A sharply divided Supreme Court of Canada recently overruled the Federal Court of Appeal and held that, subject to narrow exceptions, federal employers are not entitled to terminate nonunionized employees without cause (Wilson v. AECL). This prohibition applies even if the employer is willing to provide generous notice and severance pay.
This approach to the “unjust dismissal” provisions in the Canada Labour Code is in line with that taken by some adjudicators in the past. However, the Supreme Court majority’s reasons are incredibly broad, and may have far-reaching implications for federal employers’ human resources practices.
Common law “completely replaced” but wrongful dismissal still available
The majority of the Supreme Court concluded that the “entire purpose” of the unjust dismissal provisions was to protect nonunionized federal employees from being dismissed without cause. In its view, the legislative intent of those provisions was to expand the dismissal rights of nonunionized employees in a way that made them “analogous” to those held by unionized employees. Related to this, the majority concluded that the unjust dismissal provisions “completely replaced” the basic common law principles that permitted an employer to terminate without cause.
However, in notably vague reasons, the majority went on to conclude that if a federal employee did not wish to make an unjust dismissal complaint, he or she could choose to launch a wrongful dismissal claim in the civil courts seeking damages for common law reasonable notice.
Not all employees are entitled to notice and severance pay
The majority also specifically found that the notice and severance pay provisions in the Code do not apply to employees who are covered by the unjust dismissal provisions. Rather, the notice and severance pay provisions only apply to managers, those laid off due to lack of work or discontinuance of a function, employees with service of between three and 12 months, and any other employees who are not covered by the unjust dismissal provisions.
Dissent
In a sharply worded dissent, a three-judge minority held that federal employers are entitled to dismiss employees without cause so long as they provide appropriate notice and severance pay. In their view, the common law still applies; the unjust dismissal provisions merely provide dismissed employees who wish to challenge their termination with an additional, more efficient litigation procedure and other possible remedies (such as reinstatement).
The minority stated that the majority’s approach was seriously flawed. Among other reasons, the judges pointed out that the majority’s approach effectively allowed an employee to determine what legal regime applied—the unjust dismissal provisions or the common law—after he or she had been terminated.
In their view, this resulted in an “absurd” situation in which an employer could not know its legal obligations in advance, since those obligations would depend on whether the employee chose to challenge dismissal through an unjust dismissal complaint (under which dismissal without cause is prohibited) or through an action for wrongful dismissal (under which the employee would be entitled to common law reasonable notice).
Implications for employers
The majority’s reasons and conclusions in Wilson v. AECL are extremely broad and, in some areas, confusing. It is therefore difficult to determine what practical consequences this decision will have for federal employers moving forward. At this early stage, the following consequences appear to flow from the decision:
• Federal employers do not have a right to terminate without cause nonunionized, nonmanagerial employees with 12 months’ service or more even if they are prepared to provide generous notice and severance pay. However, employers may still lay off such workers due to lack of work or the discontinuance of a function.
• An employee may choose to challenge his or her dismissal under the unjust dismissal provisions or through a wrongful dismissal action in civil court that seeks common law reasonable notice. If the employee chooses to use the unjust dismissal provisions, then he or she is entitled only to the remedies provided under the legislation.
• Only employees who are not covered by the unjust dismissal provisions are entitled to statutory notice and severance pay under the Code.
• Protection against without-cause dismissal may now be a “minimum standard” under the Code. Accordingly, it is an open question whether an employment contract or separation agreement that contemplates a without-cause dismissal could be challenged by an employee as an impermissible attempt to “contract out” of the Code.
Unfortunately, the majority’s reasons do not provide clear guidance on a variety of practical questions that arise from these principles (for example, are there circumstances under which an employee can pursue both an unjust dismissal complaint and a civil claim for reasonable notice?). We will keep you advised of further developments as the Supreme Court’s decision is interpreted and applied.
