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Federally Regulated Employers Be Cautious

January 5, 2017

Author: Joseph Oppenheim and Lauren Barteluk

Important Change in Law Issued by Supreme Court of Canada, Giving Employees More Firepower in “Unjust Dismissal” Provisions of the Canada Labour Code

In Wilson v. Atomic Energy of Canada Ltd.[1] the Supreme Court of Canada provided a critical clarification to the “unjust dismissal” provisions in the Canada Labour Code (the “Code”).[2] The Court ruled that the Code prohibits federally regulated businesses and organizations from dismissing most non-unionized employees without cause subject to certain exceptions. In its reasons, the Court stated that Parliament’s intention in drafting this part of the Code was “to offer an alternative statutory scheme consisting of expansive protections much like those available to employees covered by a collective agreement.” In other words, the intention was to provide protections similar to what unionized employees generally have.

The consequence of this decision is that unless specific exceptions apply, any without cause dismissal will be deemed “unjust.” The applicable exceptions are referenced in the Code. Examples of these exceptions include lay-offs due to lack of work or discontinuance of a function, dismissal of managers without cause, and people that have been employed for less than 12 consecutive months.[3]

The federal Ministry of Labour has broad discretion as to the remedies it can award in the event it deems a dismissal to be “unjust.” It can order the employer to reinstate the employee, pay compensation for lost wages, and do anything else that it deems “equitable” to remedy the consequence of dismissal, including the payment of legal fees. Dismissed employees are free to make a complaint to the federal Minister of Labour under the “unjust dismissal” process and pursue common law remedies through the civil courts.[4]

We generally recommend that federally regulated employers to take a hard look at their hiring and discipline practices and consider making changes to mitigate their exposure. Specifically:

  1. People employed for less than 12 months can be terminated without cause. We recommend you therefore consider the first twelve months of employment to be a trial period. Be more willing to dismiss new employees without cause before the expiry of 12 months if you have doubts that they will be a good fit going forward. Note that this will require provision of contractual or reasonable notice over and above the minimum severance requirements set out in the Code.
  2. Consider negotiating fixed term contracts with new employees. In the right circumstances and where properly drafted, fixed term employment contracts that reach the end of their term simply expire, and so there is no dismissal. However, beware. Problems arise where an employee reasonably expects that the employment is indefinite. This expectation can arise as a result of representations made during the recruitment process, when the contracts have automatic renewal clauses, or when the contracts are repeatedly renewed. In such cases, non-renewal can be deemed an unjust dismissal.
  3. Implement practises that facilitate the establishment of an evidentiary foundation to justify “with cause” dismissals where appropriate. Generally speaking, employees can be dismissed for just cause in the event of irredeemable incompetence or misconduct. Note however that employers have the onus of proving cause. Aside from exceptional case, summary dismissal is only deemed “just” after the employee has been progressively disciplined and warned. This requires vigilance in monitoring and documenting poor performance, consistency in the administering of progressive discipline, and the provision of clear written warnings that failure to follow reasonable performance improvement plans will result in termination of employment for cause.
  4. It is generally advisable to hire new employees pursuant to employment contracts that limit severance obligations to a certain amount. While this wouldn’t negate the “unjust dismissal” process, it may mitigate the risk of a harsh ruling in the event of an adverse ruling. It will also reduce the employer’s exposure in the civil courts.

We hope you found this helpful. Should you require further information, please contact us.

2016 SCC 29

The Canada Labour Code applies to businesses and undertakings that are within the legislative authority of Parliament. Examples include railways, airlines, telephone companies, radio and TV broadcasters, banks and interprovincial and international transportation (including some pipeline) companies.

Dismissals without cause must still be done with contractual or reasonable notice that is not less than minimum notice or wages in lieu specified in Part III of the Code.

This does not necessarily preclude a defence of issue estoppel if the Minister of Labour makes a final determination on an issue that is also before the Court.