March 29, 2007

The Pitfalls of Head-Hunting

Head-Hunting is a Dangerous Sport

In the war for talent, employers seeking to recruit are no longer relying simply on job postings, recruitment firms and word of mouth to solicit potential candidates.  Indeed, many businesses are directing their present employees to actively recruit former colleagues of past employers.  This method of recruitment can have significant advantages, since an employee can serve as a known good-will ambassador who is able to identify desired qualities in individuals with whom he has worked in the past, and use his influence to convince those individuals to consider a new opportunity. The target candidate also has the sense that he is getting the “straight goods” from his former colleague.

The use of employees as part of a de facto in-house recruitment service can be problematic, however, especially when employees are being compensated for their efforts.  This issue was apparent in the recent decision in Egan v. Alcatel Canada Inc. (2006), 47 C.C.E.L. (3d) 87 (Ont. C.A.) (“Egan”).  In that case, the Ontario Court of Appeal considered the circumstances of Mary Egan, who commenced employment in a director-level and senior management position with Alcatel after completing almost 20 years of continuous employment with Bell Canada.  After less than 21 months of employment, she was dismissed by Alcatel without cause and without notice as part of a mass termination.  Her termination came with only 12 weeks’ salary for statutory notice.   As a result, she brought an action for wrongful dismissal, alleging in part that she was entitled to greater notice of termination at common law on account of the fact that she had been induced to leave secure employment with Bell to join Alcatel.

In consideration of the notice period to which Egan was entitled, the trial judge noted that Egan had, in fact, been induced by Alcatel to leave a secure position with Bell.  Two former colleagues of Egan, who had previously transferred from Bell to Alcatel, encouraged Egan to seek employment with Alcatel.  These individuals submitted Egan’s resume to Alcatel and recommended her to one of Alcatel’s Assistant Vice Presidents, who in turn represented to Egan the “tremendous opportunities facing Alcatel” and the security Alcatel offered to its employees.  Egan was also offered a considerable increase in salary, a bonus and stock options.  Unknown to her at the time that she was hired, Egan’s former colleagues shared a recruitment bonus paid to them by Alcatel for successfully recruiting Egan. 

The trial judge observed that Egan had no particular interest in leaving Bell.  At the time of her resignation from Bell, her prospects with Bell were very good and her future was relatively secure.  In the circumstances, he inferred that both Egan and Alcatel anticipated a lengthy term of employment, and awarded a notice period of nine months, notwithstanding that Egan had been employed by Alcatel for less than two years at the time she was dismissed.

The Court of Appeal upheld the trial judge’s decision.  The Court found that it was open to the trial judge to conclude that Egan had been induced to leave secure employment with Bell and that Egan was consequently entitled to additional compensation.  In this regard, the Court referred to the Supreme Court of Canada decision in Wallace, wherein the Court stated that an individual whose employment was terminated could be entitled to greater compensation if they were induced to leave secure employment “on the strength of promises of career advancement and greater responsibility, security and compensation with the new organization.”

Although the Court of Appeal in Egan warned that “caution must be exercised to avoid a conclusion of inducement in virtually every new hire”, the Court found that Egan’s case crossed the line “because the persuasion came from two former colleagues … who were long-time friends and who, unknown to Ms. Egan, knew that if they succeeded in getting her to leave Bell Canada, they would receive a substantial bonus.”  From the Court’s perspective, this case was different than the recruitment of a prospective employee by an unknown head-hunter. With a head-hunter the “target” candidate is well aware of the recruiter’s mandate and self-interest.  Egan was not aware that her former co-workers had a financial interest in successfully recruiting her.
 
Employers who have programs where it asks its employees to recruit friends or former colleagues to join the employer’s enterprise should exercise caution, particularly where the employees have a financial stake in the outcome of their recruiting efforts that has not been disclosed to those being recruited.  When a prospective employee leaves long-standing and secure employment in these circumstances, after receiving favorable representations concerning the new position, a Court will be more likely to find that the employee was induced to leave her former position.  In such cases, the employer will likely be required to provide greater than usual notice of termination, or payment in lieu of such notice, should the new employment relationship quickly sour.

To avoid this unfavorable outcome, employers should consider the following:

  1. Candidates should be specifically advised by the employer that the employees who recruited them will be entitled to a recruitment bonus if the candidate accepts the position.
  2. Employers and their recruiters should be aware that the promises and representations that they make to candidates should be reasonable and accurate.
  3. Sometimes recruitment efforts are better left to arms-length professionals or internal employees who have the necessary knowledge and experience to avoid making misrepresentations.
  4. Use employment contracts that include a provision that the contract constitutes the entire agreement between the parties and that the employee is not relying on any verbal representations of the employer (or its agents) in deciding to accept employment with the employer. The contract can go further to state that the employee specifically represents that he has not been induced to leave his former employment and in the event of termination shall only be entitled to the payments set out in the termination clause of the contract.

Taking such steps will greatly decrease the chances that a terminated employee will be entitled to enhanced reasonable notice damages on account of inducement.

Chris Foulon is a founding partner of Israel Foulon LLP, a leading employment and labour law firm in Toronto. The firm can be reached at 416.640.1550 or cf@israelfoulon.com.  The author acknowledges assistance of his associate, Rich Appiah, in the preparation of this article.  A version of this article appeared in Canadian HR Reporter, a Carswell publication.

LEGAL DISCLAIMER: This article is for informational purposes only and is not intended to provide legal advice, which in all circumstances must be tailored to the specific facts of any problem. You should obtain a proper legal consultation in order to determine how this article applies to your specific situation.
Please feel free to contact Israel Foulon LLP to learn more at 416-640-1550.

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