When an employer finds a perfect candidate to recruit, it’s important to consider whether and to what extent their current employment situation could impact termination costs in the event of a future termination without cause. Recruiting an employee from secure, long-term employment can drastically increase an employee’s common law notice period in a without cause termination.
Protecting against an inducement claim is a consideration that is often missed by employers, yet this snag (and its related costs) are usually easily preventable by inserting a ‘no inducement clause’ into the employment agreement, coupled with an enforceable termination provision.
When the past is not left in the past
Rodgers v. CEVA, 2014 ONSC 6583 (CanLII) involved a 52-year-old President of a transportation company who was recruited by the employer. An employee knew this candidate as a result of prior business dealings with him, and approached him about joining the company. During the recruitment process, the candidate attended seven interviews and was flown to the final interview with the CEO. He rejected the initial compensation package, the employer promptly enhanced the offer, and the candidate accepted the role of President. The employee brought a wrongful dismissal action after his employment was terminated without cause and virtually without notice or pay in lieu of notice after slightly less than three years’ service. The court found “some level of inducement” which led the employee to leave secure, long-term employment, and it awarded the employee a hefty 14 months’ notice.
Assessing whether an employer has induced an employee to join is a fact-specific exercise. The Supreme Court of Canada held in Wallace v United Grain Growers Ltd. 1997 CanLii 332 SCC that “… not all inducements will carry equal weight when determining the appropriate period of notice. The significance of the inducement in question will vary with the circumstances of the particular case and its effect, if any, on the notice period is a matter best left to the discretion of the trial judge.”
In Firatli v. Kohler Ltd., 2008 CanLII 35266 (ON SC), the judge outlined the following factors considered by courts in determining whether an employer’s recruitment methods amount to inducement:
(1) the reasonable expectations of both parties;
(2) whether the employee sought out work with the prospective employer;
(3) whether there were assurances of long-term employment;
(4) whether the employee did due diligence before accepting the position by conducting their own inquiry into the company;
(5) whether the discussions between the employer and hiree amounted to more than the persuasion or the normal ‘courtship’ that occurs between an employer and a prospective hiree; and
(6) the length of time the employee remained in the new position, with the element of inducement tending to lessen with the longevity of the employment.
- Add a term to employment contracts confirming the employee’s agreement that employer actions during the recruitment process do not amount to inducement (i.e. a ‘no inducement clause’); this is especially important if a candidate holds secure, long-term employment at the time of recruitment.
- If the employee seeks acknowledgment of inducement and ‘credit’ for past service elsewhere, negotiate clear employment contract language that provides certainty about how this would be addressed on termination. Typically this is addressed by agreeing to a longer notice period on termination, to compensate for the termination entitlements that the employee is leaving behind at their prior employer.
- Ensure that the termination provision is up to date and does not violate employment standards legislation (in Ontario, ensure the contract is compliant with the Employment Standards Act, 2000 and not in need of a Waksdale update).
- Be cautious during the recruitment process about making unintended promises of secure, long-term employment and career advancement.
- Despite that most employment contracts contain an ‘entire agreement clause’ confirming that the contract terms supersede all prior written and verbal agreements between the parties, keep records of written and verbal pre-hire discussions and negotiations – these can be important evidence in a wrongful dismissal action involving an inducement claim.
Written by Marnie Baizley
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