The perils of poaching: How to avoid getting wounded in the increasingly nasty war for top talent

How to avoid getting wounded in the increasingly nasty war for top talent

In the dog-eat-dog world of investment banking, the notion that rival upstarts would lure star employees away from their former bosses with the promise of more money, greater prestige or a better life is hardly surprising. Being able to hit the ground running with a team of trusted, experienced employees can mean the difference between sink or swim. Stay competitive. Stay hot.

But in the war for top talent, the line between aggressive recruiting and the unlawful solicitation of former colleagues and clients is becoming increasingly fuzzy, with consequences ranging from a slap on the wrist to court-imposed injunctions to million-dollar lawsuits. Firms that used to turn a blind eye to employee poaching are beginning to fight back–and it's up to departing employees to cover their bases before they jump ship.

Gordon Capern, a partner at Toronto law firm Paliare Roland, says that while poaching is a common, if not expected, practice–particularly in financial services–people need to be smarter about their exit strategies to avoid legal and financial headaches. “The first thing you've got to be concerned about as a departing employee and either as a potential poacher or poachee,” he says, “is that you'll be subject to legal proceedings that will be launched very quickly and very expensively, which you will have to respond to at a very crucial time in your business.”

Witness the recent high-profile squabble between CIBC World Markets and newly launched rival Genuity Capital Markets. In two statements of claim filed in January, CIBC alleges nine former employees, including David Kassie, former chairman and CEO of CIBC World Markets, engaged in a “secretive, well-orchestrated and calculated scheme” to recruit colleagues while still on its payroll. CIBC also alleges former employees took confidential client information, and is suing for damages related to the breach of contractual and fiduciary duties. Genuity's founders have denied the allegations.

In a similar case last year, Merrill Lynch Canada was ordered to pay $250,000 to RBC Dominion Securities after one of Merrill's Cranbrook, B.C.-based agents helped oversee the defection of an RBC branch manager and nine investment advisers. In a judgment released by the B.C. Supreme Court in November, the former branch manager was also ordered to pay $10,000 in damages after he was found liable for RBC's losses “resulting from the near-collapse of the branch.”

Although plotting to hatch a rival business while you're still collecting paycheques from your employer is unlawful, the situation becomes stickier during the notice and post-departure periods, when questions surrounding the right to recruit employees and former clients inevitably begin to crop up. “If you're a senior guy, like the ones at CIBC, chances are you're going to be found to owe fiduciary duties to your employer that will survive your departure,” typically for six to nine months, says Capern. The problem, of course, is that many high-level defectors will staunchly defend their right to take the “book of business” with them, arguing they were responsible for attracting the clients in the first place.

Peter Wardle, a partner with Toronto corporate litigation firm Wardle Daley LLP, warns that when it comes to duking it out over clients, it's all about timing. “You can talk to the clients and tell them you're going to leave,” he says, “as long as you don't ask them to come with you.” Wardle adds, however, that unless plaintiffs “have clear evidence that confidential information has been abused or that somebody's been doing something inappropriate before they left,” it can be very difficult for corporations to successfully sue former employees for competing unfairly. Courts usually proceed from the premise that competition is a good thing and view overreaching non-competition clauses in contracts with a great degree of scrutiny. Still, Wardle predicts the CIBC-Genuity fallout may lead some major brokerages to demand their senior players sign employment contracts with specific non-compete and non-solicit provisions.

Recruiting experts generally agree the war for talent is again beginning to heat up and we can expect a more aggressive approach to filling executive ranks. “In some industries, there used to be kind of a clubby, unwritten agreement that they wouldn't try to go into each other's organizations,” says Tom Long, a Toronto-based partner with Egon Zehnder International, an executive recruiting firm with offices in 59 locations worldwide. “Frankly, I think that's a thing of the past.”

Although mobility is inevitable–particularly in the brokerage industry, where the almighty dollar often serves as a prime motivator–human-resources experts say keeping employees happy in open, honest relationships with managers is also key to retention. “Once you get the money and benefits right, it's all about engagement, which leads to retention and loyalty,” says Christopher Hatch, a principal at human-resources consulting firm Towers Perrin. “We know that roughly 60% of the workforce, at any given time, is in the market looking for another job.”

With those odds, perhaps smart companies, especially in financial services and investment banking, should start hedging their bets on the hottest commodity of all–human capital.