Employer Entitled to Annul the Employment Contract due to Employee’s Fraud on Entering into the Agreement

Year of publication

2020


Year of publication

370


Reference

Supreme Court, 7 February 2020, ECLI:NL:HR:2020:213


Decision

Just like a normal contract, an employment contract can be annulled if it has been entered into under the influence of fraudulent conduct. In that case, the agreement shall be deemed to have never existed from the outset. For employment contracts the special requirement that the agreement should have been virtually useless does not apply.

A health care institution had a vacancy for a psychotherapist. One of the applicants had curriculum vitae with so many qualifications that the health care institution invited him to also apply for the position of the Director of Health Care. The applicant was happy to accept the invitation and was given the position. Since the health care institution was a private company, he was appointed as a statutory director by shareholders' resolution with effect from 1 January 2017. He was given an employment contract for an indefinite period for this position with effect from 9 January 2017.
On the employee's C.V. it said that he was a member of a number of professional associations. In May 2017, however, it turned out that the employee was not a member of one of these professional associations and that he had not participated in the training required to become a member of that association. At that time already, the health care institution was not really satisfied with the employee’s work, neither in his position as a Director of Health Care, nor as a psychotherapist. The health care institution invited the employee in writing for a clarification. Since there had been a serious breach of trust, he was informed that it was the health care institution’s intention to dismiss him on the basis of an urgent reason. The employee was summoned to attend a shareholders' meeting, but he failed to turn up there, after which it was decided to dismiss him as a director.
Later it turned out that the employee was also not a member of the other professional associations the membership of which he had included in his C.V. Also the statement in the employee’s C.V. that he had worked at a GGZ (mental health)-institution appeared to be incorrect. And finally, it became clear that the employee was not listed in the BIG register, in which he should have been listed as a psychotherapist under the Individual Healthcare Professions Act. The Healthcare and Youth Inspectorate imposed a professional ban on the employee. Then it was found that the employee had also provided false C.V.s when applying to four other health care providers.
Instead of summarily dismissing the employee, the health care institution nullified the employment contract because it had been entered into under the influence of fraud.
In such a case, the employment contract is deemed to have never existed and thus the wages have been paid unduly. Therefore, the health care institution recovered an amount of almost € 17,000 in net wages that the employee had received during the first five months of 2017.
The Sub-district Court and, on appeal, the Court of Appeal rejected the employer's request, however. They referred to the principle that an employment contract can only be terminated in a way that the law specifically provides for the employment contract. In the opinion of the Sub-district Court and the Court of Appeal, retroactively annulling the employment contract can only be aligned with this principle if the employment contract has proven to be virtually useless.
When the health care institution lodged an appeal in cassation, it was up to the Supreme Court to judge whether the Sub-district Court’s and the Court of Appeal’s opinion were correct. The Supreme Court ruled that this was not the case. According to the Supreme Court, an employment contract can also be annulled if it has been concluded by fraud.
As an example the Supreme Court mentioned that the employee intentionally gave incorrect facts, that the employee deliberately concealed facts he should have mentioned or that the employee applied a different device. According to the Supreme Court, labour law is not intended to protect the employee who commits fraud when entering into an employment contract. The Supreme Court pointed out that the general law of obligations and the general contract law have rules regarding the consequences of retroactive annulment of an agreement. These rules, therefore, also apply to the employment contract, for example when it is about how difficult it is to reverse the effects of the employment contract once it has been entered into.
In such a case, the Court may, for example, rule that the annulment of the employment contract cannot or only partly have a retroactive effect. In addition, the legislation on undue payments contains provisions on the annulment of what unduly has been performed. And finally, the Court may decide that an appeal to the annulment of the employment contract as such is unacceptable by standards of reasonableness and fairness. Therefore, there is no special condition for the annulment of employment contracts, in the sense that it should be apparent that the employment contract has been virtually useless. That is why the Supreme Court annulled the decision of the Court of Appeal. On the basis of the information set in the decision of the Supreme Court, another Court of Justice will now have to decide whether the employment contract was legitimately annulled and, if so, what the consequences will be.


Comments

The general law of obligations provides for a number of possibilities to annul an agreement if it has been concluded under the influence of so-called "vitiated consent". If, when concluding an agreement, there is coercion, mistake, fraud or abuse of circumstances, a party to the agreement has not been able to freely determine his/her will to enter into the agreement. This party then has the right to annul the agreement. For annulment it is enough that this party state that it wants to annul the agreement, for example by letter to the other party. In that case, the agreement shall be deemed to have never existed.
Performances made back and forth on the basis of the annulled agreement shall be reversed or undone.
Employment law is part of the general law of obligations and the general contract law, but it is a special part of it because of the protection that the employment law intends to offer to the employee. Once the employer and employee invoke elements of the general law of obligations or the general contract law, the first question shall always be whether the protection of the employee does not hinder its application. In the above case the question was whether or not the possibility of nullifying the employment contract with retroactive effect would be conflicting with the dismissal law. This dismissal law is based on the principle that termination of an employment contract should be done in one of the ways provided for by law: by mutual consent, upon death of the employee, on expiration of the agreed duration, by giving notice (including termination during the probationary period or for an urgent reason) or by dissolution by the Court. Exceptions to this rule are conceivable, however. The Supreme Court, for example, has accepted termination on the basis of a resolutive condition, but only by way of exception, and whereby there has to be a case-by-case basis examination of whether the legal dismissal protection is not seriously jeopardised. In the above decision the Supreme Court declared that also an exception applies to annulment of the employment contract for fraud, because in that case the employee is not entitled to any employment protection. Of course, this causes a problem once the consequences of the employment contract have to be retroactively reversed. The employee may repay the wages received, but the work performed by the employee cannot be undone. Probably it was for that reason that the Sub-district Court and the Court of Appeal wanted to restrict the annulment of the employment contract to the case that the employment contract would have proven to be virtually useless as a result of the fraud. (By-the-way: this criterion was also used in case law on the admissibility of a resolutive condition in the employment contract).
The Supreme Court, however, took a different view.
The Supreme Court pointed out that the general law of obligations and the general contract law already regulate how to undo obligations. The obligation to perform work cannot be reversed, but the Court can declare the annulment of the agreement not legally valid or limit it in time. The Court can grant compensation to the employee if he/she is unfairly disadvantaged or can decide that the value of the work for the employer should be paid to the employee.
It will be interesting to see how the other Court will now deal with the question of whether and to what extent the work performed should be compensated. Due to the fraud committed, the Court will, in principle, not be very forthcoming when it comes to meeting the employee. The fact that the employee was not authorized to perform the performed work will not really be helpful for the employee either. If it also turns out that the employer had to incur costs because treatments had to be carried out again, it is quite unlikely that the Court will make a decision, one way or another, awarding the employee compensation for the fact that he actually performed work on the basis of an annulled employment contract.
Finally: when reading the above case, didn’t it make you think of Leonardo DiCaprio in "Catch me if you can"?



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