The most expensive employee to fire is the one you thought you could afford to lose

When the economy softens, employers tend to reach for the same lever: headcount.

It feels rational. Revenues shrink, forecasts blur, and payroll, usually the largest expense, becomes the obvious place to act. In a weak job market, the assumption follows naturally: employees have fewer options, less leverage and more incentive to accept whatever package is put in front of them.

That assumption is wrong. Worse, it is expensive.

In my practice, I consistently see a pattern emerge during downturns. Employers become more confident in their ability to terminate because it makes economic sense and seems necessary, just as the risks associated with doing so quietly increase. The result is not savings, but liability, often far greater than anyone anticipated at the outset.

The first mistake is believing that a weaker job market reduces the likelihood of litigation. In reality, as I discussed in my last column, it tends to do the opposite.

An employee who loses their position in a strong market will often move on quickly. An employee terminated into uncertainty has both the time and the incentive to challenge the terms of their departure. What might have been accepted with minimal negotiation a year ago is now examined closely, often with legal advice and, increasingly, the willingness to pursue it.

Courts are not indifferent to context. While the law has not formally changed, its application reflects economic reality. Judges understand that re-employment will take longer, particularly for older or more specialized employees. That understanding finds its way into damage awards, even if it is not always explicitly stated.

The second mistake is relying on outdated assumptions about severance.

Employers frequently benchmark against prior internal decisions or general rules of thumb. But severance is not static. It is shaped by risk, and risk is shaped by circumstances. In a market where finding comparable employment may take significantly longer, "reasonable notice" stretches, subtly but materially.

An employer who budgets for termination based on last year's environment may find that the numbers no longer hold. The gap between expectation and reality is often where disputes begin.

The third, and increasingly significant, cost is reputational.

Terminations no longer occur in isolation. A dismissal today can become a public narrative tomorrow, shared across professional networks, discussed internally and noted by those you would prefer to retain. High-performing employees, in particular, pay close attention to how organizations behave under pressure. They draw conclusions quickly, and act on them quietly.

What was once a contained decision now has the potential to influence recruitment, retention and culture in ways that are difficult to measure but easy to feel.

In uncertain times, employers often gravitate toward those who are easiest to manage rather than those who create the most value. The dependable but unremarkable employee is retained. The independent, higher-impact and more challenging employee is let go.

It is a decision that can stabilize the short term while undermining the long term.

None of this is to suggest that employers should avoid terminations. Businesses must adapt, and cost structures matter. But the idea that a weaker market makes termination simpler or safer is a dangerous illusion.

In fact, it does the opposite. It changes the behaviour of employees, the lens through which courts assess outcomes, and the speed at which reputational consequences unfold.

The employers who face the largest payouts are rarely the reckless ones. They are the confident ones. Those who believed the market had shifted in their favour.

It hasn't.

It has simply changed the cost of being wrong.

Howard Levitt is senior partner of Levitt LLP, employment and labour lawyers with offices in Ontario, Alberta and British Columbia. He practices employment law in eight provinces and is the author of six books, including the Law of Dismissal in Canada.