EXECUTIVE SUMMARY

On July 14, 2016, the Supreme Court of Canada (the “Supreme Court”) affirmed that sections 240 to 246 of the Canada Labour Code, R.S.C., 1985, c. L-2 (the “Code”), referred to as the “Unjust Dismissal” provisions of the Code, protect certain non-unionized federally-regulated employees against termination of employment “without cause”. The Supreme Court confirmed that these protections were intended by Parliament to be similar to those enjoyed by the majority of unionized employees in Canada.

In many, if not most, circumstances, it will no longer be considered sufficient for a federally-regulated employer to terminate a non-managerial employee’s employment without cause and simply provide that employee with statutory notice of employment termination (or pay in lieu thereof) and severance pay. Under the Unjust Dismissal provisions of the Code, an employee has the ability to challenge his or her termination and the employee, or an inspector investigating the employee’s complaint, has the right to request reasons for the dismissal. Where an adjudicator finds the reasons for the dismissal render the termination “unjust”, broad remedies are available, including monetary damages and/or other equitable relief, and notably, the possibility of reinstatement. Generally, access to these rights and remedies are available to non-unionized, non-managerial employees who have been employed for more than twelve months, where the employee has not been “laid off because of lack of work or because of the discontinuance of a function”.

The Supreme Court’s decision in Wilson represents a significant development in favour of employees, and will have a significant effect on the options available to federally-regulated employers when managing their workforce and operations.

BACKGROUND INFORMATION

The general rule in most provincially-regulated workplaces across Canada is that a non-unionized employee can be terminated with or without cause. Both Quebec and Nova Scotia have legislation that limits an employer’s ability to effect a without cause termination for employees who have two and ten years’ service, respectively. Subject to these exceptions, where adequate notice of termination is provided (or pay in lieu thereof, and where applicable, severance pay), provincially-regulated employers in Canada can generally terminate an employee’s employment without cause.

Each province’s employment standards legislation sets out the minimum amount of notice (or pay in lieu thereof) that must be provided when effecting a without cause termination. An employer must provide this minimum amount of notice, plus any severance pay owed, to avoid breaching the applicable legislation. Even when these minimum statutory requirements are met, however, provincially-regulated employers may still be exposed to liability for common law notice, which an employee may seek by filing a wrongful dismissal claim through the Courts. Employers may attempt to limit an employee’s ability to claim common law notice by including a carefully-drafted termination provision in the employees’ contracts.

In the federally-regulated context, employees are similarly able to seek an award for common law notice by filing a claim for wrongful dismissal through the Courts; however, theCode also creates an alternative enforcement mechanism for employees to whom the Unjust Dismissal provisions apply. Upon dismissal, an eligible employee can make a complaint to a Federal Labour Program Inspector if he or she believes that his or her termination was unjust. The claim can be referred to an adjudicator who will consider submissions with respect to the reasons for the termination, and determine whether the termination was unjust. If found to be unjust, the adjudicator has discretion to issue a broad range of remedies, including reinstatement.

WILSON: THE FACTS AND LOWER COURT TREATMENT

In Wilson, the Supreme Court considered an appeal from the Federal Court of Appeal decision in Wilson v. Atomic Energy of Canada Ltd., 2015 FCA 17. The appellant, Wilson, was dismissed without cause after four and a half years of employment with Atomic Energy of Canada. He was offered a monetary package equal to six months’ pay in exchange for a full and final release. Wilson did not sign the release. He filed a complaint under the Unjust Dismissal provisions of the Code and argued that Part III of the Code prohibited an employer from dismissing an employee unless there was just cause for the dismissal.

The adjudicator before whom the decision was first heard agreed with Wilson that the Codeonly permitted the dismissal of an employee for cause, regardless of whether the employer gave appropriate notice of termination or pay in lieu and/or severance pay. The employer appealed this decision, and subsequently both the Federal Court and the Federal Court of Appeal held that the Code does permit an employer to dismiss an employee without cause, so long as the employer provides the employee with adequate payments for notice and/or severance upon termination. This was the key issue before the Supreme Court.

ANALYSIS

In Wilson, six of nine Supreme Court Justices held that a “without cause” dismissal is not permitted under the Unjust Dismissal provisions of the Code. The Supreme Court held that the Code’s text and legislative context, including statements made by the Minister of Labour when the Unjust Dismissal provisions were introduced to Parliament in the 1970’s, and the views of “the overwhelming majority of arbitrators and labour law scholars”, all confirm that the intended purpose of the Unjust Dismissal provisions of the Code was to ensure that non-unionized federal employees would be entitled to protection against being dismissed without cause.

