On January 22, 2015, the Federal Court of Appeal ("FCA") held that the Canada Labour Code (the "Code") permits dismissals on a without cause basis in its long-awaited judgment: Wilson v. Atomic Energy of Canada, 2015 FCA 17.

There was ongoing jurisprudential controversy over the issue of whether a federally-regulated employer could lawfully dismiss an employee without cause under the Code. Some adjudicators had held that the Code does not permit dismissals without cause while others disagreed.

In light of the divergent jurisprudence which persisted for decades, the FCA applied the standard of correctness and decided to act as a tie-breaker.

The complainant in that case, Mr. Joseph Wilson, worked for Atomic Energy for four and a half years. He was dismissed on a "without cause" basis with a monetary severance package equaling six months' pay. He filed an unjust dismissal complaint under section 240 of the Code. In defense, the employer argued that he was terminated with a generous dismissal package that exceeded the statutory requirements under ss. 230 and 235 of the Code.

The adjudicator decided that the Code only permits dismissals for cause. He ruled that employers cannot escape the unjust dismissal provisions of the Code (sections 240-245) by resorting to the termination and severance payment provisions of sections 230 and 235 of the Code or by giving a sizable severance package.

Mr. Justice O'Reilly of the Federal Court quashed the adjudicator's decision. He held that the Code permits employers to terminate employees without cause as long as notice and severance pay under sections 230 and 235 are provided, but specified that the employee may still complain that his/her dismissal is unjust or that the reasons given by the employer were unjustified. Under his reasoning, a dismissal may be made "without cause" provided that the dismissal is not "unjust".

The Federal Court's conclusion was upheld by the FCA last week.

The FCA based its determination on the following considerations:

  • At common law, employers may dismiss non-unionized employees without  cause by providing reasonable notice or compensation. In order to depart from this prevailing right, explicit language or language of "irresistible clearness" is required in the Code.
  • Part III of the Code does not contain such explicit language. The Code does not explicitly oust the employer's common law right to dismiss non-unionized employees without cause. In other words, the Code does not prevent an employer from dismissing employees absent misconduct.
  • There is nothing in the Code which grants non-unionized employees a "right to a job" and which suggests that it was intended to place non-unionized employees in the same position as unionized employees.
  • To the contrary, the FCA found that ss. 230 and 235 of the Code, which require that notice and/or compensation be given, expressly allow an employer to terminate an employment relationship without cause.

In the FCA's view, the remedies available to adjudicators to reinstate employees and/or to order employers "to doany other like thing that it is equitable to require the employer to do in order to remedy or counteract anyconsequence of the dismissal " are over and above the old remedies available at common law, but do not support the theory that dismissals can only be with cause.

"Unjust" is not defined under the Code. The FCA refrained from defining the notion of "unjust", leaving the task to Part III adjudicators to develop the jurisprudence regarding the meaning of that term. However, by considering its opposite (i.e. "just dismissal"), it was suggested that a "dismissal based on an objective, real and substantialcause… entailing action taken exclusively to ensure the effective operation of the business" would be considered "just". Therefore, the "real and substantial cause" does not have to relate to the affected employee. Rather, a "just" dismissal presupposes an action taken to ensure the effective operation of the business and something other than "caprice, convenience or purely personal disputes".

In the end, this means that the adjudicator's role under Part III of the Code is to evaluate the circumstances and determine whether the dismissal, whether or not for cause, was unjust.

In some cases, it has been held that the payment of severance in accordance with the provisions of the employment contract will be sufficient to conclude that the dismissal was "just" provided that the contract was entered into freely and without duress and that its terms are in compliance with ss. 230 and 235 of the Code (see for example Klein v.Royal Canadian Mint, [2012] C.L.A.D. No. 358 (Peltz) and Sigloy v. DHL Express (Canada) Ltd, 2014 CanLII 22985 (Rose)). However, the FCA noted that the payment of severance will not preclude an adjudicator from granting further relief if the adjudicator concludes that the dismissal was unjust.

This judgment represents a very significant development for federally-regulated employers. It clarifies the protections afforded to non- unionized employees under Part III of the Code. Employers can now clearly dismiss non- unionized employees in the absence of "just cause", such as misconduct or incompetence. Adjudicators will now presumably be called to assess the "justness" of the severance offered by the employer. Although the full impact of this judgment will become clearer over time, it is to be presumed that, absent any other "unjustness" allegations, the application of consensually defined terms of a valid and enforceable contract of employment should attract a finding of "justness".

Mr. Wilson has sixty days to file an application for leave to appeal to the Supreme Court of Canada.