When an employment relationship ends, it can result in a disgruntled employee taking legal action against the employer. Oftentimes, employers wish to control the cost of ending the employment relationship. 

There are two effective ways to avoid wrongful dismissal lawsuits and control the financial cost of terminating employees, and they should both be used in conjunction with each other:

  1. Use a carefully drafted employment contract from the outset of the relationship which includes valid, lawful and enforceable language to safeguard the rights of the employer; and
  2. Upon terminating a client, ensure that the outgoing employee is paid what they are owed pursuant to their employment contract. 

It is also good policy to offer terminated employees an additional sum of money beyond their minimum entitlements, in exchange for the employee signing a “Release” waiving any rights to take legal action against the employer. 

In the event that you do receive a demand letter or lawsuit from an employment lawyer acting on behalf of a terminated employee, you should keep a some things in mind. There is a good chance that the person’s lawyer is working on the basis of a “contingency fee”, which means that the lawyer won’t be paid until they are able to get money out of the employer. This can be a strategic advantage for employers who utilize strong defence counsel who will not accept just any allegation that the employee is making against the employer. You have the right to defend your company against allegations of wrongful dismissal. You are entitled to put the plaintiff through the litigation process to test the strength of their case, regardless of how eager their lawyer might be to extract money from your company.

Of course, sometimes settling the dispute is the most cost effective (and reputationally safe) thing for employers to do. So, where appropriate, you should also explore the possibility of resolving the lawsuit without unecessary costly litigation.