On July 14, 2016, in a highly anticipated ruling, the Supreme Court of Canada ruled in Wilson v Atomic Energy of Canada Ltd. that Division XIV of the Canada Labour Code prevents federally-regulated employers from terminating non-managerial employees with more than 12 months of service without reasons.

The Supreme Court’s interpretation of the Code confirms that the Code overrides the long-established common law principle that an employer may generally terminate the employment of a non-unionized employee at any time, for any reason, by providing the employee with reasonable notice of termination of employment. This conclusion is consistent with the past interpretations of many labour arbitrators and adjudicators.

Background: Wilson dismissed without cause and without reason

Joseph Wilson worked as an Administrator and Procurement Supervisor at Atomic Energy of Canada Ltd. (AECL) for four and a half years, and was dismissed without cause and without reason in November of 2009. Upon termination, AECL offered Mr. Wilson six months of pay in lieu of notice. Mr. Wilson rejected AECL’s offer, and instead opted to make an unjust dismissal complaint under Division XIV of the Code.

When the inspector requested that AECL provide reasons for Mr. Wilson’s dismissal, AECL indicated that it had “terminated [Mr. Wilson] on a non-cause basis and [that Mr. Wilson] was provided with a generous dismissal package that well exceeded the statutory requirements.”

An adjudicator was subsequently appointed to hear Mr. Wilson’s complaint. The adjudicator concluded that an employer could not rely upon severance payments, no matter how generous, to avoid a determination under the Code about whether the dismissal was unjust. In the absence of any justification from AECL of the reasons for Mr. Wilson’s dismissal, Mr. Wilson’s unjust dismissal complaint was allowed.

AECL disagreed with the adjudicator’s decision, and applied to the Federal Court for judicial review. The Federal Court overturned the adjudicator’s decision, and held that a dismissal is just for the purposes of the Code, provided that the dismissed employee is given reasonable notice of his or her termination. The Federal Court’s decision was subsequently confirmed by the Federal Court of Appeal.

Mr. Wilson disagreed with the conclusions reached by the Federal Court and the Federal Court of Appeal, and appealed to the Supreme Court of Canada.

The Supreme Court’s decision

The Supreme Court of Canada allowed Mr. Wilson’s appeal, overturned the decisions of the Federal Court and the Federal Court of Appeal, and reinstated the original adjudicative decision confirming that Mr. Wilson’s dismissal was unjust.

In reaching this conclusion, Justice Abella made the following observation, at paragraphs 67 and 68:

“The remedies newly available in 1978 [when Division XIV was enacted] to non-unionized employees reflect those generally available in the collective bargaining context. And this […] is what Parliament intended. To infer instead that Parliament intended to maintain the common law under the Code regime creates an anomalous legal environment in which the protections given to employees by statute – reasons, reinstatement, equitable relief – can be superseded by the common law right of employers to dismiss whomever they want for whatever reason they want so long as they give reasonable notice or pay in lieu. […]

[The] argument that employment can be terminated without cause so long as minimum notice or compensation is given […] would have the effect of rendering many of the Unjust Dismissal remedies meaningless or redundant. […] These consequences result in statutory incoherence. Only by interpreting [Division XIV of the Code] as representing a displacement of the employer’s ability at common law to fire an employee without reasons if reasonable notice is given, does [Division XIV] make sense.”

Division XIV of the Code – Unjust dismissal provides expansive protection

Division XIV of the Code permits any terminated non-managerial employee who has completed 12 consecutive months of continuous employment and who is not a member of a bargaining unit to make a complaint to an inspector if the employee has been dismissed and considers the dismissal to be unjust. However, unjust dismissal complaints may not be made if the dismissal was due to a lack of work or discontinuance of a business function.

A dismissed employee must make a complaint under Division XIV of the Code within 90 days of the date on which the employee is dismissed.

An inspector is then assigned by Employment and Skills Development Canada to assist the dismissed employee and the employer to resolve the complaint. Among other things, the inspector can request that the employer provide reasons for the dismissal; and the employer is required to respond to any such request within 15 days.

If the dismissed employee and the employer are unable to resolve the complaint with the assistance of the inspector, an adjudicator is then assigned to hear the complaint. Among other things, the adjudicator has broad remedial powers, including the power to:

  1. Order that the dismissed employee be compensated in an amount equivalent to the remuneration that would have been paid to the dismissed employee by the employer but for the dismissal;
  2. Order that the dismissed employee be reinstated by the employer; and/or
  3. Order any other equitable remedy to counteract any consequence of the dismissal.

As an alternative to making a complaint under Division XIV of the Code, a dismissed employee is also permitted to commence a civil action against the employer seeking common law remedies, including common law notice or pay in lieu thereof.

Takeaway for employers

The Wilson decision confirms that a federally-regulated employer’s recourse to terminate a non-managerial employee is limited to only the following situations:

  1. The employee has been employed for less than 12 months;
  2. The employee’s dismissal is due to a lack of work or a discontinuance of a business function; and
  3. The employee’s dismissal is for just cause.

Federally-regulated employers are not permitted to terminate non-managerial employees without cause and without reason.

This decision clearly affects the employer’s ability to determine the composition of its workforce, as federally-regulated employers will generally no longer be able to rely on reasonable notice periods or payments in lieu of notice as a manner of effecting the departure of an unsuitable employee.

As a result of this decision, and recognizing that Division XIV does not apply to employees with less than 12 months of continuous employment, federally-regulated employers may increase their efforts to evaluate an employee’s potential for success prior to the end of the first year of employment and terminate employees who are not a proper fit for the organization within the first year.

In addition, federally-regulated employers will continue to benefit from implementing and maintaining robust performance management programs for non-managerial employees to ensure that just cause for dismissal can be established if the employment relationship must be terminated after 12 months of continuous employment.