Federally regulated employers can dismiss without cause: Court

Decision overturns almost 40 years of arbitral law

A Federal Court of Appeal decision eight months in the making is being called a monumental decision that overturns almost 40 years of arbitral law.

In Wilson v. Atomic Energy of Canada Ltd., the Federal Court of Appeal held that federally regulated employers may dismiss employees without cause. 

Previously, the general consensus was that employees governed by the Canada Labour Code could only be terminated for just cause.

The decision is being viewed as a victory for federally regulated employers such as banks, telecommunications companies and air and marine transportation organizations, said Ronald Snyder, a partner at Fogler Rubinoff in Ottawa who represented Atomic Energy in the case.

“It is transformational in that employers will now have the necessary flexibility,” he said. “I’ve always held the view that there is no issue that’s more fundamental, more significant that goes to the core of the employer-employee relationships than the right to hire and fire.”

George Vuicic, a partner at Hicks Morley Hamilton Stewart Storie in Ottawa, said the decision finally resolves a longstanding divergence in the case law in this area.

“The Federal Court and now the Federal Court of Appeal have, I think, conclusively determined this issue. Justice (David) Stratas said in his own words: ‘The court needs to be a tie-breaker on this issue’ and that’s what the decision is,” said Vuicic. 

The biggest issue is whether Joseph Wilson will seek leave to the Supreme Court of Canada, he said. (Wilson’s lawyer did not respond to an interview request by press time.)

“If it goes to the Supreme Court, it could still go the other way but I would be surprised given it is a very well-reasoned decision, very exhaustive,” said Vuicic. “If it stands, I do think it resolves the issue conclusively.”

Wilson was employed by Atomic Energy for four-and-a-half years, starting as a senior buyer/order administrator. His last promotion was to procurement supervisor, tooling — but it was not a managerial job. He was terminated in November 2009.

The company dismissed Wilson on a without-cause basis and offered six months’ severance — considered above and beyond the standard statutory requirement under the Canada Labour Code — in exchange for full and final release. Under the code, Wilson would have been entitled to just 18 days’ severance. 

But he did not sign the release and alleged he had been unjustly dismissed contrary to section 240 of the code. In particular, he alleged he was dismissed because he had complained about improper procurement practices on the part of Atomic Energy. (The parties have yet to go back before an arbitrator to address that allegation.)

Wilson remained on the company’s payroll for six months and, in the end, he received the full amount of the severance package originally offered.

The decision does not mean it is open season on non-union federal employees, said Snyder.

“Those who think the sky is now falling should take continued comfort that in accordance with the Federal Court of Appeal’s judgment, employees will continue to have access under the code to have determined whether their dismissals were unjust, whether or not they were dismissed for cause.”

Under part three of the Canada Labour Code, which deals with non-unionized employees in section 240, if an employee has been dismissed and views it as “unjust,” he can file a complaint with Employment and Social Development Canada. That would then be referred to an adjudicator.

The Wilson decision, in conjunction with the lower federal court award, “completely reshapes the law of employment dismissals in this country” for federally regulated employers, said Snyder. “This is a transformational or game-changing event — there’s no doubt about it.”

It may also serve to level the playing field between provincial and federal employers.

“In the provincial sector, an employer has always been able to terminate for just cause or, alternatively, terminate on a without-cause basis provided they provide the employee with appropriate working notice or severance pay depending on the relative provincial employment standard in effect,” he said.

Federally, since the introduction of the unjust dismissal legislation under the code in 1978, the vast majority of federal adjudicators held that dismissals could only be affected on a just-cause basis.

“The result has been that employers have been restricted in their ability to manage their human resources in a manner they viewed appropriate,” said Snyder. “They were unable or reluctant to dismiss employees unless they built a solid case that could demonstrate the existence of just cause.”

That involved significant time and effort and financial expense on their part, as well as being disruptive to the working environment.

“The Federal Court of Appeal has now confirmed that these employees may be dismissed on a without-cause basis and, equally important, they also confirm the common law principles of employment associated with employee terminations is applicable in determining severance packages or working notice received are just,” he said.

Snyder referred to the “almost Supreme Court-style level of analysis” provided by Stratas. In his decision, Stratas referenced many cases and in particular Knopp v. Western Bulk Transport Ltd.

“In conclusion, Divisions X, XI and XIV of Part III of the Canada Labour Code do not jettison the common law principles which govern the termination of an employment relationship. Had Parliament intended to implement a drastically different legal order in which common law principles played no role, it would have said so in plain language. In enacting Division XIV of Part III of the Code, Parliament created another forum besides the courts to hear complaints of unjust dismissal and granted Code adjudicators remedial powers common law judges are without.”

The decision also referenced the 2012 case of Klein v. Royal Canadian Mint, where an adjudicator found the employer did have the ability to terminate without cause. In that case, a unionized employee had applied for and got a managerial position, and he signed a contract saying his employment could be terminated without cause upon payment of notice. He then challenged his termination and the adjudicator disagreed.

“It’s still important for employers to look to the specific individual terms of employment because there may be something in a contract or policy that impacts the employer’s ability to terminate without cause,” said Vuicic.

The issues to be litigated now are “When is a dismissal unjust?” said Hendrik Nieuwland of Shields O’Donnell MacKillop in Toronto. “That is the question that is going to be asked for every without cause termination now.”

That means in the short term it may increase uncertainty and potentially increase litigation.

“Employers are going to have an incentive to be more aggressive in terms of moving forward with terminations on a without-cause basis. The issue is going to be: ‘Did you provide them with sufficient notice?’ It’s always an individual assessment,” he said.

Having sustained the lower court’s decision, the court by implication agrees there are three types of unjust dismissal complaints by an employee that can be referred to an adjudicator for disposition, said Snyder. One is where an individual is terminated without cause and provided severance or notice — in that case, the adjudicator will determine in accordance with the relevant common law principles as to whether that package was just or reasonable.

The other two types can be referred to adjudicators — one represents the bulk of section 240 complaints where an employee is dismissed for just cause. If the employee disputes the allegation, the onus rests on the employer to prove it had just cause, such as disciplinary for incompetence.

The third category is a case where an employee is dismissed without cause and provided a severance package but alleges the termination is really a disguised dismissal, affected contrary to law.

Jennifer Brown is the editor of Canadian Lawyer InHouse.

Latest stories