Supreme Court of Canada decision settles dispute over the proper interpretation of the “unjust dismissal” provisions of the Canada Labour Code

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In its decision in Wilson v. Atomic Energy of Canada Ltd., the Supreme Court of Canada (SCC) has ruled that federally-regulated employers subject to the Canada Labour Code (Code) are not permitted to dismiss employees on a without cause basis, with a few exceptions provided for under the Code (discussed below).  In doing so, the Court has settled the long-standing debate as to the proper interpretation to be given to the “unjust dismissal” provisions in Part III of the Code.

Following his dismissal from employment by Atomic Energy of Canada Limited (AECL), without cause and without reasons, Mr. Wilson filed a complaint under s. 240(1) of the Code alleging that he had been unjustly dismissed contrary to the Code.  The adjudicator appointed to hear his complaint held that the Code did not allow for dismissals on a without cause basis, even where the employer offered a severance package in excess of the minimums required under the Code.  That decision was overturned by the Federal Court on judicial review and the Federal Court of Appeal agreed on appeal. Unhappy with the result in the Federal Court of Appeal, Mr. Wilson appealed to the Supreme Court of Canada.

In a 6-3 decision, a majority of the Supreme Court of Canada (per Abella J.) held that the only reasonable interpretation of the unjust dismissal provisions in Part III of the Code is that they only permit employers to dismiss employees on a “for cause” basis.  The only exceptions would be those specifically spelled out in the Code – i.e., employees who are managers (s. 167(3)); employees who have been laid off because of a lack of work or the discontinuance of a function (s. 242(3.1)); employees for whom redress is specifically provided under the Code or some other piece of legislation (s. 242(3.1); and employees who have been employed by the employer for less than twelve consecutive months (s. 240(1)).  For those employees to whom the unjust dismissal provisions of the Code apply, the Court held that Parliament’s intention was to afford non-union employees with the same protections against termination without cause as is enjoyed by unionized employees under collective agreements.  In other words, employers subject to the Code are required to show “just cause” for termination, similar to what is required in a unionized environment.

The upshot of this decision is that federally-regulated employers who are subject to the Canada Labour Code will no longer be able to terminate employees on a without cause basis by providing them with compensation in lieu of notice, even if their employment contracts would allow it.  Following this decision, such termination provisions would be unenforceable as they are inconsistent with the Code. In order to be in a position to establish just cause for termination for performance-related issues, federally-regulated employers will be required to performance manage employees and to institute progressive discipline prior to proceeding to termination.

For further information please contact Colleen Dunlop at 613-940-2734 or Kecia Podetz at 613-940-2752.