In making its finding in Wilson, the Supreme Court further held that to allow an employer to effect a termination without cause by simply providing an employee with statutory notice or pay in lieu thereof, and severance pay, would undermine the legislative purpose of the Unjust Dismissal provisions and deprive employees of the full remedial package Parliament created for them, which includes giving adjudicators the ability to reinstate an unjustly dismissed employee.

The Supreme Court also found that the Code’s provisions regarding notice pay and severance pay were not a substitute for the Unjust Dismissal provisions and that the notice and severance provisions only apply to employees who cannot benefit from the Unjust Dismissal provisions under the Code.

The Supreme Court also observed that while the common law provides that “there is a right to dismiss on reasonable notice without cause or reasons,” this concept “has been completely replaced under the Code by a regime requiring reasons for dismissal.” As such, a federally-regulated employer must be prepared to provide reasons for the employee’s dismissal, and should be aware that if those reasons are found to be insufficient by an adjudicator, the dismissal may be considered “unjust” and a broad range of remedies may be awarded, including reinstatement.

IMPLICATIONS FOR FEDERALLY-REGULATED EMPLOYERS

A)  APPROACH TO TERMINATING EMPLOYEES

The Supreme Court’s decision in Wilson has significant implications for federally-regulated employers. Just cause is a high legal threshold to meet. The effect of Wilson is that a federally-regulated employer’s ability to terminate many non-union, non-managerial employees is significantly limited by the Unjust Dismissal provisions of Code.

Federally-regulated employers may wish to place a greater emphasis on monitoring individual employee performance during the first twelve months of an employee’s employment. Employers may wish to essentially treat this first twelve months as a “probationary period” since, prior to reaching twelve months of consecutive employment, an employee’s employment can be terminated without cause, including for performance-based reasons that fall short of establishing cause, provided the employee is given notice of termination, or pay in lieu thereof, as required under the Code. Statutory severance pay is not owed where employees have not completed twelve months’ service.

It should be noted, with respect to employees with more than twelve months’ service, that standard job performance problems will typically be considered insufficient to establish “just cause” under the Code. However, employers will not require just cause to terminate an employee in all circumstances. The exceptions, which are explicitly set out in the Code, state that the Unjust Dismissal regime will not apply to: managerial employees; non-unionized employees with fewer than twelve consecutive months of employment; and employees laid off due to lack of work or because of the discontinuance of a function. Termination of employment of employees in these categories is governed by the notice and severance provisions set out in sections 230 and 235 of the Code.

Terminated employees who are eligible to avail themselves of the Unjust Dismissal provisions of the Code are required to make their complaint within 90 days of their dismissal.

A terminated employee who successfully pursues an unjust dismissal claim under the Codemay be entitled to a broad range of remedies, some of which are not available in the case of a common law wrongful dismissal claim. The Code empowers an adjudicator to award an unjustly dismissed employee monetary damages, issue an order of reinstatement, and/or “do any other like thing that is equitable to do in order to remedy or counteract the consequence of the dismissal”. An employer will not be able to avoid the risk of an employee’s reinstatement or the awarding of other remedies by providing statutory severance pay and notice, or pay in lieu thereof, to avoid triggering the Code’s Unjust Dismissal provisions.

It should be noted that the Supreme Court’s decision does not preclude the possibility of an employer and dismissed employee reaching an agreed-to resolution with respect to that employee’s termination of employment, although the decision in Wilson does give dismissed employees new leverage in negotiations. Employers should take note of the fact that, as occurred in Wilson, if negotiations with a dismissed employee fail, the dismissed employee would be free to avail themselves of the Unjust Dismissal provisions under the Code.

B)  APPROPRIATE USE OF TERMINATION CLAUSES IN EMPLOYMENT CONTRACTS

For managerial employees who are federally regulated, employers can continue to utilize termination clauses in employment contracts to restrict the employee’s entitlements upon termination on a without cause basis.

For non-managerial employees, while an employer can continue to utilize such termination clauses in an attempt to restrict entitlement upon termination without cause, particularly with respect to wrongful dismissal claims for common law notice, employers should be aware that where the employee has more than twelve months of service, and where the employee is not being terminated due to a bona fide lack of work or discontinuance of a function, such clauses will not shield an employer from an Unjust Dismissal complaint under to the Code.