Negotiations almost always have an element of deception. This may take the form of dodging a question, answering it in a misleading way, or outright lying. At the simplest level, most negotiators won’t come out and tell the truth about a question like “what’s the bottom line?” A more complex version of misrepresentation is injecting secondary issues that don’t really matter in order to get concessions on important things. When lying in a negotiation moves beyond that to include factual inaccuracies and misrepresentation, it’s obviously not ethical, but is it legal?
Fraud and the law
In any business deal, both sides are out to make the best possible deal. Self-interest in itself is normal, and not a problem. However, if fraud has occurred, then it could be a legal issue, and the injured party could have grounds to sue. The basic definition of fraud is when one party knowingly misrepresents a material fact, the other party relies on this statement, and is damaged as a result.
For example, if a used car dealer resets the odometer on a car so that he can sell it as “new” when in fact it is used, that is a misrepresentation. The fact that the car is used instead of new is material to the buyer, who relies on the odometer’s evidence and believes that the car is new. By purchasing the car for inflated new-car prices, the buyer suffers damages. There are a few different elements that are required in order for this to be fraud, and each of them is explored below.
In order for it to be fraud, the person who makes the misrepresentation must know that they are doing so. If a different person reset the odometer and the salesman did not know the car had been used, then he was acting in good faith by telling the buyer the car was new, and it would not be fraud.
However, purposely avoiding knowledge that would be deceptive could be illegal, too. For instance, if a dealership had a regular practice of doing this, but salesmen purposely didn’t ask that question in order to avoid the harmful knowledge, it could still constitute fraud.
Usually, you have to make a specific untrue statement in order to count as fraud, and if you just don’t say anything about a topic you are on safe ground. However, if you are asked specific questions during a negotiation and avoid answering by saying something like “I’m not sure about that,” it can be a problem. Current law outlines various exceptions where not saying anything can be construed as fraud, so be careful in this area.
As discussed, most people do lie about something during a negotiation, like what their bottom line price would be. However, that is generally viewed as a preference, rather than a material fact, so there is no legal issue with that. However, if you bring up other lies to try to close a deal, it can be an issue. A classic example is a realtor who pressures a buyer into a quick decision by saying there’s another potential buyer who’s offered to pay asking price that day, when in fact no other offer exists. Courts have ruled that this lie could be deemed a material fact.
When lying is legal in negotiations
Can lying in negotiations be considered “ethical”? To some extent, diverting the truth and beating around the bush just to get what you want is perfectly legal. It could be immoral, yet many people see business negotiations as a battlefield, where one party has to lose for the other to win. When you’re bargaining for something, or you’re trying to persuade an opponent to buy something from you, it’s natural to use some sort of manipulative techniques to win. As long as you’re not deceitful, your small white lies are not really considered illegal.
Business negotiations are just like poker games. You should never reveal all your cards to an opponent. Yet, there’s a difference between not sharing information and sharing wrong information. Unlike lying, which is unethical when it is brought to extremes, bluffing is perfectly ethical; the secret to a good bluff – never get caught.
By Jason Phillips and TheGapPartnership.com!