Recent case in Ontario highlights nuances of inducement in hiring
Exclusive to Canadian HR Reporter from Rudner Law.
Recruitment can often feel like a high-stakes courtship, particularly for senior roles. Companies pull out all the stops, offering signing bonuses, generous incentives, and equity plans to attract talent. But when the honeymoon ends and the employment relationship breaks down, the recruitment process often comes back to haunt employers.
Dismissed employees, especially those who were approached and convinced to leave their former roles, often allege inducement, meaning in non-romantic terms that their new employer wanted them so badly, it made a bunch of promises, only to unceremoniously dump them after a short period of time.
If inducement is found, it will extend an employee’s notice period. Inducement may be found even several years after the employee switched jobs, though generally its impact will be much more significant if a short period of time passed before dismissal.
Recent case looks at inducement
In this blog, I’m writing about an interesting Ontario Superior Court of Justice decision which found no inducement even though the employee was not looking for a job prior to being approached by the employer, left his job to join them, and was then dismissed after a relatively short tenure.
This is a situation many assume would be sufficient to establish inducement; as the court demonstrated, that is not necessarily the case.
In Khatib v. Goeasy Ltd., the court analyzed inducement, among other issues, and found that despite the fact that the employee drove a hard bargain and negotiated several generous items of compensation after being approached by the employer’s recruiter, there was no inducement.
This is a win for employers as employees often point to similar circumstances as discussed in Goeasy to argue that there was inducement, making it an instructive decision as to what is and what isn’t inducement.
Normal courtship vs. inducement
In Goeasy, the employee was hired as a senior vice president and was dismissed without cause after about three-and-a-half years of service. He argued that he was entitled to a 12-month notice period.
To support this lengthy period for a relatively short tenure, he relied on the argument that he was induced by the company to leave a secure job where he was making about $450,000 a year. He testified that he was not looking for another job, and pointed to the fact that the company approached him and initiated an aggressive recruitment process through a third party recruiter.
He also pointed to the negotiation of generous long- and short-term incentives, including a signing bonus comprised of Restricted Stock Units (RSUs) as evidence of the company’s desire to bring him on board.
The court rejected the inducement claim, noting that the recruitment process was simply the "normal back and forth between sophisticated parties negotiating a senior management position" rather than an employer doing whatever it takes to poach an employee.
Key factors in analyzing inducement
The court analyzed the following key factors in its discussion:
- the employee’s length of service at his former job
- competition for the role
- the employee’s length of service with the company
- the company’s representations during negotiations
- the employment agreement.
With respect to the employee’s length of service at his previous job, the court found that he was only there for two years, whereas in cases where there has been inducement, employees were usually employed for a “very long time”. On this point, the employee’s job history was highly relevant, as it showed a pattern of short service with various employers, indicating that he was either open to new opportunities, or that he worked in a field where short tenures were common.
Therefore, his previous employment was not necessarily secure, and his willingness to take on new opportunities lessened the impact of being approached despite not looking for other opportunities prior.
Negotiations during hiring
It was also relevant that the company interviewed a number of candidates, which cut against the argument that it “was ready to do anything to hire” the employee. Notably, the court commented that competition does not preclude inducement, but it clearly weakened the argument for finding it.
Similarly, the employee’s length of service with the company was a neutral factor at best, with the court noting that it neither barred or supported a finding of inducement. Presumably, had he been dismissed early on, it would have strengthened the argument for inducement.
In this case, the employee’s tenure with the company was almost twice as long as his tenure with this former employer, which did not help his position.
Non-inducement clause
Regarding representations during negotiations, and the employment agreement, the court found that the representations and ultimate agreement did not go beyond the usual back and forth between sophisticated parties. The employee pointed to the generous incentives he negotiated into the agreement as a factor that the company really wanted him, and specifically asked the court to look past the “boilerplate” non-inducement clause the agreement contained.
Interestingly, this worked against the employee, as the court highlighted that he was a seasoned professional who actively engaged in negotiations to secure a number of concessions before signing the agreement, yet did not ask for the non-inducement clause to be removed. The employee’s experience and sophistication in negotiating the agreement were negative factors against inducement.
Accordingly, the court found that the facts did not support inducement, and the non-inducement clause accurately reflected the circumstances.
As an interesting aside, the court affirmed that if the facts were at odds with the non-inducement clause, such as if the employer behaved in a grossly unfair manner, or there was actual inducement, then the boilerplate clause would be disregarded. This confirms that boilerplate clauses will not defeat an inducement claim where the facts show it existed. In this case, the facts did not support inducement.
Ultimately, the employee was awarded an eight-month notice period, along with damages compensating him for his bonus, RSUs, and other items of compensation.
Pith and substance
Goeasy is a helpful decision that illustrates what is, and what isn’t, inducement. An employee being approached by a prospective employer may have been induced, but context is key. If the facts in this case had been a little different, there may have been a finding of inducement.
For instance, if the employee had been dismissed a few months into his tenure, or if he had been employed at his former job for a long time, then the court may have decided that there was inducement. Similarly, had no other candidates been interviewed, that could have also tipped the scales.
The upshot is that an employee with short service and a history of jumping at new opportunities will have a harder time providing inducement.
Goeasy is also an important reminder of why strong employment contracts are the best insurance employers can obtain. A strong contract makes inducement insignificant, as it would lock an employee into an enforceable termination clause. Strong contracts also include several additional protections, which is why we include several clauses, such as non-inducement clauses in employment agreements.
While a contract will not shield an employer who engages in genuinely deceptive conduct, or where the contract does not reflect reality, it is a powerful defense against employees who claim inducement when, in reality, it did not occur
For employers, the takeaway is clear: do not skip the boilerplate. We often prepare employment agreements for our employer clients, and some ask us to make it shorter. Our sincere and unsarcastic response is: “Which protections do you want to remove?” Goeasy illustrates that the clauses in contracts are not just filler, they are there for your protection.
David Gelles is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].
