The Federal Court of Appeal (the “FCA”) has laid to rest the long-standing debate over whether employees could be dismissed without cause under the Canada Labour Code (the “Code”). In Wilson v. Atomic Energy of Canada Limited, the FCA decided that employers are permitted to dismiss employees without cause, provided that notice or pay in lieu of notice is provided. However, employers are not automatically protected from wrongful dismissal claims by merely providing a severance package.

What happened?

Atomic Energy of Canada Limited (“AECL”) employed Mr. Wilson for four-and-a-half years. In 2009, Mr. Wilson was terminated without cause and offered a severance package equal to roughly six months’ pay, which was significantly more generous than the notice he was entitled to under the Code. Mr. Wilson chose not to sign the release. Instead, he filed a complaint on the basis that he had been unjustly dismissed. However, the AECL continued paying Mr. Wilson for roughly six months, receiving the full amount of the severance package that AECL had originally offered to him despite not signing the release.

The adjudicator appointed to hear the dispute determined that AECL was prohibited from dismissing Mr. Wilson without cause, even if they had offered to pay him severance. The Federal Court disagreed, stating that the Code allowed for dismissals without cause.

FCA resolves the uncertainty

Although the usual standard for reviewing decisions of adjudicators who interpret provisions of the Code is reasonableness, the FCA decided that the case required a deviation from the normal course. This was because there had been “persistent discord” between adjudicators about whether or not the Code allowed dismissal without cause, which had existed for many years and required the FCA to act as a tie-breaker. It was therefore not enough that the adjudicator’s decision was reasonable. After all, the conflicting decisions of reasonable adjudicators were the very reason for the uncertainty in the law. On that basis, the FCA decided that the adjudicator’s decision needed to be assessed on the higher standard of correctness.

The FCA concluded that the adjudicator was incorrect to say that the Code prohibited employers from dismissing employees without cause. If the Code did not exist, employers could, under common law, dismiss non-unionized employees at any time, as long as they provided reasonable notice or pay in lieu of notice. What the Code did was put in place a system for addressing wrongful dismissal complaints. The Code did not specifically state that the common law is no longer applicable. Instead, the Code gave employees a mechanism for seeking redress when they believe that their termination from employment was unjust, such as when they are not provided appropriate notice or when the reason for their dismissal is discriminatory. This mechanism did not make all without-cause dismissals “unjust”. Although employers who provide a severance package are not automatically immune from scrutiny, if appropriate notice is provided and there is no other reason that the dismissal is unlawful, there is no violation of the Code.

Implications

The FCA’s decision provides much-needed clarity to federal employers. It is now settled that without-cause dismissals are permitted under the Code, in the same way that they are permitted under many provincial statutes.

At the same time, employees can still file a complaint on the basis that they have not received the appropriate notice or equivalent compensation, based on factors such as their age, type of work, length of service, salary, and availability of alternate employment. In order to provide a greater level of certainty, federal employers should consider including language in their written employment agreements that limits the amount of notice and severance the employee is entitled to upon termination of employment, but ensuring that this language provides for at least the minimum amounts required by the Code. While the employee may still try to argue that the language should not be enforced, having such a provision will help support the argument that the employee was not wrongfully dismissed.

If you have any questions about the decision or drafting employment agreements, feel free to contact our office for assistance.

With thanks to Jennifer Bernardo for her assistance on this blog.