Reducing the chances of inducement

Recruiting top talent can help an organization but employers may face increased obligations if that talent was already working elsewhere

As Canadian companies emerge from recent hiring freezes and staff reductions, the hunt will be on for top talent. When actively recruiting, employers need to be aware of certain liability issues that arise if the employment relationship does not work out.

First of all, when recruiting employees away from their current employment, employers should bear in mind the risks of causing them to breach their terms of employment. Employees should provide any notice of resignation to which they are contractually bound. Employers shouldn’t let them bring any property or information belonging to their former employer to their new job. In fact, a prudent step would be to include a clause in an offer letter or employment agreement stating the employer does not wish them to bring any materials belonging to a prior employer. In addition, to flush out any issues that may arise from pre-existing non-solicitation or non-competition agreements, it’s worth considering including a statement that confirms a new employee is not bound by any prior restrictions which will limit his ability to accept employment or fulfill his new job responsibilities.

Second, there are potentially severe financial penalties for dismissing an employee who was actively recruited away from prior employment. In a typical case, an employee with long-term secure employment is approached by a new employer. The new employer embarks on a campaign of inducement, perhaps including social events, an offer of a signing bonus or better pay. Eventually, the employee accepts. Within a short time of starting new employment, the employee is dismissed. While the courts do not articulate this baldly, it looks like they are adding the two periods of employment together when calculating the amount of termination pay to award. Essentially, the courts generally treat this kind of situation as if the second employer caused the employee to lose both periods of employment.

While this approach may make some sense — although in my personal view, it treats employees as innocent, unthinking pawns, unable to govern their own lives — the case law on “inducement” has metamorphosed from its original form into an unrecognizable creature. The case law no longer requires aggressive or even particularly active recruitment activities by the second employer. The original “inducement” or “enticement” is largely missing in many cases. The principle has been applied even where the prior employment was not particularly secure or long standing. The Supreme Court of Canada has confirmed the principle applies even where the new employment is lengthy, although then the inducement factor is given less weight when determining the appropriate termination pay.

Employers also need to be aware that hiring through a third party recruiter does not absolve the employer of liability. The recruiter is viewed as the agent of the employer and its actions are those of the employer. Some recruiters will say they prefer to only hire people already actively employed in the target industry. Accordingly, the risk of increased severance liability is very real.

Reducing liability

Given the courts’ willingness to treat many run-of-the-mill recruitments as inducements, how does an employer limit severance liability when hiring already employed individuals? The best strategy is to use an employment agreement that stipulates the severance terms, though this may be a change of course for many employers. Many employers avoid discussing severance at the time of hiring, either because it sends a negative message at what is supposed to be a positive moment, or over fear that haggling about severance terms will derail the recruitment process. However, it is the only effective way to avoid a large inducement claim if things don’t work out. More senior employees will not be fazed by seeing a severance clause in the employment letter or employment agreement. Many have seen these before and the agreement also protects them and spares them the need to fight for their severance payment. A signed agreement is the only effective way to avoid claims based on inducement.

Wrongful hiring

When competing for top talent it is critical to remain aware that overly optimistic pitches to job candidates will cross the line if a statement is made which is known to be untrue or misleading or a material fact is omitted, where the job candidate relies on the statement. In one prominent case, an interviewer neglected to tell the job applicant that the board of directors had not yet committed any funds to the enterprise in question. As it happened, after the individual started work, the funding was never approved. An employee who leaves employment because of misrepresentations can allege wrongful hiring and sue for damages. Employers need to ensure those involved in interviewing are aware of the importance of accuracy and completeness, particularly where it is reasonable to believe the job candidate will be relying on particular statements to make his decision.

Anneli LeGault is a partner practicing Employment and Labour law and Privacy law with Fraser Milner Casgrain LLP in Toronto. She can be reached at (416) 863-4450 or [email protected]

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