ICPMs balk at termination rule

By Bryan Borzykowski | May 18, 2007 | Last updated on May 18, 2007
4 min read

For a lot of people, handing an incorrigible boss your walking papers can feel great, especially if you’ve got a better job lined up. But what if your jilted superior had the power to get you canned from your next place of work?

Securities commissions across the country are debating a proposal, which is part of NI 31-103, that would force a former employer to tell their ex-employee’s potential employer why that person left their company.

Section 8.1 of the proposed rule states, “On request, a registered firm must disclose, to another registered firm that is considering whether to employ, retain as agent, or accept as a partner a person, all information in its possession or of which it is aware that is relevant to the person’s conduct or to an assessment of the person’s suitability as a registered individual or that is material to the hiring of the person by the registrant.” In other words, if a new employer wants to find out why their recent hire left their last company, the old employer is mandated to share that information.

While the securities commissions defend the rule by saying this as one way to stay on top of corruption, others in the financial community are worried it will just lead to institutionalized mud slinging. At the 9th Annual Compliance Readiness Strategies conference for ICPMs, many in attendance expressed concern with this part of the national instrument. “This sounds like an awfully smelly kettle of fish to me,” said one attendee, while another commented that “if an employee quits because there are issues at the firm, I think employees should be given a chance to notify the regulators so they can do their reviews on the firm. Passing the trash goes both ways.”

Charles Dillingham, a portfolio manager and vice-president with Toronto-based Morguard Financial, is worried that the proposed rule will be unfair to the employee. “It seems to me that some of this stuff has to overcome basic human rights legislation,” he says. “If you’re asking for a special thing, somewhere in that equation should come the fairness of the person in the middle.”

As it stands now a potential employer can call references and ask for criminal record checks. David Gilkes, manager of registrant regulation at the OSC, says the new rule will give an employer the “tools necessary to do due diligence.”

“It’s a means of helping the firms get accurate information on their employees,” he says.

Sandy Jakab, the British Columbia Securities Commissions’ acting director of capital markets regulation, told the ICPM conference that the rule is not just for new employees, but also for the regulators to stay on top of any dubious activity.

“Your concern about a person’s behaviour is going to coincide with the regulators concern about that person’s integrity, which is a key component of the suitability for the person’s registration,” she said. “The notion that there should be information shared, we think, supplements the duty that already exists of the hiring firm.”

Dillingham agrees that there “needs to be something along these lines,” but he sees several problems with the process. One concern is that while employers can freely share information, getting that same information to an affected employee isn’t as easy.

“So much of this can be subjective,” he says. “If you’re asking for the rules to be loosened up such that people are being pressured to give information more than in the past, with unknown legal liabilities, if you’re pushing for the rights of the hirer, the hiree should have the same rights.” When companies share information, Dillingham says an employee should have access to the same information at the same time.

If an employee wants to know what’s in his/her file, explains Jakab, he can ask his boss to show him. “You have the right to ask for any information an organization has on you and you have the opportunity to correct that.” She admits that it’s a bit of a complicated process as access to personal information can often straddle the line between employment law and privacy legislation. “What is the employee information and what is the employer information is up for much discussion and debate,” she says.

Another worry of Dillingham’s — and many of the other managers at the ICPM conference — are the legalities surrounding this proposed rule change. If an employer provides information that prevents someone from landing a job, can they be sued?

When coming up with this proposal, the BCSC took a close look at privacy law and determined that this type of information sharing is legal. As an extra safeguard, Jakab says an ex-employer can also use the defense of “qualified privilege” if a defamation claim is made. “This is because the former firm is required by statute to provide the information,” she says. Of course, the information an employer provides has to be true and accurate or an employer can sue for libel.

Jakab isn’t surprised by all the comments regarding this rule change. She’s attended other conferences where the same questions and concerns pop up. NI 31-101 won’t be ratified until mid-2008, so securities commissions across Canada are currently accepting comment on the rule.

“What people are trying to figure out is how to use this tool most effectively. It’s still under development,” she says. Still, Jakab doesn’t think the proposal dramatically alters the hiring process. “This rule change doesn’t affect the dynamic that exists today. It just opens the opportunity for more of these conversations.”

Until the rule becomes clearer, however, people like Dillingham are going to have questions. “Look at the same news written in Dubai and New York and you see a very different story,” he says. “It’s such a treacherous area where there’s so much room for interpretation.”

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com


Bryan Borzykowski