Canada: Unjust Dismissal In Federally Regulated Organizations – The Rift In The Case Law Has Been Healed

Last Updated: December 14 2016
Article by Charles Wagner and Mélanie Sauriol

The Supreme Court of Canada's recent decision in Wilson v. Atomic Energy of Canada1 ("Wilson") impacts more than 500,000 non-unionized employees, who work for organizations under federal jurisdiction (banks, telecommunications, interprovincial transportation enterprises and some Crown corporations). The decision puts an end to the controversy that had surrounded the remedy for unjust dismissal provided for in sections 240 to 246 of the Canada Labour Code2 (the "CLC"). It marks a major turning point for unjust dismissal hearings.

The regime created by sections 240 and following of the CLC grants non-unionized employees who have completed at least 12 months of continuous employment protection similar to that enjoyed by unionized employees covered by a collective agreement. For provincially regulated organizations in Quebec, a parallel can be drawn with the complaint for dismissal without good and sufficient cause under section 124 of An Act Respecting Labour Standards. An arbitrator called upon to decide the faith of a complaint for unjust dismissal has broad remedial powers, including the reinstatement of the employee.

The Wilson decision provides answers to a debate that has divided arbitral jurisprudence since section 240 was introduced into the CLC in 1978. Since then, the following two schools of thought have been followed in arbitrations involving claims for unjust dismissal:

(i) Federally regulated employers can legally dismiss a non-unionized employee without cause by providing said employee with a reasonable notice or pay in lieu thereof, and the employee is not entitled to contest his dismissal under section 240 of the CLC.

(ii) Federally regulated employers cannot legally dismiss a non-unionized employee without cause by providing the employee with a reasonable notice or pay in lieu thereof. The dismissed employee can file a complaint under section 240 CLC, and, if the employer is subsequently unable to demonstrate that the dismissal occurred for cause, the arbitrator can apply a variety of remedies, including the reinstatement of the employee.

It should be noted that the first school of thought was essentially followed in provinces other than Quebec.

I – The facts

Mr. Wilson had been employed by Atomic Energy of Canada for four and a half years. On November 16, 2009, he was dismissed without cause. The employer offered him a six months' indemnity in lieu of notice, which was very generous compared to the 18-day prior notice he was entitled to under the CLC. Mr. Wilson nevertheless filed a complaint for unjust dismissal under section 240(1) of the CLC, alleging that he was dismissed without cause.

II – The lower court decisions

Arbitrator's decision

The arbitrator acknowledged the two schools of thought canvassed above concerning unjust dismissal under the CLC. He stated that an employer could not avoid the application of the CLC by offering a severance package, no matter how generous. He found that the employer did not have a cause for dismissing the employee and concluded that the dismissal of an employee without cause automatically constitutes unjust dismissal for the purposes of section 240 of the CLC.

Decision of the Federal Court

According to the Federal Court, dismissal without cause is legal if it is not unjust. It concluded that the sections of the CLC providing for prior notice would not have been included in the statute if only dismissals for cause were authorized, and, that if such had been the case, the legislature would have clearly expressed its intention to create such a regime.

Decision of the Federal Court of Appeal

The Federal Court of Appeal upheld the decision of the Federal Court while acknowledging the existence of a divergence of opinion in the arbitral jurisprudence in this regard. The Court was of the view that the provisions of the CLC at issue did not create a right to employment comparable to that enjoyed by unionized workers. On the contrary, the sections dealing with prior notice allowed an employer to dismiss an employee without cause provided the employee was given a reasonable prior notice or pay in lieu thereof.

III – Decision of the Supreme Court

The country's highest court had to decide whether dismissal without cause coupled with the payment of a generous severance package was tantamount to a lawful dismissal under the CLC.

According to the Court, it is obvious that the "Parliament intended to expand the dismissal rights of non-unionized federal employees in a way that, if not identically, at least analogously matched those held by unionized employees"3. In this regard, it pointed out that "employees covered by collective agreements are protected from unjust dismissals and can only be dismissed for 'just cause'. This includes an onus on employers to give reasons  showing why the dismissal is justified, and carries with it a wide remedial package including reinstatement and progressive discipline"4.

The Court found that the arbitrator's decision was not unreasonable and reiterated that federally regulated employers cannot avoid the application of the CLC's provisions regarding unjust dismissal merely by offering the minimum severance package calculated pursuant to sections 230 and 235, or an even more generous severance package.

In such cases, employees can avail themselves of the remedy under section 240 to contest the legality of the dismissal, even where the employer has offered to pay the minimum severance package or an even greater amount. In other words, federally regulated employers must show that there was a cause for the dismissal.

According to the Court, this is a coherent interpretation of the provisions of the CLC that is anchored in parliamentary intention, arbitral jurisprudence and labour relations practice5. Moreover, it adds: "the alternative approach of severance pay in lieu falls outside the range of 'possible, acceptable outcomes which are defensible in respect of the facts and law' because it completely undermines this purpose by permitting employers, at their option, to deprive employees of the full remedial package Parliament created for them"6.

The Court also commented on the divergence of opinion in the arbitral jurisprudence acknowledged by the lower courts. It noted that the opinion it was repudiating had been followed in only 18 out of more than 1,700 cases over the last 20 years. It accordingly downplayed the importance of that line of cases, stating that they amounted to "a drop in the bucket which is being elevated to a jurisprudential parting of the waters"7.

IV – Comments

The Supreme Courts' decision reflects Quebec employment law, under which dismissal must be for a good and sufficient cause. In fact, Quebec law does not even recognize the possibility of dismissal without cause.

Federally regulated employers must now adjust their employment practices accordingly in light of this decision. In particular, they must be more vigilant during the 12 months following the hiring of new employees, as the latter are not entitled to the protection provided by section 240 of the CLC until the first anniversary of their hiring date. Consequently, an employee who has not reached that seniority threshold can be dismissed without cause, provided that he or she is given the requisite prior notice under the CLC or an indemnity in lieu thereof. However, once that threshold has been passed, the employee is protected from unjust dismissal by virtue of section 240. This means that employers will now have to weigh-in the legal and financial consequences should they intend to dismiss any employee who has more than 12 months' seniority.

It should be noted that the Supreme Court's decision has no impact on an employer's ability to dismiss an employee for cause. The employer and the employee in question can nevertheless come to an understanding regarding the termination of the employment relationship in a written agreement coupled with a release and discharge which may include financial compensation. That being said, the Wilson decision definitely gives employees with sufficient seniority an additional arrow in their quiver, as in the event negotiations on the termination of the employment relationship fails and the employee is dismissed, he or she can then pursue the remedies under sections 240 and following of the CLC.


1. 2016 SCC 29

2. RSC 1985, c L-2.

3. Supra, note 1 at par. 44

4. Ibid, at par. 51

5. Ibid, at par. 69

6. Ibid, at par. 39

7. Ibid, at par. 61

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Charles Wagner
Mélanie Sauriol
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