'Employers need to go into that with their eyes open,' says employment lawyer offering tips for HR
Recently, a B.C. chemical engineer was awarded 12 months’ notice after just two-and-a-half years on the job.
It’s a sizeable severance, and a big reason for the longer period of notice was the way in which Gerald Ferweda got the job: he was induced to take the job by his new employer.
And it’s a case that provides lessons for HR and employers when it comes to the risks of inducements.
“I think it's simply a matter of making promises that we can keep or that we intend to keep and understanding that there are consequences if we fail to keep our promises,” says Erin Brandt, cofounder of PortaLaw in Vancouver.
“Employers need to go into that with their eyes open and they need to be a lot more careful in crafting and negotiating fair expectations around termination if it doesn't work out.”
Background: Change of jobs in B.C.
Chemical engineer Gerald Ferweda worked for Catalyst or its legal predecessors for 27 years. In early 2018, at the age of 53, he wasn’t particularly happy at his job on Vancouver Island but hoped to retire by 61. In January, he was contacted by a recruiter working for Celgar, saying they had a position open for an area manager.
Ferweda ended up travelling to Castlegar to visit the Celgar mill over a couple of days. He was later offered a job – as operations specialist – but declined because he didn’t think it was that much better than his current position.
Celgar then offered a higher salary, and Ferweda accepted, resigning from Catalyst. He started working for his new employer in April 2018; however, in September 2020, the company downsized and his employment was terminated along with several others.
Initially, Celgar paid Ferweda eight weeks’ salary in lieu of notice, but later made additional payments for a total of five months’ salary.
However, the Supreme Court of British Columbia decided Ferweda was induced by Celgar to leave his “long-standing, stable employment” with Catalyst to accept the new job. So it said the appropriate period of notice, given the circumstances — including his age and specialized role — was 12 months instead.
What exactly is inducement?
In finding there was inducement, the court looked at several factors, including Ferweda’s visit to the Celgar mill, meeting with senior management over lunch and dinner, and having his travel expenses reimbursed.
He was also told the employee benefits were better than those at Catalyst, he would receive overtime pay, and he would be hired for the “long term.”
And when he first declined the job offer, Celgar offered an additional $10,000 to the salary for a total of $140,000. There was no probationary period and no termination clause in the contract.
“Ferweda reasonably believed that he was being offered an opportunity to potentially end his career with Celgar, in a position which although identical to the one he was leaving, offered greater job satisfaction, and considerably better remuneration and benefits,” said the court.
‘No specific list’ for inducement
When it comes to inducement, there’s no specific list of factors that can be looked at – rather it’s about looking at the whole picture, says Chris Forguson, employment lawyer at Chris Forguson Employment Law in Vancouver.
“Was this employee specifically targeted or did the employee answer a general posting for jobs? If they're specifically targeted, it goes much more towards indications that the employer is looking for this specific person, or someone likes this specific person.
“Whereas if an employee is perhaps unhappy enough in their job that they're looking at job postings in the first place, and they see a job posting and follow up on it… that would be more against the finding of inducement.”
Also, during the negotiation process, does the employee take the first offer from the new employer? In this case, Ferweda refused the first one, says Forguson.
“Or is there an actual negotiation over wages and benefits that indicate that employees know in their heads they're satisfied, they're happy with where they're at [so] it's going to take some inducements in order to move over to another job?”
There's a spectrum with the issue of inducement, he says.
“There's other cases where the strength of the representation has been, in my opinion, stronger than it was in this particular case; situations where the employer has said words to the effect of ‘If you leave your employer and come work for us, this will be your last job, ie. you're going to retire here.’”
‘Total context of recruitment’ considered
In this case, the court looked at the total context of the recruitment process, says Brandt.
“They didn't look at just one element as being the clincher in the case; it was the totality of how they treated him as they're recruiting him and the things that different people said to him — that all added up to the story of inducement.”
For example, Ferwada didn’t apply for the job, he was actively solicited; they paid for his travel expenses; representatives talked hiring for the long term and why this company was better than the old company; and they sweetened the offer after he first rejected it.
“It was the totality of all of those factors that led to a significant increase in the severance based on inducement,” says Brandt.
Inducement can be conceptual and it can range, she says, “but I think it goes to what was in the contemplation of the parties at the time.”
And for an employee, it’s about whether they would have taken the job, “but for the promises of it being long term” says Brandt.
As a result, HR and recruiters approaching someone who is gainfully and happily employed “should be really careful in the kinds of promises that they’re making to that worker that induces them to quit their job and move over to you,” she says.
How inducement impacts severance
The well-known case of Bardal v. Globe & Mail in 1960 is often looked at to determine factors that affect notice, such as the length of service of the employee and their age.
Inducement is also a factor, but there is “no set formula by which it will then increase the period of notice,” said the B.C. Supreme Court in its recent decision.
“Rather, the presence of an inducement will result in some additional notice period, but the amount will vary based on the exact nature of the body of evidence on the issue, and importantly, the strength of the representation.”
The court really tries to put the employee into the position where they have a more opportunity to find another job, says Forguson.
“And they do saddle the employer with that responsibility, [if] the employer has said, essentially, ‘Leave your secure job and come to work for us, trust us, we've got work for you.’”
It’s about trying to “bridge some of the gaps” between what the employee lost when they left secure long-term employment and took the new job, he says.
“If your intention is to not honour or commit to honour the inducement, so to speak, then you run the risk that a judge is going to step in and say, ‘Well, I'm going to increase the notice period to take account of that.’”
Not all inducements carry equal weight, so the significance of the inducement will vary with the circumstances of the case and its effect, says Brandt.
“I've actually looked at other cases recently where there's inducement and the courts have said, ‘This isn’t really inducement.’ But it was kind of inducement, it was almost like it was ‘inducement light’ and so... the court increased the notice period, finding that it wasn't true inducements but there were some promises and assurances given.”
But overall, fi someone is induced to leave a stable, secure job and the new job turns out to be short term, with minimal severance, she says, “that person wouldn't have left their stable job but for those assurances, and so I think the law places some of that responsibility for encouraging that employee to leave their old jobs or old stable jobs on the employer who makes promises that turned out not to be true.”
Reducing inducement risks with termination clauses
Employers can get in front of a lot of the issues through a properly written employment contract with a clear termination provision that outlines exactly what the employee gets on termination, says Brandt.
“If the employer can prove that the employee knew that… there wasn't a guarantee of long-term employment and… ‘We do have the right to terminate your employment within the first three months with zero notice or severance’ or that ‘We do have the right to terminate your employment within the first two years with minimal notice or severance,’” she says, then the courts should find that acceptable.
In this case, if the employer had included a clause in the contract saying it had the right to fire Ferweda during the first few months of his employment, with no notice or severance, he probably wouldn't have accepted that offer, and Catalyst wouldn't have found itself in this position, says Brandt.
“I think the clear takeaway is [it’s about] only making promises or assurances that can be kept. And, making sure that there's an enforceable contract which sets out clear expectations and entitlements for severance in the event of termination. That's my best advice for how to mitigate the risk of the court awarding an increase in severance as a result of inducement.”
It’s very easy to insure against the risks of hiring someone with a contract that doesn't have a termination clause, says Forguson, and most employers understand that inducement is a factor that the judges consider.
“The problem is that, in my view, most of these employers, they want to take that risk when they're hiring someone, inducing them from another job. They're not doing it with the intention that ‘Hey, we're just going to get this guy over here and fire him right away.’ They think this is going to be a long-term commitment.”
