Northern Exposure

Happy Headhunting for Employers

By Gulu Punia

Successful headhunting can add significant value. But employers must be careful that they don’t become the hunted. As with any hunt, there are risks that may not be obvious. In the employment context, a Canadian employer may be on the hook for extended severance or risk an action from the previous employer for inducing a breach of the employment contract. The good news is that reasonable precautions can minimize these risks and result in happy hunting.

Recognition of previous service
One of the biggest risks for Canadian employers comes from an employee who’s recruited from secure employment. Such an employee may claim that previous service must be recognized by the new employer. This is particularly troublesome when the recruit is fired.

In the normal course, an employee’s length of service is a significant factor in determining entitlement to reasonable notice or pay in lieu. Canadian courts also have considered an employee’s previous employment when determining reasonable notice and have granted extended severance awards to employees who were recruited away from secure employment. That’s especially true if the new recruit had lengthy employment with the previous employer and a relatively short term with the new employer. As a result, employees who appear to be entitled to minimal notice, based on their length of service, may in fact be entitled to significantly more.

Luckily for employers, you can minimize the risk that previous service will be considered at the time of termination. A termination provision in an offer letter or employment agreement that complies with minimum provincial statutory requirements will work. Failing that, written acknowledgement by the employee at the time of hiring that his or her previous service isn’t being recognized for any reason, including reasonable notice entitlement, would work. Although not as effective as a termination provision, such an acknowledgement is preferable to doing nothing.

Inducing breach of contract
Another risk is an allegation by the disgruntled former employer that the employee was induced to breach the employment contract. This often arises where two employers are competitors.

Canadian courts understand that recruitment occurs and generally don’t interfere in the process. But if an employee breaches his or her employment contract, a court can hold the new employer responsible for resulting losses if it induced the breach. One example is where employers have induced a new employee to breach his or her obligation to give reasonable notice of resignation. As a recruiting employer, you should watch where you’re providing an incentive for the prospective employee to breach the notice requirement.

A more significant breach to induce is the breach of noncompetition obligations. Some employees have a common law obligation not to compete with or solicit clients from their previous employer. Some employees may also have contractual limitations on their ability to compete. Inducing a breach of noncompetition obligations has resulted in significant claims against employers.

The safest, but arguably impractical, approach is simply to require employees to comply with their perceived obligations not to compete or not to hire such employees at all. The difficulty is that it’s often unclear whether such obligations apply in the case of common law obligations, and courts often deem written noncompetition agreements unenforceable. Thus simply demanding that the employee not compete or forgoing the hire altogether may be a lost opportunity. Who wants to hire an employee who can’t compete? Rather than throwing the baby out with the bathwater, seek advice as to whether such obligations exist and if they’re enforceable. Then you can make an informed decision.

At the end of the hunt
Recruiting employees from competitors has the potential to provide significant benefits to employers. Conversely it also can result in increased severance awards and lawsuits from competitors. If done prudently, the risks facing a Canadian employer from the employee and competitors can be significantly reduced.

Contact the author, Gulu Punia