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The high cost of golden handcuffs

They're the biggest reason why many firms, especially established ones, are clogged with long-tenured staff who may not be overly engaged
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By Todd Humber

Breaking up is hard to do. But leaving a job, well that’s just plain complicated.

Terminations and resignations carry their fair share of headaches for employers and employees alike. I was reminded of that this morning when looking at the cover of this issue of Canadian HR Reporter and flipping through the Globe & Mail.

First, this publication — lead editor Sarah Dobson looked at the court ruling in Styles which put long-term incentive plans (LTIP) and what happens to bonuses upon termination in the spotlight. In 2015, an Alberta worker was awarded nearly $450,000 after being dismissed without cause. That ruling hinged on three words in the contract — they stated the LTIP bonus “may” be forfeited if the employee is terminated.

But the rest of the contract made it clear, as many do, that “active” employment is an absolute condition for the bonus to be paid out — generally speaking, if you’re not an employee on the date it’s paid, you’re not entitled to the cash.

The employer appealed and the ruling was overturned, putting an end to what Sheena Owens, a lawyer with Gowling in Calgary, called a “very scary” situation from employers.

Second, let’s look at the Globe & Mail, which outlined the saga of Hunter Harrison’s surprising decision to walk away from his job as CEO of Canadian Pacific Railway (CPR). The separation agreement he signed means he’s leaving $118 million in stock and benefits on the table — including forfeiting his pension, according to a news release from CPR. (Don’t shed too many tears for Harrison, though. He gets US$4.8 million for a 2014 stock award plus his unknown 2016 cash bonus, according to the Globe.)

Financially, Harrison can afford to walk away from his gig. But for the vast majority of long-term employees in Canada, this isn’t a viable option.

Once you hit the 10-year mark (or so) at the same employer, the prospect of resigning can become daunting and lead to moaning and groaning about the so-called “golden handcuffs.”

You feel chained to your employer because you’ve built up seniority, your pension investments are growing (or perhaps you’re lucky enough to be in a defined benefit plan) and things are just comfortable. For the most part, you know what to expect when you stroll into the workplace on Monday morning.

While employment lawyers will be quick to point out there is no “rule of thumb” for calculating severance in cases of dismissal without cause, many employers successfully follow the one-month-per-year-of-service rule. Therefore, a worker with 15 years at an organization would be walking away from more than one year’s pay if she quits.

With things like mortgage payments and a child’s tuition on the books, leaving that kind of security to take a new gig can be daunting — and downright unpalatable.

If an employer really wants to lure a new hire from long-term, secure employment, a signing bonus can be used. But that carries its own set of risks for the new employer if things don’t pan out, including  an expensive ruling that the worker was induced to leave her previous position.

In 2015, Canadian Employment Law Today reported on the case of Rodgers v. CEVA Freight Canada Corp. It involved a trucking executive who was awarded nearly $350,000 after three years’ service. It’s a complicated case, but one of the factors cited by the court in awarding damages was the fact there was “some measure of inducement” that led Rodgers to leave his previous employment.

“(The new company) wooed him with an attractive financial package and signing bonus while he was still involved,” wrote editor Jeffrey R. Smith.

In some cases, the risk of a finding of inducement can be nullified by the simple probationary period. In Nagribianko v. Select Wine Merchants Ltd., a worker was awarded four months’ pay in lieu of notice after being fired without cause after less than six months on the job. The lower court ruled the worker was induced to join the employer, but that notion was quashed on appeal.

“The appeal court also found (the employer) could not have induced (the worker) to come work for the company, as the existence of a probationary period makes it clear that permanent employment isn’t guaranteed and shouldn’t be expected,” wrote Smith.

 So, an employee looking to jump ship would want to either wipe out the probationary period as a condition of signing or perhaps negotiate a minimum severance package much higher than common law or statutory norms if things don’t work out.

It’s complicated to negotiate, and it’s the rare employer who is willing to pony up these kinds of guarantees.

Golden handcuffs are the biggest reason why many firms, especially established ones, are clogged with long-tenured staff who may not be overly engaged, aren’t really interested in productivity improvements and don’t feel the need to go the extra mile anymore.

It’s no stretch to say that fixing this, and mitigating the damage it’s causing to the bottom line, is one of the greatest challenges facing HR departments and management alike.

© Copyright Canadian HR Reporter, Thomson Reuters Canada Limited. All rights reserved.

Todd Humber

Todd Humber is the publisher and editor-in-chief of Canadian HR Reporter, the national journal of human resource management. Follow him on Twitter @ToddHumber
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