Original Post: February 23, 2015
Last month, the Federal Court of Appeal issued a surprise decision, ruling that the “unjust dismissal” provisions in Section 240-246 of the Canada Labour Code do not require the employer to have any reason at all to dismiss an employee. The case is called Wilson v. Atomic Energy of Canada. I’m slow on this one because I’ve been busy, but also because I’m still working out what it means. According to employer counsel websites I’ve read, the case amounts to sea-change in Section 240 jurisprudence. I’m still thinking. Let me know your thoughts on the case.
Most nonunion Canadian employees can be terminated for any or no reason at all at the complete whim of the employer. This basic point always surprises my new employment law students, so I assume it also comes as a surprise to most Canadians. Unionized employees can’t be fired without a reason because unions bargain “just cause” clauses. Nonunion employees do not bargain those clauses in most cases. The ‘unjust dismissal’ part of the Canada Labour Code was added in 1978. It allows non-union (non-managerial) employees with at least 12 consecutive months of employment to file a complaint alleging that they have been terminated “unjustly”. Only about 250 ‘unjust dismissal’ cases get decided in an average year, so the Wilson decision doesn’t dramatically change the landscape of Canadian employment law. The Canada Labour Code only applies to about 10% of the workforce.
The Court rejects opinions of Canada’s two foremost employment law scholars:
The leading Employment Law text in Canada, written by Canada’s two leading employment law scholars, Professors England and Innis Christie, explains that the unjust dismissal
provisions were intended to “provide the non-unionized employee with substantially similar protections against unjust discharge as the unionized employee enjoys under a collective agreement.” This interpretation seems to jibe with the comments of the Minister of Labour explaining the purpose of the unjust dismissal provisions at the time they were introduced in 1978. He said: “The intent of this provision is to provide employees not represented by a union…with the right to appeal against arbitrary dismissal- protection the government believes to be a fundamental right of workers and already a part of all collective agreements.” Applying this reasoning, most s. 240 adjudicators have required employers to demonstrate a business reason for terminating the employee.
However, in Wilson, the Court of Appeal said these two eminent scholars have been wrong all along. It turns out that a federally regulated employer can terminate its nonunion employees (but not its unionized employees) for absolutely no reason at all simply by giving them notice, as is the case in the common law model. Apparently, Section 240 was not intended to provide nonunion employees with protections similar to those found in collective agreements.
The facts in the case are straightforward. Wilson was terminated after 4.5 years without cause. He was offered a package amounting to 6 month’s pay in exchange for a signing a release. Wilson refused to sign and instead filed a Section 240 complaint. The adjudicator, applying the interpretation found in the Christie and England text, and many earlier decisions, ruled that s. 240 required a ‘just’ reason for dismissal and that the employer had not made out any reason at all.
The employer sought judicial review. The Federal Court overturned the adjudicator, ruling that an employer can terminate an employee for no reason at all and not violate s. 240. The Court of Appeal agreed with the lower court. It emphasized that s. 240 did not replace the common law rules of termination but rather supplemented them by providing s. 240 adjudicators with additional remedial powers beyond those ordered by courts in wrongful dismissal cases.
Issues and Discussion
The Wilson decision leaves us with the obvious question: If an employee can be terminated for no reason at all, what then is the point of the “unjust dismissal” provisions in the Code?
Only a lawyer could see the logic in a rule that says that termination for no reason at all is a ‘just’ termination. But that is indeed how our common law system works. The Court of Appeal wrote that Section 240 “accepts the common law as given“, and then builds on it. It noted that Section 240’s reference to ‘unjust dismissal’ ” sits alongside and gathers much, if not all, of its meaning from well-established common law and arbitral cases concerning dismissal.”
That’s interesting. What does it mean?
In the common law model, the employer must give notice of termination if it is not alleging cause for termination. Termination without notice is only permitted when the employee has “cause for summary dismissal‘, meaning the employee has committed a serious breach of contract (summary dismissal). Terminating an employee without proper notice is a fundamental breach of contract and a wrongful dismissal. In the unionized setting, an employee can only be dismissed if the employer has “just cause“; a unionized employer cannot terminated an employee for no reason simply by giving them notice or pay in lieu of notice.
Both common law summary dismissal and arbitral just cause case law is relevant to assessing when an ‘unjust dismissal’ has occurred under Section 240, says the Court of Appeal. Adjudicators have looked to these two sources of law for years already when interpreting s. 240. Thus, an employer who terminates an employee–Amanda–for being late once or for committing an honest mistake will likely be unable to satisfy the test for cause in any of the three regimes: common law, arbitral law, or under section 240.
