Labor & Employment Law

Today, I'd like to discuss some hiring issues and their effects on the period of reasonable notice and in establishing other claims.  Specifically, I want to discuss inducement or allurement.

Inducement/Allurement

Length of service is a factor considered when determining the period of reasonable notice of termination to which an employee is entitled. All things being equal, and as a broad generalization, the shorter the service, the shorter the notice period.  However, the reasonable notice period can be extended where it is shown that the employee was enticed away from previous secure employment by the new employer.  The usual test involves assessing whether the enticement goes beyond any ordinary degree of persuasion. 

The theory being that, if the employee gave up secure employment because of statements made by the new employer (or its agent), and is terminated within a short time after commencing employment, the employee should be credited with some of the service with the former employer for purposes of determining the common law period of reasonable notice.

The Supreme Court of Canada has held that inducement has been held to be a proper consideration in deciding upon the notice period.  In Wallace v. United Grain Growers Mr. Justice Iacobucci  held that:

When is inducement a consideration?

The Ontario Court of Appeal discussed the issue of inducement in Alcatel Inc. v. Egan.  While upholding the trial judges finding of inducement on the facts of the case the Court noted that "caution must be exercised to avoid a conclusion of inducement in virtually any new hire". 

Similarly, Mr. Justice Echlin in McCullouch v. Iplatform Inc., a case that considered the circumstances under which "inducement" or "allurement" will apply, noted that every "new hire" situation could raise inducement issues:

Clearly the defendants were interested in attracting the clientele that Mr. Nurnberger hoped to bring with him. In doing so, they would need to service it and felt they could use someone like Mr. McCulloch to do the pre-press work.

Interestingly, Mr. McCulloch was able to negotiate upwards a salary offer of $65,000 to $68,000 plus a maximum $30,000 bonus, plus car expenses, business expenses, and options to purchase 24,000 shares at the senior executive/directors' strike price. This undoubtedly looked very appealing to an individual who had previously been earning about $52,500 and was now being offered a raise of nearly $20,000, all in.

Also part of the inducement to the respondent in making the move he did was, no doubt the discussions as to long term employment. As I have concluded, those discussions lacked contractual force in terms of the respondent's assertion of a fixed term contract but nevertheless, they were and are, in my opinion, significant on the issue of reasonable notice.

In my opinion, such incidents are properly included among the considerations which tend to lengthen the amount of notice required (Wallace, supra at para. 85)

In this case, Paul McCulloch changed employers to obtain a higher current pay package and to continue to work with his friend, Fred Nurnberger. At the age of 54, his focus was not on job security. Accordingly, I find little or no reliance or expectation interest relating to promises of longevity.

Where inducement is found to exist, it will offset "short" service when determining the employees? entitlement on termination.  In other words, the significance of  inducement as a factor in the notice assessment should diminish with time.  

As an example, Smith v. Centra Windows Ltd. where the plaintiff's inducement argument was rejected in circumstances where he had been employed for almost 14 years before being terminated.

However, Courts have not been uniform on this approach.  In Gillies v. Goldman Sachs Canada Inc. the BC Court of Appeal upheld a trial judgment that the defendant had induced the plaintiff, an institutional bond investor, to leave his secure employment by actively recruiting him and advising him that he would have secure employment.  The court concluded that this inducement was valid notwithstanding that he had been employed for almost five years. 

The approach in Gillies appears to be supported by the Supreme Court of Canada?s decision in Wallace v. United Grain Growers, where an inducement was found to be relevant notwithstanding that the employee had been employed for 14 years.

It's therefore an open question as to precisely "when" inducement as a factor wanes.

The effect of inducement can be significant.  In Egan, for example, a short service employee (less than 21 months) was awarded damages in respect of a period of reasonable notice of 9 month.

Summary

Not every comment made in the hiring process will trigger inducement.  The test is a stringent one.  That being said, where inducement is found, it can significantly increase the period of notice and will offset "short service".

This emphasizes the need to be vigilant during the hiring process, to carefully consider what is being said and by who to an applicant.  It also highlights the need to take detailed interview notes and to "paper" the hiring.  Employment agreements can be an effective way of minimizing the risks of an inducement argument if they are properly drafted and entered into.  The Court will, for example, consider the circumstances surrounding the employee?s departure from the former employer and the terms of any contract of employment that might undermine a ?security of employment? argument such as, for example, a probationary period or termination clause limiting the employees? recovery on termination. 

Further, finders fee type arrangements where current employees receive a bonus for recruiting friends is somewhat of a dangerous practice.  It may encourage people to say things that they otherwise might not in an effort to obtain the bonus.