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May 2014 LEGAL LESSONS: Sunshine, lollipops and rainbows Inducing prospective employees and its effects on reasonable notice By Wendy Zhu, Burnet, Duckworth & Palmer LLP In Alberta’s current economic market, many employers are understandably trying to attract top talent. Companies may offer promises such as career advancement, greater responsibility, job security and/or higher compensation to induce an individual to quit their current position and join the new employer. Although this may be an effective way to attract quality employees, both parties should be aware of the concept of inducement and its potential consequences. The concept of inducement Where an employer terminates an employee without cause, that employee is generally entitled to “common law reasonable notice” of the termination (or pay for that same period in lieu of such notice), unless the employment agreement specifies otherwise. In the case of a relatively new employee, one might think that the notice period would be short; however, if the employee was induced to leave previous secure employment, the inducement can serve to significantly lengthen the notice period. Courts have long recognized that employers may legitimately use elements of persuasion when discussing new employment with prospective employees. However, whether an employer’s conduct crosses over from persuasion to inducement depends on whether “something beyond the ordinary degree of persuasion” was used. Unfortunately, there is not a clearly defined line between what is considered “persuasion” and what is considered “inducement.” The impact of inducement on an employee’s notice period depends on the particular facts of the case. In some instances, courts may only increase the notice period by a few weeks to account for inducement. However, in other decisions courts have factored in the full length of service that employees had with their previous employer. The latter scenario typically arises where the new employer dismisses (without cause) the induced employee shortly after they are hired away from a situation of several years of secure employment with a previous employer. One Ontario decision, Pereira v. Bailey Toyota Ltd., is a good example of this type of situation. In that case, Pereira (44 years of age) was a parts and service manager with Sun Valley Chrysler and had approximately six years of service with that auto repair shop before being induced to join Bailey Toyota. He worked at Bailey Toyota for approximately seven months before being terminated without cause. The court found that Pereira was induced to leave his secure employment at Sun Valley Chrysler and factored in his full length of service with his previous employer when assessing the reasonable notice period that Bailey Toyota was liable for: “Given the nature of Mr. Pereira’s employment, his age, the availability of similar employment, and Mr. Pereira’s length of service, which includes his years with Sun Valley Chrysler since he was induced to leave that employment, it is my opinion that six months notice would have been reasonable in all the circumstances.” (Emphasis added) As a result, Pereira received six months’ notice for approximately seven months of employment with Bailey Toyota. Another extreme example of inducement playing a key role in assessing the notice period is in Johnson v. James Western Star Ltd. In that case, Johnson (48 years of age) was induced to leave his previous employer of 21 years, where he worked as regional manager. In return for joining James Western Star, Johnson was promised a higher salary and a branch manager role after starting as a salesman for a few months. Unfortunately, the promises did not materialize and Johnson treated James Western Star’s conduct as constructive dismissal. Speaking about inducement, the court cited comments in Kilpatrick v. Peterborough Civic Hospital: “This is a circumstance in which the plaintiff ought not to find himself in any worse position than he would have been had he been discharged by [his previous employer] after 29 years of service. For the defendant to be able to approach and woo the plaintiff to leave that hospital and come to Peterborough, only to be placed in circumstances of catastrophic disadvantage would be an injustice in the extreme. In my view, having regard to all of the facts and circumstances of this case, the plaintiff should be entitled to a notice period in excess of 28 months… “The same considerations apply here in that it would be unfair to fix the notice period on the basis of his years of employment with the defendant. The fact is that the plaintiff was induced to leave a senior position with Arrow for whom he had worked for 21 years.” (Emphasis added) Taking inducement into account, the court ultimately concluded that Johnson was entitled to a reasonable notice period of 24 months for approximately four years of employment with James Western Star. Relevant factors for a finding of “inducement” One particular factor that courts have considered in determining whether inducement has occurred is whether the employee’s job change was for practical or prudent reasons, as opposed to pressure from the new employer. For example, courts have refused to find inducement where it was established that the employee accepted the new employment because they were deeply unsatisfied with the previous job. Courts have also refused to find inducement for a move to a full-time position with a new employer where the employee left temporary or part-time work or employment that was soon coming to an end. The passage of time can also lessen or eliminate the effects of inducement, although a review of judicial decisions indicates that this notion has not been applied consistently. Generally speaking, however, the idea is that the longer the induced employee worked for the new employer, the less likely that inducement is a substantial factor in the reasonable notice analysis. There are some decisions in Ontario that have suggested that inducement has minimal influence after a few years, but this notion is certainly not well-settled law at this point and should be approached with caution as the assessment of inducement is fact-specific. Takeaway points Employers typically overlook the principle of inducement at the initial stages of the employment relationship. Often, it is only when the relationship turns sour and the employee is dismissed that one or both of the parties realize inducement may play a role in the assessment of reasonable notice. One way for employers to address this issue is to have written employment agreements with termination provisions that properly outline and limit the period of notice (or pay in lieu of notice) that an employee is to receive if his or her employment is terminated without cause. Effective termination provisions can save employers both time and expense. Further, employers should generally be careful about inducing employees that they know have non-competition or non-solicitation clauses in their employment agreements, as doing so could expose them to further legal liability. For employees, particularly those who have been lured away from secure employment and then dismissed without cause shortly after, inducement is an appropriate consideration as it may increase the notice or pay in lieu of notice to which an employee is entitled. Wendy Zhu is an associate at Burnet, Duckworth & Palmer LLP who practices in the areas of employment and labour law as well as commercial and general litigation.