Recruiting Smartly can Save Employers Money
The job market is pretty good right now for people with skills. Employers are finding it increasingly difficult to find qualified candidates for top end positions.
Increasingly, employers don’t just put an ad in the paper and see what happens; they network and recruit. If an employer is recruiting somebody away from existing employment, however, they should be very careful how they do it. Vivian’s story is a case in point.
Vivian was a highly paid executive in the software industry. About 6 months after she started working for a new employer where she was well liked and well paid, she got a call from an old colleague wanting to talk to her about a position elsewhere.
Over the next 13 months, Vivian consistently resisted these attempts to recruit her to new employment. Eventually, however, she agreed to meet with the vice president who won her over. She was told that although the company was expanding into a new market that they wanted her to head up, they were committed to a long term effort and that her employment would be secure as long as her sales figures were good.
Her hiring letter simply set out her wages, commissions, benefits and start date. At this point, if the employer had been smart, it would have built in a formula for Vivian’s entitlements if she was terminated without just cause. Depending on how badly an employer wants a new employee, they might agree that if the employee is terminated within the first 12 months they will be guaranteed a lump sum payment of 3 or 6 months pay in lieu of notice with that amount increasing by 2 weeks to a month on every anniversary.
This gives the recruited employee some sense of security that if things don’t work out, they will not be left high and dry a few months later when they could have just stayed at their old job. At the same time, it limits the employer’s liability if things don’t go as planned.
As long as those terms are agreed to before the recruited employee quits their old job, it will be an enforceable contract with nothing to debate.
Unfortunately for the company, it dropped the ball and didn’t include such provisions.
Six months after Vivian started working, the company decided that it wasn’t committed to the new market after all. Vivian’s sales efforts had been reasonable and the decision had nothing to do with her performance. She was terminated.
To make matters worse, however, despite repeated requests, the company took 4 months to issue Vivian’s Employment Record and when it did it was incorrect. Although the company owed Vivian $20,000 in outstanding commissions on the day she was terminated, it paid them out in dribs and drabs and without any explanation about what was being paid, providing the last payment the week before trial.
Vivian, of course, had sued for wrongful dismissal. When someone sues for wrongful dismissal, they are not alleging they should not have been terminated. The employer has the right to do that. What they are suing for is pay in lieu of reasonable notice.
Vivian claimed that her pay in lieu of notice should be increased above and beyond what it would usually be for a 6-month employee for two reasons: 1. She had been recruited away from secure employment with false promises and without those promises she would still be securely employed at her old job, and, 2. The employer treated her shabbily after her termination.
The judge agreed. As a result of the inducement of Vivian to leave secure employment she was awarded 10 months notice and the shabby treatment after the termination added another 2 months to the award. 12 months notice for 6 months of work.
Avoiding these kinds of problems is extremely simple for the employer and involves the insertion of a simple paragraph in the hiring letter setting out a formula for payments owed if the relationship is terminated.
The beginning of an employment relationship, however, is somewhat like the beginning of a marriage. Nobody thinks about the pre-nuptials. Everything is exciting and new and nothing can ever go wrong. To employers out there who don’t look before they leap, I have one simple point: Vivian’s employer could have spent, perhaps $150 at most to have an employment lawyer review her hiring letter and make appropriate changes. Instead, they paid at least 6 months extra wages by way of notice and legal costs for Vivian’s lawyer and their lawyer, probably in the range of $30,000 to $40,000.
Ed Canning is a partner practicing in the Labour & Employment Group at Ross & McBride LLP.
As published in the Hamilton Spectator,
April 16, 2005.