May 16 2005
One of the more risky hiring practices for employers is the enticement of candidates away from other secure employment. While this can be the most effective way to obtain key talent, it can also carry with it a heavy price tag if things dont work out as planned.
The common law of wrongful dismissal imposes the obligation to provide reasonable working notice of termination. Failure to provide that working notice often leads to a wrongful dismissal action and an award of damages in lieu of working notice by a judge.
There are, of course, some exceptions to this rule. For instance, employees have no entitlement to working notice (or severance pay) when the dismissal is for valid just cause reasons. And, the common law working notice obligations can be ousted by way of the implementation of a binding employment contract containing a lawful severance formula.
The working notice period is intended to provide the employee with an adequate opportunity to locate equivalent employment. The length of the applicable working notice period is largely based on four factors: the employee's age; length of service; type of position; and the availability of similar employment.
A factor which can have a dramatic impact on the length of the notice period relates to the circumstances of hiring. Especially during the first couple of years of employment, this factor can turn a run-of-the-mill termination into a very costly affair for the employer.
The theory is that an employee who is enticed, or lured, away from existing employment has given up something of significant value to join the new employer. The longer the duration of the former employment and the more secure and lucrative it was, the greater the sacrifice the employee has made in leaving.
When the new employment ends prematurely (in the first few years) a court will take that into account when determining the reasonable notice period. In effect, the court is bringing forward the circumstances of the prior employment and imposing them on the new employer when determining the applicable working notice period.
An example is a recent case involving an American company which sought to expand its business into Canada. For a lengthy period of time, it chased after an individual in Toronto to lead its cross-border expansion. That individual ultimately accepted the offer but was terminated less than six months later when the company reversed direction to focus on the United States' market.
The Ontario Superior Court awarded the fired employee the equivalent of one year's salary, commissions, and bonuses - which added up to approximately $320,000.00 - plus legal costs.
This case highlights two significant aspects of the enticement doctrine. First, the employee need not have been employed at her previous job for very long to be entitled to significant enticement damages. What is important is the nature and quality of what she gave up, not necessarily the amount of "seniority" she had accrued.
Second, the awarding of enticement damages is not contingent on there having been some wrongful conduct on the employer's part. In this case, a perfectly legitimate business decision to focus on a different market was the cause of the termination. What is important is the impact of that decision on the individual who had been enticed away from other employment.
The moral of the story for employers is that they should be absolutely certain about their business plans before enticing employees from other employment. And, if they do engage in enticement, they should be absolutely certain to limit their severance costs using a binding employment contract. For added comfort, that contract should expressly contemplate termination within the first several years of employment.
These items are intended for general informational purposes only and should not be construed or relied upon as legal advice. The legal issues addressed in these items are subject to changes in the applicable law. You should always seek legal advice concerning any specific issues affecting you or your business.