An Ontario employer recently learned the hard way that inducing an employee to leave secure employment can be very costly if their contract is not drafted properly and they are let go shortly after being hired. In Miller v. Alaya Care inc. [Miller], the Ontario Superior Court of Justice ("ONSC”) ordered an employer to pay a former employee 14 months’ pay in lieu of reasonable notice, amounting to over $200,000, despite that she was employed for only 7 months. The court found that the employer induced the employee to leave a secure 12-year employment relationship, and unfortunately for the employer, the employment contract was not drafted properly.
As further discussed below, the Miller decision illustrates the risks of inducing employees to leave secure employment and why it is especially important to ensure employment contracts are carefully drafted when headhunting long-service employees.
Background
Moyra Miller (“Ms. Miller”) was employed by WellSky for approximately 12 years when she was contacted by the co-founder of its largest competitor, AlayaCare. They asked Ms. Miller to meet with them so that they could “try to convince [her] to leave WellSky and join AlayaCare as an executive employee”. Ms. Miller was not interested in leaving her current employment, but she agreed to the meeting anyway.
Ms. Miller subsequently had various discussions with AlayaCare staff, including its CEO, during which she disclosed her remuneration with WellSky. During these discussions, Ms. Miller raised concerns that WellSky may sue her if she resigned to join AlayaCare. In response, AlayaCare agreed to pay for a lawyer to defend against any lawsuit that WellSky might initiate against her. Further, AlayaCare assured Ms. Miller that she would be an executive employee and offered her an increased salary, along with bonuses and equity.
Ms. Miller resigned from WellSky and signed an employment contract with AlayaCare, under which she would earn a salary of $200,000, a bonus of up to $40,000, and Restricted Stock Units (“RSUs”) that would vest after each year of employment for three years. Notably, the contract was silent regarding whether or not AlayaCare would recognize Ms. Miller’s previous service with WellSky. The employment contract also contained for-cause and without cause termination clauses. The for-cause provisions stated that Ms. Miller could be dismissed without notice or pay in lieu “for any cause recognized at law”. The without-cause provisions further stated that if Ms. Miller was terminated without cause, she would be entitled to only 4 months of “base salary” and benefits continuation.
Ultimately, AlayaCare dismissed her after only 7 months of employment as part of a restructuring. As a result, Ms. Miller sued AlayaCare for wrongful dismissal and argued that her 12 years of service with WellSky should be recognized in determining her reasonable notice entitlement because she was induced to leave secure employment.
The Court’s Decision
The ONSC ultimately held that Ms. Miller had been wrongfully dismissed and awarded her 14 months of pay in lieu of reasonable notice because the termination clauses in her contract were legally unenforceable and AlayaCare induced her to leave secure employment.
In reaching this conclusion, the court found that the termination clauses were legally unenforceable because: (i) the “no notice if just cause” clause violated the Employment Standards Act, 2000 (the “ESA”), given that employees are only disentitled from receiving termination pay under the ESA where they have engaged in “wilful misconduct”, which is a higher standard than “cause”; and (ii) the without-cause clause violated the ESA by restricting her entitlements to base salary only, contrary to her right to bonus/incentive compensation during the statutory notice period. Accordingly, the court found that Ms. Miller was wrongfully dismissed and entitled to pay in lieu of reasonable notice.
The court subsequently found that Ms. Miller was induced to leave secure employment, such that she must be given “some credit” for her 12 years of prior service with WellSky in determining her reasonable notice entitlement. In reaching this conclusion, the court held that the importance of inducement varies depending on the nature of the inducement. Relevant factors include but are not limited to: (i) who approached who; (ii) whether there were assurance of long-term employment; and (iii) whether the employer engaged in persuasion that went beyond the normal “courtship” between an employer and prospective employee.
In light of these factors, the court found that Ms. Miller was induced because: (i) AlayaCare approached her first; (ii) AlayaCare inquired about compensation with WellSky so that it could “lure” her to leave; (iii) AlayaCare represented that it was a “growing” company; and (iv) AlayaCare agreed to (and did) pay for a lawyer to defend Ms. Miller from legal action by WellSky. Thus, the court found that the discussions between Ms. Miller and AlayaCare went beyond normal “courtship” and amounted to inducement, weighing in favour of a longer reasonable notice period.
In light of the inducement that occurred, as well as Ms. Miller’s age of 61, the character of her employment, and the availability of similar employment, the court awarded her 14 months’ reasonable notice. As a result, AlayaCare was ordered to pay Ms. Miller over $200,000 for the salary, bonuses, and RSUs she would have received during the 14-month reasonable notice period.
The Bottom Line
While it is sometimes necessary for employers to headhunt employees who are already securely employed, they should be aware of the risks involved and take steps to minimize their potential liability.
In particular, employers recruiting long-service employees should: (i) ensure that the termination provisions in their employment contract have been recently reviewed by an experienced lawyer for enforceability; (ii) state in the contract that the employee agrees that they have not been induced to leave secure employment or been promised long-term employment; and (iii) expressly state in the contract that no prior service with any other employer will be recognized.
Additionally, Ontario employers should also include a probationary period clause in employment contracts when recruiting existing employees, because courts have repeatedly held that inducement will not be established where an employee agreed to a probationary period, as this would be inconsistent with there being any assurance of secure/long-term employment.
If you require any assistance with preparing employment contracts with enforceable termination clauses and minimizing liability related to inducement, please do not hesitate to contact us for expert legal advice and guidance.
