The competition for talented employees is fierce in most industries, and employee loyalty is hard to come by. However, certain incentives may be used to retain talented employees, and legal remedies exist against departing employees and their new employers where duties have been breached.

What incentives do employers have to retain talented employees?

Employers may consider providing new employees with sign-on bonuses, to be repaid if the employee leaves before completing a defined period of employment. Sometimes these incentives are structured as forgivable loans, portions of which are “retired” as service accumulates, with any balance remaining due on resignation. Long-term incentive compensation, including stock options, which vest over a number of years, and will be forfeited if the employee resigns prior to vesting, can also be an effective retention tool.

Do employers have recourse against a predatory competitor?

If a former employee is in breach of restrictive covenants or fiduciary duties with a competitor, the competitor may also be held liable for inducing a breach of the employee’s contract. Moreover, injunctive relief may be available against a competitor in respect of its participation in an ex-employee’s breaches. If obtained, an injunction can stop a former employee from competing unfairly, and the new employer from participating in such wrongful competition. Employers hiring senior level employees are well-advised to require confirmation from new employees that they are not bound by any duty affecting the proposed hiring.

It is possible to require an employee to sign a non-competition agreement at the time of departure?

It may be possible to introduce a noncompetition covenant when the employment relationship is ending. However, to be enforceable, there must be additional consideration, above and beyond employee’s existing entitlements. If the parties are bound by an employment agreement containing a specific termination provision, payment above and beyond the severance amount provided for in the employment agreement would be required to secure a valid and binding restrictive covenant from the departing employee.

What more can employers do to keep the “best and the brightest employees”?

Where financial incentives vest over a period of time, and early departure results in forfeiture, these incentives may become “golden handcuffs”, assuming the competition is not prepared to compensate the employee for the cost of leaving. But, employers are wise to go beyond “golden handcuffs”, keeping in mind that, for many employees, intangibles and lifestyle perks (such as gym memberships, flexible work arrangements etc.), are most likely to enhance employee loyalty.