What happens when your lawyer misjudges the economic value of your case

An employer dismisses a senior employee. Its lawyer calculates the potential wrongful dismissal damages, advises on a settlement. The advice sounds reasonable. The lawyer knows employment law and considers the matter resolved. The employer moves on.

But what if the lawyer misunderstood the real underlying value of the claim? What if the exposure is several times greater than the lawyer believes? Conversely, what if the lawyer, focused on resolving the matter, is recommending a settlement far higher than the law actually requires in order to avoid being tested by opposing counsel or the court?

These are not theoretical questions. I have seen what happens when lawyers fail to recognize the economic value of the cases in front of them or avoid taking novel positions that could substantially benefit their clients. The consequences can be extraordinary.

In one case, from the employee side, an investment adviser’s lawyer focused on the potential wrongful dismissal claim without appreciating that the loss of the adviser’s book of business was worth dramatically more. The employment claim was not the principal source of value. The value was in the damages for losing the book, a relatively unprecedented claim at the time.

I took over the case and obtained that substantially greater value.

In another case, a lawyer representing an employee valued his stock options by referencing the share price on the date of dismissal. That missed a crucial economic consideration: the options would not have been exercised or sold immediately. Their proper valuation required a more sophisticated analysis than simply looking at the share price on one particular day. I took over that case and brought in his investment advisor and reviewed his historical share sales.

By addressing that issue, we obtained a multiple of the amount contemplated in the original valuation and created legal precedent.

Both cases illustrate a fundamental point. Knowing employment law is not necessarily the same as understanding the potential economic value of an employment dispute.

Now consider the implications for employers. If a lawyer representing an employee can overlook value of that magnitude, what might the employer’s own lawyer be overlooking when assessing the company’s exposure?

That is a question every business leader should ask.

Employers tend to select lawyers through referrals, longstanding relationships and the reputation of a law firm. Those are understandable considerations. But none necessarily establishes that a particular lawyer is equipped to handle the company’s most consequential employment disputes.

A lawyer may be perfectly competent at routine dismissals, employment contracts and day-to-day Human Resources advice. That does not make the lawyer the right choice when a senior executive is dismissed, a complex incentive arrangement is in dispute, a human rights claim threatens a seven-figure award or a novel legal issue could affect an entire workforce.

For example, look at last Saturday’s column, where the employer’s failure to inquire as to whether the employee’s known disability might have factored into his sudden resignation cost the company over $1 million. Too many employment lawyers would miss that!

The problem is that employers often cannot evaluate the advice they receive. They may not know what questions were unasked, which potential claims have been overlooked or whether the settlement being recommended reflects a complete risk assessment.

They are relying on the very person whose analysis they need to question.

That is why the experience and creativity of their lawyer matters.

The investment adviser case illustrates a broader problem with treating employment disputes as narrow legal exercises.

An employee’s departure may involve deferred compensation, equity incentives, a client portfolio, restrictive covenants, lost business opportunities or other financial interests that cannot be evaluated by looking at salary and notice alone.

My case at the Supreme Court of Canada in Matthews v. Ocean Nutrition Canada Ltd. resulted in virtually every Canadian employer having to rewrite their compensation plans. Employers’ lawyers should have anticipated that result in advance. We did which is why we argued for the result we obtained.

In a wrongful dismissal calculation, a company must understand not only the traditional wrongful dismissal analysis but also the potential consequences of its decisions, the evidence and the strength of the witnesses it will have to call and the legal principles, some that may not be obvious, that could govern the outcome.

A sophisticated assessment requires more than a standard calculation and a settlement recommendation but understanding of how the various legal and economic elements interact.

Employment disputes can become extraordinarily expensive. Damages, management distraction, reputational harm and the consequences of an adverse precedent extend well beyond the amount initially in dispute.

Yet the greatest risk may be an error made before litigation begins.

A poorly drafted agreement generally fails precisely when the employer needs it. An inadequately investigated complaint may undermine an otherwise defensible decision — or create additional legal exposure and damage to morale by too quickly suspending the accused and allowing rumours to spread. A termination may be handled in a way that creates avoidable liability. A settlement may be recommended without fully understanding the opposing party’s legal position.

Sometimes the answer is to settle quickly. Sometimes it is to defend the claim vigorously. Sometimes a seemingly modest employment matter contains a legal or financial issue that changes the entire calculation.

That requires experience and judgment. The lawyer’s job is to distinguish between those situations, not to apply the same formula to each.

Nor is the answer to hire the most expensive lawyer available. Employers need counsel who can identify when a matter should be assigned to a junior, when specialist expertise is warranted and when the financial stakes justify a deeper analysis.

There are practical ways to assess whether existing counsel is providing the depth of advice the company needs.

Ask how the lawyer has assessed the full economic exposure, including the financial interests beyond ordinary dismissal damages. Ask what the opposing side’s strongest argument will be. Ask what assumptions underpin the settlement recommendation and what facts could materially change it.

Ask whether the lawyer has handled comparable litigation, argued significant appellate issues before provincial Courts of Appeal and the Supreme Court of Canada and dealt with the particular compensation structures or legal questions involved. More importantly, ask what might be missing from the current analysis.

I saw one lawyer on social media recently touting their expertise in acting for executives, but who has none of this experience and an historic practice focused on helping the underdog. Why suddenly try to attract this demographic? Because there is far more money in acting for executives. Advertising, especially on social media, can be extraordinarily misleading.

A lawyer who has considered the strongest argument against the client’s own position is generally in a better position to advise on risk than one who merely affirms what the client wants to hear.

My 48 years of experience has taught me that outcomes frequently turn on a distinction that may be invisible to lawyers who have not encountered the issue before or examined it deeply enough.

No lawyer wins every case. No amount of experience eliminates uncertainty. And a large recovery in one case does not mean that every other lawyer would have reached the same result.

But there is a substantial difference between a lawyer who recognizes the full range of possibilities and one who sees only the more obvious claims. Employers should not wait until a major dispute exposes that difference.

The question is not whether your employment lawyer is competent. It is whether the lawyer has the experience, judgment and analytical depth to protect your company when the financial consequences are greatest.

By the time you discover that the answer is no, the most expensive mistake may already have been made.

Howard Levitt is senior partner of Levitt LLP, leading his teams of labour lawyers in Ontario, Alberta and British Columbia. Howard has appeared in more Supreme Court employment law cases and provincial appeals than any lawyer in Canadian history. A bestselling author, he discusses current workplace issues on the podcast, At Work with Howard Levitt.