Northern Exposure

Federal sector employers have right to dismiss without cause, too

by Bonny Mak Waterfall

There’s good news for Canadian employers in the federal sector—those engaged in federal works and undertakings such as airlines, airports, railways, banking, interprovincial transportation, and telecommunications. For many years, employers in Canada’s federal sector understood that they did not have the right to dismiss employees without cause unless such termination was due to lack of work or discontinuance of a function. The Federal Court of Appeal recently rejected this view in Wilson v. Atomic Energy of Canada Limited.

Legal landscape

Section 240 of the Canada Labour Code provides that a nonunionized employee who has completed 12 consecutive months of continuous employment may make a complaint if he or she has been dismissed and considers the dismissal to be “unjust.” The Code does not define “unjust.”

If an adjudicator appointed under the Code finds that the dismissal is unjust, he or she is empowered to order the employer to do a broad range of things, including compensating the employee for lost wages and putting the employee back in his or her former position. The question raised by this case was whether the Code’s unjust dismissal provisions have the effect of providing nonunionized employees of federally regulated employers with “just cause” protection similar to that enjoyed by unionized employees.


The employee was a procurement supervisor for Atomic Energy of Canada Limited (AECL). After four and a half years of employment, AECL dismissed the employee without cause. In other words, AECL did not claim that the employee did anything that justified his dismissal.

After the termination, AECL continued to pay the employee his salary and benefits for approximately six months, which was significantly greater than his legal entitlement to pay in lieu of notice and severance pay under the Code (which amounted to only 18 days’ wages). The employee made a complaint under the Code alleging that his dismissal was unjust.

The adjudicator who heard the complaint concluded that the Code’s unjust dismissal provisions prohibited employers from dismissing employees without cause, even where the employer has met or even exceeded the Code’s requirements with respect to notice of termination or pay in lieu of notice and severance pay. Thus, by virtue of the fact that AECL admitted that the employee’s dismissal was without cause, his dismissal was unjust within the meaning of the Code.

AECL appealed the adjudicator’s decision to the Federal Court. The Federal Court rejected the adjudicator’s decision, saying it was based on an erroneous interpretation of case law and therefore unreasonable.

The employee appealed to the Federal Court of Appeal.

Without cause termination not automatically unjust

The Federal Court of Appeal recognized that there had been two different lines of cases dating back decades regarding whether the Code permits dismissal on a without cause basis. The two lines of cases could not be reconciled so the Federal Court of Appeal picked one line of cases and concluded that a dismissal without cause is not automatically unjust under the Code. Rather, an adjudicator must examine the circumstances of the particular case to determine whether the dismissal is unjust.

At common law, an employer may terminate the employment of an employee on a without cause basis, provided that it provides reasonable notice. This is an employer’s “default” position with respect to all nonunionized employees. In order for legislation such as the Code to oust this common law right, it must do so using explicit language.

The Court of Appeal decided that the Code does not oust the employer’s common law right to dismiss without cause. If the Code was meant to provide nonunionized federal sector employees with the same “just cause” protection unionized employees have, it could have explicitly stated something like: an “employer shall not discharge … [an] employee without just cause,” but it did not.

That is not to say, however, that simply offering the Code minimum notice and severance or common law notice eliminates an employee’s right in all cases to make an unjust dismissal complaint. The court stated that the payment of severance pay would not necessarily render a without cause dismissal a “just” dismissal. Even where compensation is provided, an adjudicator appointed under the Code would still be able to decide whether the dismissal was unjust.

What is unjust dismissal?

If unjust dismissal under the Code is not equivalent to dismissal without cause, what does it mean? The court declined to set out a definition, other than to say that an adjudicator “does not have free rein to find a dismissal unjust on any basis.” Rather, the meaning of unjust must be discerned “from well-established common law and arbitral cases concerning dismissal” and “accepted principles of statutory interpretation.” The court expressly stated that it would leave it to the adjudicators appointed under the Code to develop the jurisprudence concerning the meaning of “unjust.”

Although it is unclear precisely what an employer must do to ensure that a without cause dismissal is “just” within the meaning of the Code, the court provided some limited guidance when it referenced another case where an unjust dismissal complaint was dismissed because:

• The employment contract was written clearly and succinctly;
• The employee freely entered into the employment contract for career advancement purposes and other valuable consideration;
• The employee was not vulnerable, subject to duress, or incapable of understanding the terms of the employment contract at the time he entered into it; and
• At the time of dismissal, the employer made a severance offer that was greater than its obligations under the Code and the employment contract, which remained open for the employee’s acceptance.

Implications for employers

Based on the Federal Court of Appeal’s limited guidance, a federal sector employer can put itself in the best position to lawfully dismiss a nonunionized employee without cause by using written employment contracts. At a minimum, an effective written employment contract (or offer letter) should:

• Be written clearly and in plain language;
• Expressly give the employer the right to terminate the employment relationship without cause;
• Explicitly and clearly set out the amount of notice, pay in lieu of notice, and/or severance pay to which the employee is entitled in the event of dismissal without cause; and
• Be signed by the employee before beginning employment or a new position with the employer.

In addition, at the time a termination decision is made, an employer would be well-advised to consider the following with the input of counsel:

• The employer’s ability to demonstrate, with objective evidence, a strong case for just cause;
• The existence of a written employment contract, its validity, and whether its terms provide for the employer’s right to terminate the employment relationship without cause;
• The manner in which the termination of employment will be communicated and carried out; and
• In the event that the employer decides to dismiss the employee on a without cause basis, the severance package to be offered to the employee and whether the employee will be asked to sign a release in exchange for the package.

Although the precise meaning of unjust dismissal under the Code remains uncertain, the Federal Court of Appeal’s decision is a positive development for employers in Canada’s federal sector. Stay tuned for any appeal filed by the employee and further developments from the adjudicators’ decisions.