There has been an ongoing jurisprudential controversy over the issue of whether a federally-regulated employer may lawfully dismiss an employee without cause under Part III of the Canada Labour Code (the “Code”).

On July 2, 2013, the Federal Court ruled that the Code permits the dismissal of an employee without cause. However, the dismissal continues to be subject to scrutiny before an adjudicator under the standard of justness. What does this mean?

In Atomic Energy of Canada Limited v. Wilson, 2013 FC 733, the Honourable Mr. Justice O’Reilly allowed a judicial review application against an adjudicator’s decision in which it was decided that the Code only permits dismissals for cause. In particular, the adjudicator had 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.

The complainant, who had worked for Atomic Energy for 4.5 years, was dismissed on a “without cause” basis with a monetary severance package equaling 6 months’ pay. He filed an unjust dismissal complaint but the employer argued that he was terminated with a generous dismissal package that exceeded the statutory requirements.

The Federal Court found the adjudicator’s conclusion to be unreasonable. The Court ruled that the Code permits employers to terminate employees without cause as long as notice/severance pay under sections 230 and 235 is provided. However, the employee may still complain that his dismissal was unjust or that the reasons given by the employer were unjustified. According to the Court, the fact that an employer has provided severance pay does not preclude an adjudicator from granting further relief if the dismissal was unjust. However, this does not mean that the Code only permits dismissals for cause.

Under that reasoning, a dismissal may be made “without cause” provided that the dismissal is not “unjust”. The Court specified that a different conclusion would fail to take into account the remedies provided in sections 230 and 235 of the Code for persons dismissed without cause. Also, the Court indicated that this conclusion is not inconsistent with the principle set out in its earlier judgment in Redlon Agencies Ltd. v. Norgren, 2005 FC 804 that employers cannot avoid the unjust dismissal remedies by simply awarding severance pay.  In the Court’s view, Redlon does not stand for the proposition that the Code only permits dismissals for cause.

This judgment is a positive development for employers as many adjudicators took the position that employers were obliged to first prove that the dismissal was for just cause on the basis that they considered the unjust dismissal provisions of the Code to establish a protection akin to the one found in collective agreements for unionized employees. That judgment is also aligned with a recent ruling by an adjudicator in which it was found that an employer who dismissed an employee by offering the severance pay provided under the consensual employment contract fulfilled its bargain and complied with the Code: Klein v. Royal Canadian Mint, [2012] C.L.A.D. No. 358 (Peltz).

A distinction between “just cause” and “just dismissal” is therefore now established by this recent judgment. The complainant has until the end of September to file an appeal.