Legal News

Without Cause Dismissals Permitted Under Canada Labour Code

In a decision significant for Federally regulated employers, the Federal Court of Appeal recently determined that the Canada Labour Code does not preclude employees from being terminated without cause.

In Wilson v. Atomic Energy of Canada Limited, Atomic Energy of Canada Limited (AECL) terminated Joseph Wilson’s employment with six months of severance. During that time, Mr. Wilson remained on AECL’s payroll and retained access to employee benefit programs.

Mr. Wilson filed a complaint under section 240(1) of the Code alleging that he had been unjustly dismissed. An adjudicator was appointed and the parties agreed that the initial question to be answered was whether an employer is permitted to lawfully terminate an employee without cause under the Code. The adjudicator found that the Code only permits dismissals for cause, and that AECL violated the Code by terminating Mr. Wilson on a without cause basis. The Federal Court overturned the adjudicator’s decision, and the matter was appealed to the Federal Court of Appeal.

The Court of Appeal’s analysis began with the premise that legislation does not depart from the common law unless it is absolutely clear that it was the legislators’ intent to do so. It noted that where the legislators intended for the Code to oust or modify the common law, it did so expressly.

The Court concluded that section 240 of the Code does not contain explicit language that prohibits employers from dismissing employees without cause as the language does not evince a clear intention to grant non-unionized employees the same rights as unionized employees.

The phrase ‘unjust dismissal’ was contrasted with a ‘just dismissal’, which was defined as “a dismissal based on an objective, real and substantial cause… entailing action taken exclusively to ensure the effective operation of the business”. As a result, the Court found that section 240 of the Code prohibits a dismissal that is arbitrary, capricious or based on a personal dispute. It added that the term ‘unjust dismissal’ will be defined further by adjudicators over time.

The Court cautioned that the payment of notice or severance does not preclude a finding that a dismissal was unjust. It will still be necessary for an adjudicator to review the circumstances of the dismissal.

Prior to this decision, the interpretation of section 240 of the Code has been a significant source of frustration for Federal employers. Whether an employer succeeded in an unjust dismissal complaint depended in large measure on the adjudicator selected. As a result, the Court of Appeal’s decision brings much needed clarity.

Employers wishing to terminate without cause must have a sound basis for doing so, and a justification for how the termination will improve the effective operation of the business. Employers should also ensure that employment contracts expressly set out the appropriate notice period (or payment in lieu) in order to preclude the argument that the notice paid is unjust.

Wilson v. Atomic Energy of Canada Limited, 2015 FCA 17

Questions relating to the content of the article may be directed to Geoffrey Litherland.