How much does an employer have to tell a prospective hire about the financial condition of the company?
In a case heard by the Colorado Court of Appeals last year, the court ruled that a company doesn't have to volunteer any information, but if a job applicant asks questions, it must give full disclosure about potential financial hazards. With the current gloom that overhangs so many companies, this could be a valuable footnote in the months ahead.
Failure to realize the obligation to tell all cost Security Pacific Information Systems $250,000 in punitive damages awarded by a jury and $50,000 in interest.
When Roberta Y. Berger was hired in 1986 by the multimillion-dollar company and relocated from New Orleans to Denver, she said, "I thought I'd died and gone to heaven."
It was the job of her dreams to be sales manager of a special computer project for the company's Recovery Plus division. But no one told her the division had few customers and that the company already was thinking of shutting it down.
"An executive search firm recruited me, and I was told Security Pacific had a strong financial commitment to my department," said Berger, 41, a computer specialist who has two master's degrees. "I moved my household goods, my dog, my cat and my car because the recruiter and the company repeatedly assured me that the company was firmly behind the project and withheld important financial information from me."
Eight months later, her job was terminated. So was her salary of $45,000 a year plus bonus. "They gave me two weeks' pay and told me to clean out my desk," said Berger, now a sales executive for Legal Software Solution Inc. in Melville, N.Y.
Her lawsuit against the firm was based on "fraudulent concealment" at the time of her hiring. The headhunter who had recruited her testified in her behalf: He, too, had not known all the facts. The company pleaded it had no duty to disclose information about its plans or monetary status, but both the district and appellate courts ruled it did.
"Had I known there were financial difficulties, I would have negotiated a buyout for myself," Berger said.
The landmark case is one that other employers should bear in mind when making staffing decisions, said William E. Myrick of Denver, attorney for Berger. "When hiring, employers, at least in Colorado, must totally disclose information requested that is needed by employees to make legitimate decisions about their professional lives."
Brenda L. Ruello, a partner in the executive search firm of Heidrick & Struggles Inc. in New York, said, "It's not only OK to ask financial questions, it's almost naive and immature not to."
Ruello said that as an executive recruiter, she is aware the corporation is her client, not the job seeker. But that doesn't mean facts should be misrepresented. "Today, no one wants to relocate without a lot of assurances and the protection they need," she said.
College seniors increasingly ask about a corporation's fiscal status.
"We tell students and alumni who are job-hunting to become investigative reporters," said Victor R. Lindquist, associate dean and director of placement at Northwestern University. "If it's a publicly held company, get the annual report. ... If you don't understand it, get someone to help you read it."
If the company is private, Lindquist advises that prospective employees pull a Dun & Bradstreet report or talk to someone who does business with the firm.
Publishers are responding to the need for more inside information on corporations.
"Everyone who is either looking for a job or looking to do better wants to know more about the company they work for and its competitors," said Gary Hoover of Austin, Tex., publisher of the Reference Press Inc. and co-editor with Alta Campbell of "Hoover's Handbook: Profiles of Over 500 Major Corporations" ($19.95). The handbook includes important business and economic information as well as an overview and names of competitors.
"Corporate America used to be a secure place to work," Hoover said. "It isn't anymore, so the more you know in advance, the better."
The issue involved is ethics, said Ronald C. Pilenzo, president of the Society for Human Resource Management in Alexandria. "It should be a regular part of the employment process that the employee has an opportunity to ask questions about the company -- and get answers. Human resource managers must be as upfront as possible."
They also must be careful what they tell employees, said Barry A. Hartstein, a Chicago attorney who represents management in employee relations. "I would urge employers to avoid unnecessary puffing, over-glamorizing or misrepresenting the facts about a job," Hartstein said. "Verbal statements can be as binding as a written contract."