Legal Memorandum: Fraudulent Inducement of Employment

Issue: What defenses are available to a claim of fraudulent inducement of an employment contract?

Area of Law: Employee Law
Keywords: Defenses; Cause of action for fraud; Fraudulent misrepresentation
Jurisdiction: California
Cited Cases: 272 Cal. Rptr. 250; 90 Cal. Rptr. 2d 743; 76 Cal. Rptr. 680; 38 Cal. Rptr. 440; 222 Cal. App. 3d 1048; 72 Cal. Rptr. 194; 293 P. 156; 247 Cal. App. 2d 272; 175 P.2d 926; 53 Cal. App. 4th 692; 96 Cal. App. 4th 1214; 76 Cal. App. 4th 970; 204 P.2d 941; 10 Cal. App. 4th 612; 85 Cal. App. 4th 98; 604 P.2d 208; 102 Cal. Rptr. 2d 36; 55 Cal. Rptr. 610; 161 Cal. Rptr. 87; 77 Cal. App. 2d 585; 74 Cal. App. 3d 907; 141 Cal. Rptr. 841; 20 Cal. 2d 646
Cited Statutes: Civil Code section 1567, 1572, 1574, 1596 (2006); Labor Code section 2924, 2920(a) (2006)
Date: 03/01/2006

Fraud in the inducement to a contract is a complete defense to a claim based upon that contract.  Essentially, fraud nullifies the defrauded party’s consent to the contract, thus eradicating an essential contract element.  “An apparent consent is not real when obtained through . . . [f]raud; . . . .”  Civil Code section 1567 (2006).

The elements of a cause of action for fraud are typically expressed as follows:

The general elements of a cause of action for fraudulent misrepresentation are (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to induce reliance; (4) justifiable reliance; and (5) resulting damage.

Vogelsang v. Wolpert (1964 5th Dist.) 227 Cal. App. 2d 102, 38 Cal. Rptr. 440, 445 (citation omitted).  The Civil Code defines actual (as opposed to constructive) fraud broadly in the context of contractual consent:

ACTUAL FRAUD, WHAT.  Actual fraud, within the meaning of this Chapter, consists in any of the following acts, committed by a party to the contract, or with his connivance, with intent to deceive another party thereto, or to induce him to enter into the contract: 


1.         The suggestion, as a fact, of that which is not true, by one who does not believe it to be true; 


2.         The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it […]


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