, Hedley Byrne (although this case did not involve a contract) and Carman Construction (although this case involved mostly post‑contractual representations), supra. Equally true, however, is that there are cases where the subsequent contract will have no effect whatsoever on the plaintiff's claim for damages in tort. As will be apparent from these reasons, it is my view that the employment agreement signed by the appellant in March of 1983 is governed by this last proposition.
The Court noted that should the subject matter of the pre-contractual misrepresentation become a term in the contract, then there can be no claim:
Put another way, did the pre‑contractual representation relied on by the plaintiff become an express term of the subsequent contract? If so, absent any overriding considerations arising from the context in which the transaction occurred, the plaintiff cannot bring a concurrent action in tort for negligent misrepresentation and is confined to whatever remedies are available under the law of contract.
This was not a viable submission, in that the employment agreement did not speak to the issue of the nature and obligations of the company to the Multiview project. The termination clause was of no consequence.
The duty of care in this context was defined as follows:
A duty of care with respect to representations made during pre‑contractual negotiations is over and above a duty to be honest in making those representations. It requires not just that the representor be truthful and honest in his or her representations. It also requires that the representor exercise such reasonable care as the circumstances require to ensure that the representations made are accurate and not misleading.
The trial decision was restored.
The actionable misrepresentation may be a material omission. As stated in the Federal Court of Appeal: 3
A person may be “misled” by a failure to divulge as much as by advice that is inaccurate or untrue…Consequently, the duty may be breached not only by positive misstatements but also by omissions, for they may be just as misleading.
A similar claim was successful in a 1993 decision in Manitoba. 4. The Court of Appeal agreed that the indicia of the test were met. The hospital had failed to advise the plaintiff that the nature of his privileges had changed from the time of its initial offer.
Thus the plaintiff arrived to commence practice only to find that he now held a substantially different, and far less lucrative and prestigious position than the one offered to him by the defendant during the recruitment process.
The same result followed in a British Columbia decision in 2008. 5 The Court found that the plaintiff was misled as to the terms of the working relationship and further that Khan would not have moved from Owen Sound, Ontario to Vernon, B.C. A damage award of $243,000 was made:
Damages based on negligible misrepresentation are designed to compensate a person for the damages they have suffered had they not been the victim of negligent misrepresentation. I have concluded that if there had been no negligent misrepresentation made by the defendants to Dr. Khan, he would have continued to practice in Vernon to age 65, earning $225,000 per year. His losses are therefore calculated below on the following chart. Dr. Khan’s evidence was in 2002 that his practice was as busy as he would want it to be. His losses really began to occur in 2003. The chart below, as noted, assesses that damages.
A similar claim was allowed in a 2001 New Brunswick Court of Appeal decision which found that the employer had failed to accurately represent the value of the pension options being extended to the plaintiff on termination. 6
The Ontario Court of Appeal in 2016 upheld the decision of the trial judge who had found that the company misrepresented to the plaintiff the capital value of the company, a statement of which the plaintiff relied in accepting employment. The plaintiff was provided a share grant based on this valuation. The damage claim was $500,000, this being the value of the lost share entitlement. 7 The damage should not have been the contracted sum. The court should have considered the damages the plaintiff suffered, had the misrepresentation not been made. A claim in contract was not made.
The B.C. Court of Appeal in 2017 upheld the trial decision which awarded damages based upon representations made by the employer with respect to the plan of disability benefits. The plaintiff was suffering from a chronic medical issue, cystic fibrosis, when he applied for a new position with the defendant, due to the termination of his prior employment. 8 He was advised that the issue of qualifying for benefits coverage was the requirement of an initial three month working period without suffering a disability. This was the expected test of coverage as opposed to the actual mandate to complete a medical questionnaire and pass the underwriting.
The plaintiff's evidence was accepted. Liability was found and the damages were assessed at $83,000. The initial trial award allowed for $10,000 for aggravated damages, which was reversed on appeal.