Referral bonuses are a great tool, but they can land employers in legal trouble
In the war for talent, many businesses are directing their employees to actively recruit former colleagues from past employers. This method of recruitment can have significant advantages, since an employee can serve as a goodwill ambassador who is able to identify desired qualities in individuals she has worked with in the past and use her influence to convince those individuals to consider a new opportunity. The target candidate also has the sense 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 Ontario Court of Appeal’s recent decision in Egan v. Alcatel Canada Inc. Mary Egan started 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 at Alcatel, she was dismissed without cause or notice as part of a mass termination and given only 12 weeks’ salary for statutory notice. She brought an action for wrongful dismissal, alleging she was entitled to greater notice because she had been induced to leave secure employment with Bell to join Alcatel.
Two of Egan’s former colleagues, who had previously transferred from Bell, had encouraged her to seek employment with Alcatel. They had submitted Egan’s resumé to Alcatel and recommended her to one of the company’s assistant vice-presidents, who in turn told her about the “tremendous opportunities facing Alcatel” and the security it offered to its employees. Egan was also offered a considerable increase in salary, a bonus and stock options. Unknown to her at the time, Egan’s former colleagues shared a recruitment bonus paid to them by Alcatel for successfully recruiting her.
The trial judge observed that Egan had no particular interest in leaving Bell. At the time of her resignation, her prospects with Bell were very good and her future was relatively secure. The judge inferred both Egan and Alcatel had anticipated a lengthy term of employment and awarded a notice period of nine months, notwithstanding Egan had been employed by Alcatel for less than two years at the time she was dismissed.
The Court of Appeal agreed with the trial judge’s conclusion that Egan had been induced to leave secure employment with Bell and she was consequently entitled to additional compensation. 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.”
Egan’s case crossed the line “because the persuasion came from two former colleagues… who, unknown to Ms. Egan, knew that if they succeeded in getting her to leave Bell Canada, they would receive a substantial bonus.”
When a prospective employee leaves long-standing and secure employment in these circumstances, a court will be more likely to find the employee was induced to leave her former position and 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, employers should consider the following:
•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.
•Employers and their recruiters should be aware the promises and representations they make to candidates should be reasonable and accurate.
•Sometimes recruitment efforts are better left to arm’s-length professionals or internal employees who have the necessary knowledge and experience to avoid making misrepresentations.
•Use employment contracts that include a provision that the contract constitutes the entire agreement between the parties and the employee is not relying on any verbal representations of the employer (or its agents) in deciding to accept employment with the employer.
For more information see:
Egan v. Alcatel Canada Inc. (2006), 2006 CarswellOnt 28 (Ont. C.A.).
Chris Foulon is a partner with Israel Foulon LLP, an employment and labour firm in Toronto. He can be reached at (416) 640-1550 or [email protected]. The author acknowledges Rich Appiah’s assistance in the preparation of this article.
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 Ontario Court of Appeal’s recent decision in Egan v. Alcatel Canada Inc. Mary Egan started 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 at Alcatel, she was dismissed without cause or notice as part of a mass termination and given only 12 weeks’ salary for statutory notice. She brought an action for wrongful dismissal, alleging she was entitled to greater notice because she had been induced to leave secure employment with Bell to join Alcatel.
Two of Egan’s former colleagues, who had previously transferred from Bell, had encouraged her to seek employment with Alcatel. They had submitted Egan’s resumé to Alcatel and recommended her to one of the company’s assistant vice-presidents, who in turn told her about the “tremendous opportunities facing Alcatel” and the security it offered to its employees. Egan was also offered a considerable increase in salary, a bonus and stock options. Unknown to her at the time, Egan’s former colleagues shared a recruitment bonus paid to them by Alcatel for successfully recruiting her.
The trial judge observed that Egan had no particular interest in leaving Bell. At the time of her resignation, her prospects with Bell were very good and her future was relatively secure. The judge inferred both Egan and Alcatel had anticipated a lengthy term of employment and awarded a notice period of nine months, notwithstanding Egan had been employed by Alcatel for less than two years at the time she was dismissed.
The Court of Appeal agreed with the trial judge’s conclusion that Egan had been induced to leave secure employment with Bell and she was consequently entitled to additional compensation. 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.”
Egan’s case crossed the line “because the persuasion came from two former colleagues… who, unknown to Ms. Egan, knew that if they succeeded in getting her to leave Bell Canada, they would receive a substantial bonus.”
When a prospective employee leaves long-standing and secure employment in these circumstances, a court will be more likely to find the employee was induced to leave her former position and 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, employers should consider the following:
•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.
•Employers and their recruiters should be aware the promises and representations they make to candidates should be reasonable and accurate.
•Sometimes recruitment efforts are better left to arm’s-length professionals or internal employees who have the necessary knowledge and experience to avoid making misrepresentations.
•Use employment contracts that include a provision that the contract constitutes the entire agreement between the parties and the employee is not relying on any verbal representations of the employer (or its agents) in deciding to accept employment with the employer.
For more information see:
Egan v. Alcatel Canada Inc. (2006), 2006 CarswellOnt 28 (Ont. C.A.).
Chris Foulon is a partner with Israel Foulon LLP, an employment and labour firm in Toronto. He can be reached at (416) 640-1550 or [email protected]. The author acknowledges Rich Appiah’s assistance in the preparation of this article.
