On July 14, 2016 the Supreme Court of Canada issued a significant decision affecting federally regulated employers across Canada. In Wilson v. Atomic Energy of Canada Limited the Court held that the purpose of the unjust dismissal provisions of the Canada Labour Code, RSC 1995, c. L-2 was to ensure that non-unionized federal employees would be entitled to protection from being dismissed without cause under Part III of the Code. As a result, federally regulated employers may no longer dismiss employees by providing severance, because in the Court’s view, it completely undermines this purpose by permitting employers, at their option, to deprive employees of the full remedial package Parliament created for them.

The effect of this decision is to effectively return the state of the law to where it was prior to 2013, when the Federal Court decided that the provisions did not preclude employers from terminating without cause by providing severance.

Background 

In 2009, Joseph Wilson was dismissed from his employment with Atomic Energy Canada Limited, an employer governed by the provisions of the Canada Labour Code. AECL did not assert cause for his dismissal, and paid him six months’ severance pay.

Wilson filed a complaint under section 240 of the Code, which permits dismissed employees to file complaints with Labour Canada if they believe that their dismissal has been “unjust”. His complaint proceeded to adjudication, and the adjudicator held that section 240 only permits dismissals for cause, and that it was not open to AECL to pay severance in order to terminate its employment relationship with Mr. Wilson. In doing so, the adjudicator observed that there exist two streams of cases relating to dismissals without cause. One holds that the Code provides a remedy of notice or severance pay for dismissals made without cause. Another group of cases states that, in any case where an employee challenges his or her dismissal, the broad remedies for unjust dismissal are available, regardless of whether the employer paid the employee severance pay.

The adjudicator followed the latter line of authority, finding that AECL could not avoid a determination that Mr Wilson’s termination was unjust simply by pointing to the severance payment made to him. He had a valid claim that his termination was carried out without just cause, which should result in a remedy under the Code.

AECL appealed to the Federal Court, which held that an employer can dismiss an employee without cause so long as it gives the notice or severance pay required by the Code. If an employee believes that the terms of his or her dismissal were unjust, he or she can complain under section 240. The only exceptions to the general right to make a complaint are where the dismissal resulted from a lay-off for lack of work or a discontinuance of the employee’s position, or the employee has some other statutory remedy. In addition, the Court found that an employee can complain if he or she believes that the reason given by the employer for the dismissal was unjustified or if the dismissal is otherwise unjust (eg, based on discrimination or reprisal). If the adjudicator appointed to entertain the complaint concludes on any basis that the dismissal was unjust, he or she has broad remedial powers to compensate the employee, reinstate the employee, or grant any other suitable remedy. The Court also held that the fact that an employer has paid an employee severance pay does not preclude an adjudicator from granting further relief where the adjudicator concludes that the dismissal was unjust. Similarly, there is no basis for concluding that the Code only permits dismissals for cause. That conclusion would fail to take account of the clear remedies provided in the Code (ie, notice and severance) for persons dismissed without cause. Accordingly the decision of the adjudicator was deemed unreasonable.

Wilson then appealed to the Federal Court of Appeal, which dismissed his appeal in January 2015. The Court concluded that the Code did not prohibit dismissal without cause, but that the relevant provisions provided additional remedies in the event of an unjust dismissal. Further, “it will always be for the adjudicator to assess the circumstances and determine whether the dismissal, whether or not for cause, was unjust”.

Wilson sought leave to appeal this decision to the Supreme Court of Canada, leave was granted, and the appeal was heard on January 19, 2016. On July 15, 2016 the Supreme Court released its decision.

The SCC decision

The decision of the majority of the Court (three Justices dissented from the outcome) held that the adjudicator’s decision was reasonable, as the entire purpose of the statutory scheme was to ensure that non-unionized federal employees would be entitled to protection from being dismissed without cause under Part III of the Code. The alternative approach of severance pay in lieu was found to fall 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.

Abella J. noted that when the provisions were first introduced, the responsible Minister referred to the right of employees to fundamental protection from arbitrary dismissal and to the fact that such protection was already a part of all collective agreements. These statements made it difficult for the Court to draw any inference other than that 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.

The Court further observed that the foundational premise of the common law scheme — that there is a right to dismiss on reasonable notice without cause or reasons — has been completely replaced under the Code by a regime requiring reasons for dismissal. In addition, the galaxy of discretionary remedies, including, most notably, reinstatement, as well as the open-ended equitable relief available, was also “utterly inconsistent” with the right to dismiss without cause. If an employer can continue to dismiss without cause under the Code simply by providing adequate severance pay, there is virtually no role for the plurality of remedies available to the adjudicator under the Unjust Dismissal scheme.

Further, the Court stated that the argument that employment can be terminated without cause so long as minimum notice or compensation is given, on the other hand, would have the effect of rendering many of the unjust dismissal remedies meaningless or redundant. Only by interpreting the unjust dismissal scheme as representing a displacement of the employer’s ability at common law to fire an employee without reasons if reasonable notice is given, does the scheme and its remedial package make sense. Accordingly the adjudicator’s decision was restored.

Implications for federal employers

This decision will have major implications for federally-regulated employers when dealing with employees who are eligible to file complaints under section 240 – employees who are not “managers” and who have been continuously employed for more than one year.

The fact that an employee has been given notice and paid severance in accordance with a valid and enforceable employment contract will not preclude a claim of unjust dismissal under the Code. Employees, who can demonstrate that they have been unjustly dismissed, will be entitled to pursue the broad range of remedies available under the Code, including reinstatement.

Although the relevant provisions of the Code do not prevent dismissals without cause where the affected employees are laid off because of lack of work or the discontinuance of a function, the decision will dramatically affect the ability of federally regulated employers from dismissing employees without cause in other circumstances. Similar restrictions also apply in Quebec and Nova Scotia, although the criteria for those eligible to file a complaint are somewhat different.

There are various strategies that employers may wish to adopt in dealing with the implications of this decision; however, there is no doubt that this is an unwelcome development for federally regulated employers that will impact on their ability to manage their operations. Of course, our lawyers would be pleased to assist in developing such strategies, both generally and in specific instances.

The foregoing is intended for general information only. If you have any questions about how this may affect your business, please contact a member of our Labour & Employment practice group.