In the face of ongoing uncertain business landscape, driven in part by trade tensions between the U.S. and Canada, businesses are being forced to make difficult decisions regarding workforce management. Whether it’s temporary layoffs, reductions in hours, or terminations, employers must ensure their employment agreements are up to date and legally sound.

With evolving case law and shifting economic conditions, outdated employment agreements can expose businesses to legal risks, costly disputes, and unforeseen liabilities. This is why a proactive approach to reviewing and updating employment contracts is more critical than ever.

Key Elements to Review in Your Employment Agreements

1. Temporary Layoffs, Reduction of Hours, and Reassignment of Duties

Many employers assume they have the right to implement temporary layoffs, adjust working hours, or reassign duties as needed. However, without explicit clauses in an employment agreement allowing for these changes, employers may find themselves vulnerable to legal claims for constructive dismissal.

• Temporary Layoffs: In Ontario, an employer does not have the automatic right to lay off employees unless the employment agreement specifically includes a layoff clause. Without it, an employee may claim they were constructively dismissed and seek reasonable notice.
• Reduction of Hours: Any significant reduction in an employee’s working hours could be seen as a unilateral change to their terms of employment, which can also give rise to constructive dismissal claims.
• Reassignment of Duties: Modifying an employee’s job responsibilities without contractual backing can create similar legal risks. Employers should ensure agreements contain clear language allowing for reasonable adjustments in job duties when business needs change.

2. The Importance of Updating Employment Agreements to Reflect Changing Case Law

Employment law is constantly evolving, and failing to update agreements in accordance with new legal precedents can leave businesses exposed.

Recent rulings have clarified and, in some cases, restricted the enforceability of termination provisions. Employers relying on outdated contracts may find their termination clauses unenforceable, resulting in increased severance costs and litigation risks.

• Case Law Updates: The highly anticipated Court of Appeal decision at the end of 2024, Dufault v The Corporation of the Township of Ignace (“Dufault”), the Court of Appeal upheld the lower Court’s decision to render the termination clause invalid. In the case of Baker v. Van Dolder’s Home Team Inc., released in February 2025, the Court followed the Dufault decision and set aside a termination provision that included a reference to the Company’s ability to “terminate at any time”.
• Inadequate Invalid termination clauses can lead to employees being entitled to significantly higher severance payouts based on the common law. Ensuring clear and enforceable termination language can help employers mitigate financial exposure.

3. Why Proactive Agreement Updates Matter, Especially During Workforce Reductions

Many businesses are currently assessing their workforce needs, including potential terminations. Unfortunately, if an employer waits until the time of termination to review their employment agreements, it may already be too late.

• Legal Protection: A well-drafted employment agreement protects employers from constructive dismissal, excessive severance costs and wrongful dismissal claims.
• Proactive Risk Management: Regular updates help businesses stay ahead of legislative changes and evolving court decisions, ensuring compliance and reducing legal exposure.
• Competitive Advantage: In a challenging economic environment, companies with clear, legally sound agreements can navigate workforce decisions more efficiently and with less financial strain.

Updating employment agreements is not just a legal formality—it is a crucial business strategy for risk management. Given the rapid changes in employment law and economic volatility, employers should work with legal experts to review and revise their agreements regularly.

At MaxPeople, we are seeing a significant uptick in employers seeking contract updates, recognizing that prevention is far more cost-effective than litigation. If your agreements haven’t been reviewed recently, now is the time to act.

For expert guidance on updating your employment agreements and safeguarding your business, reach out to our team today.

For more information about fractional HR services, email [email protected] or call 1.888.709.1236