In an important decision (Wilson v Atomic Energy of Canada Limited) for federally regulated employers, the Supreme Court of Canada held that the “unjust dismissal” provisions in the Canada Labour Code mean non-union employees cannot be terminated absent just cause and that adequate severance pay is not a sufficient substitute.

A couple of general principles of labour and employment law are that (1) unionized employees cannot be terminated absent just cause and (2) non-union employees may be terminated at any time without any right to reasons for termination so long the employer gives reasonable notice of termination or reasonable compensation in lieu of notice. Ultimately the court in Wilson found that the specific wording of the unjust dismissal provisions in the Code resulted in non-union employees have a just cause protection similar to unionized employees covered by a collective bargaining agreement.

The Facts

Briefly by way of background, Joseph Wilson was employed by Atomic Energy of Canada Limited (AECL) for approximately 4.5 years prior to the termination of his employment without cause. AECL made a severance offer which Mr. Wilson rejected. However, instead of suing in court for wrongful dismissal damages, Mr. Wilson made a complaint to an inspector pursuant to the unjust dismissal regime in the Code. This regime permits a non-union employee to request the reasons for the termination of their employment and, in the absence of the reasons for termination fitting within one of the permitted grounds, the employee may seek remedies for their unjust dismissal, including reinstatement. In this case, AECL admitted the termination was without cause as Mr. Wilson did not have a disciplinary record and there was no serious misconduct that led to the termination. The reasons for termination also did not fall within one of the specified grounds (i.e., lack of work or discontinuance of a function) that would have prohibited the adjudicator from hearing the complaint. As a result, the issue before the adjudicator was whether an employer could satisfy its obligations under the Code simply by providing a sizable severance package (i.e., six months’ pay to Mr. Wilson). The adjudicator followed the bulk of the legal authorities in this area and concluded that, in the absence of just cause, Mr. Wilson was unjustly dismissed under the Code.

After the adjudicator’s finding of liability, but prior to issuing a remedy (e.g., pay in lieu, reinstatement, etc.), AECL applied for judicial review of the adjudicator’s decision. The Federal Court and the Federal Court of Appeal concluded the adjudicator’s decision was unreasonable on the basis that nothing in the Code precluded employers from dismissing non-union employees on a without cause basis.

The SCC Decision

Mr. Wilson appealed to the Supreme Court of Canada and the majority of the court concluded that the adjudicator’s decision was reasonable and that the right of a federally regulated employer to terminate a non-union employee with notice had been limited by the Code.

It is important for employers to remember that the Code limits application of the unjust dismissal regime in the following ways:

  • The affected employee must have at least 12 months’ service;
  • It does not apply to managers (although this term is interpreted fairly narrowly—for example, Mr. Wilson who was a supervisor was not considered a manager);
  • It does not apply to terminations for a lack of work; and
  • It does not apply to terminations for discontinuance of a function.

Analysis

Federally regulated employers will have an even greater challenge implementing terminations of non-union employees for reasons that are often referred to as “fit” issues (e.g., weak performer, but issues do not arise to cause or the employee fails to comply with the culture of the company) and the employer’s preference is to change the individual in the role rather than eliminate the role. Since employees will know that it is not sufficient for the employer to terminate without cause and offer a fair severance package, employers can anticipate affected employees using the threat of reinstatement under the just dismissal provisions as leverage for demanding enhanced severance.

How to Avoid this Issue?

In light of this decision, it is important for federally regulated employers to commit to best practices with respect to performance management. For example, we recommend:

  1. Conduct a performance review prior to employee completing 12 months – Many employers conduct performance reviews prior to the end of a three-month probationary period, but federally regulated employers should strongly consider a further review and checkpoints through the first year, with a final review prior to the employee completing 12 months service. If employers have any concerns regarding performance, they should terminate a weak performer prior to that employee falling under the protections of the Code’s unjust dismissal provisions.
  2. Diligently document performance issues/misconduct – It is difficult to prove just cause, but it is exceedingly difficult for employers to prove just cause if the employee’s performance issues and misconduct have not been sufficiently documented and raised to the employee’s attention. By addressing performance issues/misconduct in a timely way, the employer is able to build their case in order to prove just cause or, at a minimum, use the documentation to illustrate to the employee they are on the wrong track and improve their performance immediately or engage in negotiations towards a reasonable severance package (as opposed to employee seeking reinstatement under the Code).