Legal action taken in war over talent

Restrictive covenants and injunctions are being hauled out to hold onto staff — with varied success.

Employers tired of the notion that all is fair in the war for talent are ready to go to court.

With employees choosing to stay on for shorter terms and employers using aggressive techniques to recruit top talent, it’s a case of fighting to protect valuable staff from the competition and the battle for talent doesn’t seem to be letting up anytime soon. Increasingly, employers are trying to keep their share of the already shallow employment pool by intercepting their preying competitors with court-ordered injunctions and enforcing restrictive covenants in employment contracts.

“The rules are a lot different in the new economy. There’s much more turnover and that’s fearful for people from the old world, to be in a world where talent is fluid now,” says Alan Kearns, president of Talent Lab, a recruiting and staffing agency in Ottawa.

What is most at stake for employers is the potential for losing trade secrets, knowledge and clients when employees cross over to the competition. And employers aren’t letting them walk out the door without a challenge. A legal challenge that is.

Last month, Investors Group, the mutual fund giant, launched a legal battle against one of its rivals seeking a total of $15 million in damages after they allege managers and financial advisors, were targeted and raided. In a statement of defence, Berkshire denied the allegations stating they acted within the realm of “fair competition.”

Investors Group brought a similar claim against Berkshire in Montreal, alleging they illegally recruited a number of its financial advisors and their clients. The court dismissed a temporary injunction that had been granted earlier this year but Investors Group is continuing with the legal suit, seeking $6 million in damages. The fund company alleges three former advisors had breached employment agreements dealing with confidential information and non-solicitation of Investors’ clients after leaving the firm.

At least 460 advisors have left the Investors Group this year and 790 defected last year.

Nortel Networks Corp. won two partial injunctions last November against a U.S.-based technology company it accused of conducting a “strategic and aggressive raid on its workforce.”

While “raiding” is not a legal claim in Canada, its Canadian equivalent is a claim for inducing the breach of employment contract by an employer.

According to Christine Thomlinson, associate at the Toronto-based law firm of Borden Ladner Gervais LLP, above and beyond such a claim, there must be intent to do harm to a competitor, whether it be intentional interference in economic relations or contractual relations with its employees.

Proving that intent is difficult, if at times impossible, says Thomlinson.

“From an evidentiary point they are hard to prove. How do you get yourself inside the head of what one company is doing? It’s a bit of a shot in the dark.”

And, she adds, “it’s difficult to show how any type of offer of employment can be harmful.”

There is a fine line concerning stripping not only employees from a competitor but stripping the knowledge and trade secrets they may have, admits Kearns. One that may support a claim like the one put forward by Investors Group.

Paul Boniferro, of the labour and employment group and partner at the Toronto-based law firm McCarthy Tétrault, says in those cases damages have to be proven which is sometimes difficult to do if one or two fiduciary employees have been “raided.”

“Where one or two key employees (leave), it is difficult. Where it comes into play is if specific accounts were handled by these employees,” says Boniferro.

Despite the legal efforts of employers, Kearns says Canada’s labour market continues to move towards a Hollywood movie-business model, where talent is recruited for a specific project, usually short term, and then moves on to other projects with other employers.

While he admits the high-tech industry is moving rapidly towards this model —-with most IT professionals changing employers every two years — Kearns says the trend is starting to appear in other sectors.

“It’s becoming more and more like that in other industries. There has been more turnover in the financial world in the last two years then there has been in a very long time.”

And, he says, the employers who are waging the strongest defensive attack are those where HR departments have embraced the change and are making the transition. Kearns cites Cisco as an example.

“(Cisco) has built themselves around a talent model and they are ahead of the game. (The focus of HR departments) needs to be on how do we build an environment that retains talent and how do we make it attractive for talent to come. Trying to do anything else is swimming up the tide,” says Kearns.

Attention to employees’ career goals with an eye to training and development will help employers meet the aspirations of their workforce in the new economy and give them a reason to stay.

Employment contracts

Restrictive covenants, including non-competition and non-solicitation clauses, are becoming more common, and Thomlinson says the courts are applying a much more narrow approach to enforcing these agreements and striking them out in totality if one part is too restrictive.

“If you are going to put one in place you’ll have to be prepared to go to court and prove that everything (in the agreement) was needed. If you are looking at anything over a year you are probably stretching it.”

Thomlinson says, and Kearns agrees, non-competition clauses and other restrictive covenants, for the most part, do not serve as a deterrent for employees who want to leave.

“The only trend we are seeing is that more and more (breach of employment contracts against the employee) are coming before the courts. And the courts are really examining them carefully,” says Thomlinson.

Built in legal safeguards offer employers some measure of control and protection but HR departments should be aware that employees are being counselled not to sign restrictive covenants. Kearns advises employees to sign non-disclosure agreements instead.

And while running down these legal channels may be throwing a wrench into the process, Kearns says they are ultimately doing very little to prevent the movement of employees.

“You are not going to keep people through fear and intimidation. There’s absolutely no benefit.”

Leaving the legal issues aside, Kearns says blasting competitors for stripping workforces and taking legal action against them is hypocritical.

Three months ago, recalls Kearns, a VP of a HR department called him personally to ask him not to recruit any of his staff. Three months earlier, however, the IT company had asked him to recruit designers of a specific chip.

“Nortel was built on employees from the competition. So, what’s good for the goose is good for the gander. The reality is that most (employees) end up working for the competition.”

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