Value of Employment Contracts for Solo and Small Firm Lawyers

  • January 22, 2021
  • Stuart Rudner, principal lawyer

Imagine this scenario:

There is a worldwide pandemic, the global economy is devastated, and all non-essential businesses are ordered to shut down. You are able to continue a small portion of your practice, but revenues drop by 75% and you can’t afford your clerk and junior. You consult the employment standards legislation, confirm the rules regarding how layoffs are to be implemented, and then let them know that you have to lay them off temporarily until things pick up.

The next thing that happens is that you receive an aggressive letter from an employment lawyer threatening to bring a claim for constructive dismissal on their behalf because you did not have the right to impose temporary layoffs. They will be seeking damages for wrongful dismissal, as well as punitive damages.

Are they right?

If you are like most employers, they probably are. Most employers do not use employment contracts strategically. Many of their employees don’t have contracts at all, or if they do, they are signed after the employee was already hired (rendering the contract unenforceable in most cases). Very few contracts include temporary layoff clauses, and most do not have enforceable termination clauses (it’s very easy to draft a termination clause, but much more difficult to prepare one that will give you the protection you desire).

As a result, you may well be on the hook for substantial damages, since a constructive dismissal triggers the same severance obligations as a “regular” dismissal. The savings you achieved through the layoffs may be much less than the costs you incur as a result, especially when you add in your legal costs.