Canada: Supreme Court Handcuffs Federal Employers: Just Cause Required To Terminate Employees

The Supreme Court of Canada released its much-anticipated decision in Wilson v. Atomic Energy of Canada Ltd.1 on July 14, 2016. In its decision, a 6-3 split with four sets of reasons, the Court considered whether section 240 of the Canada Labour Code (the “Code”) permits federally regulated employers to terminate employees on a without cause basis. In doing so, the Court assessed whether the dismissal of an employee in those circumstances, without cause, is automatically an unjust dismissal entitling the employee to the remedies available under the Code, including reinstatement.

The majority of the Court concluded that the adjudicator’s decision was reasonable: that a federally regulated employee’s dismissal constitutes an unjust dismissal under the Code unless the employee was terminated for just cause, or due to a lack of work or the elimination of the employee's position. The net result of the Court’s reasoning is that, within federal workplaces, it effectively shuts off the possibility of terminating an employee’s employment where just cause does not exist.

The case originated with an unjust dismissal complaint under the Code by Mr. Wilson, alleging that his dismissal amounted to a reprisal by his employer, Atomic Energy of Canada Ltd. (“AECL”). Mr. Wilson had previously filed a complaint of improper procurement practices. In response to a request for reasons by the appointed inspector, AECL responded that Mr. Wilson was “terminated on a non-cause basis and was provided a generous dismissal package.” AECL did not allege just cause, and offered to provide Mr. Wilson, an employee with four and a half years of service, with a severance package of approximately six months. AECL’s position was that since it had offered a generous severance package to Mr. Wilson, consistent with its common law obligations, his dismissal was not unjust.

The adjudicator allowed the complaint, on the grounds that providing a severance package did not avoid a determination under the Code about whether the dismissal was unjust. The Federal Court found that decision to be unreasonable, concluding that nothing in the Code prevented an employer from dismissing a non-unionized employee without cause. The Federal Court of Appeal agreed, finding that a without cause dismissal is not automatically unjust.

The majority of the Supreme Court sided with the adjudicator. In doing so, the Court reviewed the purpose of sections 240 to 249 of the Code, which provide a statutory alternative to the common law of dismissals. The Court found that the purpose of those provisions was to provide enhanced protection to non-unionized employees, including security from “arbitrary dismissal”. The Court reasoned that the various discretionary remedies under the Code, including reinstatement, would be undermined if an employer had the right to dismiss an employee without cause under the Code by providing adequate severance pay. Therefore, the Court concluded that the adjudicator’s finding, that a termination amounts to an unjust dismissal under the Code unless just cause exists, was reasonable.

The Court’s interpretation provides the concerning result, however, of the Code’s minimum notice and severance provisions being rendered inapplicable, except in restricted circumstances. The majority’s reasons also endorse a statutory “just cause” regime under the Code, “displacing” the application of the common law, while still maintaining the application of common law rules to the termination of an employment contract permitting the pursuit of civil remedies in the courts. Specifically, the Code’s unjust dismissal provisions do not apply where:

  • the terminated employee exercises managerial functions;
  • the dismissed employee chooses to pursue their legal entitlements in the civil courts;
  • the dismissed employee has not filed their unjust dismissal complaint within the required 90 days;
  • the appointment of an adjudicator is refused;
  • the employee is laid off due to a lack of work or discontinuance of functions; and
  • the dismissed employee has accrued less than 12 months’ service.

In these circumstances, both the Code’s minimum notice and severance provisions (sections 230(1) and 235(1)) and the common law analysis of reasonable notice clearly apply. The dismissal of employees upon the provision of severance therefore remains a clear option to federally regulated employers, although in more limited circumstances.

The majority decision of the Court expressed a clear preference toward a framework under the Code that requires just cause prior to the termination of federally regulated employees. The Court’s decision amounts to the fettering of an employer’s authority to manage its day-to-day operations and to make human resource management decisions in respect of its workforce. Given the Court’s approach, employers and their lawyers will now need to turn their minds to what must be done to ensure continued and necessary flexibility in managing the workplace. 


1 2016 SCC 29.

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