Unjust dismissal: Developments in federal employment law

The general rule in employment law is that employees can be terminated from employment without reason or cause, so long as employers provide proper notice of termination, or pay in lieu of notice. The exception to this rule is in unionized workplaces, where most employers are required to have just cause for termination in order to dismiss an employee. The grey area has long been in non-unionized, federally regulated workplaces, including banking, telecommunications, air transportation, and Crown Corporations, where the application of the Canada Labour Code (“Code”) allows certain employees to complain that their dismissal was “unjust”. The question for federal employers is what exactly constitutes an “unjust dismissal” —is it dismissal without appropriate notice? Or dismissal without cause?

The Supreme Court Confirms a Dismissal is Unjust if it is Without Cause

In the recent case of Wilson v Atomic Energy Canada Ltd, the Supreme Court of Canada answered the question of when the dismissal of a federal employee is unjust under the Code.

The case centred on Joseph Wilson, who had four and a half years of service with Atomic Energy Limited Canada,  a federally regulated employer, when he was dismissed without cause and provided with a sizeable monetary dismissal package. Mr. Wilson filed an “unjust dismissal” complaint  under the Code, claiming that his dismissal was unjust because it was without cause. The Code Adjudicator agreed with Mr. Wilson, but the Adjudicator was overturned by the Federal Court. The Federal Court of Appeal upheld the Federal Court’s decision, and Mr. Wilson appealed to the Supreme Court of Canada.

In a majority decision written by Justice Abella, the Supreme Court of Canada agreed with the Adjudicator that certain federally regulated employees can only be terminated when there is cause. As a result of this decision, federal employers cannot meet their obligations under the Code by providing notice and/or severance packages. Rather, employers will be required to give reasons showing why a dismissal was justified. If an employer cannot meet this onus, the employee will have access to a wide range of remedies under the Code, including reinstatement to their employment.

What do Federal Employers Need to Know?

Although the Supreme Court’s decision settles uncertainty in the law, it also makes clear that federal employers have a high onus to meet when terminating employees. There are, however, steps that employers can take to protect themselves.

1. Employers should seriously evaluate employee performance within the first year of employment, including before an employee reaches 3 months of service, as prior to that point, the employee can be dismissed without cause, notice or severance. Performance should then continue to be evaluated between the third and twelfth month of service, as cause is only required under the Code once an employee has reached 12 months of service.
2. Employers should continue to evaluate employee performance on a regular basis throughout the employment relationship. The Supreme Court decision recognizes that an employer may be able to demonstrate cause where it has made an employee aware of performance problems, worked with the employee to rectify those problems, and imposed gradually increasing sanctions in order to correct the issues, prior to resorting to dismissal. However, it is generally difficult to terminate for  standard performance issues, and employers should be sure to document all concerns and steps taken in an effort to resolve the problems.
3. Employers should consider whether an employee is a manager. Managers are excluded from the unjust dismissal provisions, and therefore may be dismissed with notice and severance pay.
4. Employers should also be aware as to what need is driving the decision to dismiss an employee. If it is a layoff situation due to lack of work or discontinuance of a function, cause is not required and an employer is only mandated to provide notice and severance pay.
5. Where an unjust dismissal complaint has been brought against an employer, the employer should, where it is reasonable to do so, endeavour to participate cooperatively in the statutory settlement process, which may result in the complaint being resolved prior to referral to adjudication.

Employers should also be aware that employees have a choice whether to proceed with an unjust dismissal complaint under the Code, or to proceed with a civil court lawsuit claiming reasonable notice. A complaint under the Code is an administrative law proceeding outside of the court system and before an appointed adjudicator. If the adjudicator upholds the complaint, the remedies under the Code, including reinstatement to employment, may be ordered.

If an employee chooses to pursue a civil claim for notice, he or she will proceed with a lawsuit in court, and will forego the Code remedies such as reinstatement. In these circumstances, employers will not be required to prove cause and will only need to provide sufficient notice and severance. However, as this choice is at the option of the employee, employers will be best protected by proceeding on the basis that cause for dismissal is required.