Generosity is not enough: federally regulated employers must have cause to dismiss non-unionized employees

Global Publication July 2016

At common law, a non-unionized employee can be dismissed without reasons if he or she is given reasonable notice or pay in lieu. On July 14, a majority of the Supreme Court of Canada ruled that this common law rule does not apply to federally regulated employers. The court ruled that federally regulated employers must always provide reasons for the termination of their employees. Furthermore, if the reasons for dismissal do not meet the standard for “just cause” as that term is understood in the collective bargaining context, the employee may complain under section 240 of the Canada Labour Code (Code), and may be reinstated, with or without back pay and damages, or compensated with pay in lieu of reinstatement plus damages.

Generous severance equals a just dismissal?

The case involved an administrator (W) with Atomic Energy of Canada Limited (AECL) who had worked for this employer for four-and-a-half years until his dismissal in November 2009. He filed an “unjust dismissal” complaint, claiming that his dismissal was in reprisal for having filed a complaint of improper procurement practices on the part of his employer.

In response to a request from an inspector for the reasons for W’s dismissal, the employer said he was “terminated on a non‑cause basis and was provided a generous dismissal package.” A labour adjudicator was appointed to hear the complaint. The employer sought a preliminary ruling on whether a dismissal without cause together with a sizeable severance package meant that the dismissal was a just one. The adjudicator concluded that an employer could not resort to severance payments, however generous, to avoid a determination under the Code about whether the dismissal was unjust. Because the employer did not rely on any cause to fire him, W’s complaint was allowed.

AECL applied for judicial review of the decision. The Federal Court found the labour adjudicator’s decision to be unreasonable because, in its view, nothing in Part III of the Code precluded employers from dismissing non‑unionized employees without cause. The Federal Court of Appeal agreed, but reviewed the issue on a standard of correctness.

A majority of the Supreme Court of Canada quashed the Federal Court of Appeal’s decision. On the issue of the appropriate standard of review, Justice Abella proposed the debate on the standard be reopened. In the spirit of that debate, she proposed a single standard – that of reasonableness – be applied in all cases, and correctness be dropped as the alternate standard of review. Abella J.’s suggestion to drop the correctness standard of review was rejected by the majority, although there would appear to be some opening left for future discussion of this proposal.

Aligning unionized and non-unionized employee protections

On the issue of whether federally regulated employers may dismiss without cause, the majority stated that a proper construction of Part III of the Code did not permit such an interpretation. Abella J., writing for the majority, stated that when Parliament amended Part III of the Code in 1978 to include section 240, it intended “to conceptually align the protections from unjust dismissals for non-unionized federal employees with those available to unionized employees.” Generally speaking, this means employers must follow a course of progressive discipline prior to dismissing an employee unless there has been an egregious violation of the employment contract such that immediate termination without prior warning is warranted. The onus on employers to justify terminations with cause is extremely heavy, with the result that discharge complaints/grievances are notoriously difficult to defend.

In a strongly worded dissent, Justices Moldaver, Côté and Brown held that the common law rule regarding without-cause dismissal was not ousted by the introduction of section 240 of the Code. In the dissenting judges’ opinion, there is nothing in section 240 or the surrounding sections of the Code that guarantees lifelong job tenure to employees of federally regulated businesses, provided such employees do not give their employers just cause for dismissal.

The majority decision in this case makes it impossible for federally regulated employers to dismiss non-unionized employees without cause. The significance of this ruling cannot be overstated. It is abundantly clear now that all federally regulated employers must engage in well-documented progressive discipline of employees whose employment they may wish eventually to terminate; rarely, if ever, will federally regulated employers be permitted to terminate employment for a single act of misconduct, or for misconduct that has gone unpunished.

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