Headhunting is dangerous sport

Inducing a prospective employee to leave a secure job could warrant a greater notice period if it doesn’t work out

In the war for talent, employers seeking to recruit are no longer relying simply on job postings, recruitment firms and word of mouth to solicit potential candidates. Many businesses are directing their employees to actively recruit former colleagues from past employers. This method of recruitment can have significant advantages, since an employee can serve as a goodwill ambassador who is able to identify desired qualities in individuals with whom she has worked in the past and use her influence to convince those individuals to consider a new opportunity. The target candidate also has the sense he is getting the “straight goods” from his former colleague.

The use of employees as part of a de facto in-house recruitment service can be problematic, however, especially when employees are being compensated for their efforts. This issue was apparent in the recent decision in Egan v. Alcatel Canada Inc. In that case, the Ontario Court of Appeal considered the circumstances of Mary Egan, who commenced employment in a director-level and senior management position with Alcatel after completing almost 20 years of continuous employment with Bell Canada. After less than 21 months of employment, she was dismissed without cause or notice as part of a mass termination and given only 12 weeks’ salary for statutory notice. As a result, she brought an action for wrongful dismissal, alleging in part she was entitled to greater notice because she had been induced to leave secure employment with Bell to join Alcatel.

The trial judge noted Egan had, in fact, been induced to leave a secure position with Bell. Two of Egan’s former colleagues, who had previously transferred from Bell, had encouraged her to seek employment with Alcatel. They had submitted Egan’s resumé to Alcatel and recommended her to one of the company’s assistant vice-presidents, who in turn told her about the “tremendous opportunities facing Alcatel” and the security it offered to its employees. Egan was also offered a considerable increase in salary, a bonus and stock options. Unknown to her at the time, Egan’s former colleagues shared a recruitment bonus paid to them by Alcatel for successfully recruiting her.

The trial judge observed Egan had no particular interest in leaving Bell. At the time of her resignation, her prospects with Bell were very good and her future was relatively secure. The judge inferred both Egan and Alcatel had anticipated a lengthy term of employment and awarded a notice period of nine months, notwithstanding Egan had been employed by Alcatel for less than two years at the time she was dismissed.

The Court of Appeal agreed with the trial judge’s conclusion Egan had been induced to leave secure employment with Bell and she was consequently entitled to additional compensation. In this regard, the court referred to the Supreme Court of Canada decision in Wallace, wherein the court stated an individual whose employment was terminated could be entitled to greater compensation if they were induced to leave secure employment “on the strength of promises of career advancement and greater responsibility, security and compensation with the new organization.”

Although the court warned “caution must be exercised to avoid a conclusion of inducement in virtually every new hire,” it found Egan’s case crossed the line “because the persuasion came from two former colleagues who were long-time friends and who, unknown to Ms. Egan, knew that if they succeeded in getting her to leave Bell Canada, they would receive a substantial bonus.”

From the court’s perspective, this case was different than the recruitment of a prospective employee by an unknown headhunter. With a head-hunter, the “target” candidate is well aware of the recruiter’s mandate and self-interest. Egan was not aware her former co-workers had a financial interest in successfully recruiting her.

Employers who have programs that ask its employees to recruit friends or former colleagues to join the employer’s enterprise should exercise caution, particularly where the employees have a financial stake in the outcome of their recruiting efforts that has not been disclosed to those being recruited. When a prospective employee leaves long-standing and secure employment in these circumstances after receiving favourable representations concerning the new position, a court will be more likely to find the employee was induced to leave her former position. In such cases, the employer will likely be required to provide greater than usual notice of termination, or payment in lieu of such notice, should the new employment relationship quickly sour.

To avoid this unfavourable outcome, employers should consider the following:

•Candidates should be specifically advised by the employer that the employees who recruited them will be entitled to a recruitment bonus if the candidate accepts the position.
•Employers and their recruiters should be aware that the promises and representations they make to candidates should be reasonable and accurate.
•Sometimes recruitment efforts are better left to arms-length professionals or internal employees who have the necessary knowledge and experience to avoid making misrepresentations.
•Use employment contracts that include a provision that the contract constitutes the entire agreement between the parties and the employee is not relying on any verbal representations of the employer (or its agents) in deciding to accept employment with the employer. The contract can go further to state the employee specifically represents that he has not been induced to leave his former employment and in the event of termination shall only be entitled to the payments set out in the termination clause of the contract.

Taking such steps will greatly decrease the chances a terminated employee will be entitled to enhanced reasonable notice damages on account of inducement.

For more information see:

Egan v. Alcatel Canada Inc., 2006 CarswellOnt 28 (Ont. C.A.).

Chris Foulon is a partner with Israel Foulon LLP, an employment and labour firm in Toronto. He can be reached at (416) 640-1550 or [email protected] The author acknowledges Rich Appiah’s assistance in the preparation of this article.

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