Of course, applying the Wilson decision approach, the employer would be beyond stupid to give any reason at all, since it would just give Amanda a basis to allege an unjust dismissal. If the employer says nothing and gives her proper contractual notice, then Amanda has no claim for unjust dismissal under Wilson. But if the employer alleges cause and doesn’t make out its case, Amanda can be awarded back pay and (in theory–see below) reinstatement! So the clear lesson from Wilson for employers is to just shut up, and give notice. Don’t even attempt to explain why you are firing the employee. Curious labour policy, don’t you think, to encourage employers not to communicate with employees at the point of dismissal?
To summarize, if the employer is dumb enough to allege cause, but then fails to make out that argument, here are the remedies Amanda would be entitled to under the three regimes:
Common Law: Damages calculated based on the failure of the employer to provide contractual notice of termination, subject to mitigation.
Arbitral Law: If Amanda was unionized, she would likely be reinstated to her old job, with damages for lost wages and benefits and any other lost contractual rights for the period running from the date of termination to the date of reinstatement.
Section 240, CLC: The adjudicator can order anything within the powers granted in Section 242(4) of the Code:
(4) Where an adjudicator decides pursuant to subsection (3) that a person has been unjustly dismissed, the adjudicator may, by order, require the employer who dismissed the person to
(a) pay the person compensation not exceeding the amount of money that is equivalent to the remuneration that would, but for the dismissal, have been paid by the employer to the person;
(b) reinstate the person in his employ; and
(c) do any other like thing that it is equitable to require the employer to do in order to remedy or counteract any consequence of the dismissal.
The Court of Appeal said that these s. 242 remedies “are best seen as new statutory remedies – over and above the old remedies available under the common law – that Parliament has seen fit to grant.” The common law court will not reinstate an employee who has been ‘unfairly dismissed”, but a s. 240 adjudicator can. That is, the adjudicator could reinstate an employee terminated without cause, but–and here is the issue raised by Wilson–why would an adjudicator ever do that now?
Follow along: If section 240 allows an employer to terminate an employee for no reason at all simply by giving notice (the common law approach), then when would reinstatement ever be an appropriate remedy? Clearly, the legislators intended adjudicators to reinstate employees “unjustly dismissed”, otherwise why include that power in Section 242. However, if Amanda can be fired at any time simply by providing her with notice, then why wouldn’t the remedy in every case simply be a requirement to pay Amanda damages for the period of notice required by the contract?
A section 240 adjudicator, who called the Wilson decision a “nightmare”, made the same observation to me in an email commenting on my original post on this decision. The adjudicator wrote:
From a Section 240 adjudicator:“Your piece was interesting, and highlighted some of the issues. The question I have about the decision is why the legislation would specifically add reinstatement to the repertoire of remedies if the only question is whether the employee had been provided with proper common law notice. If there is no proper common law notice, isn’t the remedy to provide common law notice? Where does reinstatement come in? If the notice is inadequate, how does reinstatement follow as the remedy? On the other hand, if the reinstatement remedy is only applicable when the employer is claiming cause, provides no notice, and then fails to establish cause, then the solution is obvious – the employer just has to provide common law notice in order to avoid any possibility of reinstatement. End result – a section designed to provide employees with job security except where there is cause or discontinuance of a function is rendered useless.”
I agree. We should expect the use of the reinstatement power in Section 240 to virtually disappear after Wilson, an odd outcome given that, to use the reasoning in Wilson itself, the purpose of Section 240 was to grant adjudicators the ability to reinstate where a court could not. The Court of Appeal in Wilson deftly sidesteps the question of when reinstatement would be an appropriate remedy, saying only that adjudicators will have to decide that.
Consider an employer that terminates an employment contract not by alleging a bogus cause claim, but by giving or offering the employee notice of termination that is less than the contract requires. For example, assume a federally regulated employee with 25 years’ service and a contractual entitlement to ‘reasonable notice of termination’ is terminated with only 8 week’s notice (like the employee in this Canac Kitchens case)? Under the common law—the model we are building on and that is to taken “as given” in the unjust dismissal part of the Code—that is clearly wrongful and a fundamental breach of contract by the employer, entitling the employee to damages for wrongful dismissal (but not reinstatement).
Is termination with inadequate notice like this an “unjust dismissal” under s. 240? I’d say after Wilson, it should be. If we take the common law as are starting point, as Wilson tells us we should do, then a termination involving a fundamental breach of the contract by the employer is an unjust one. What then is the appropriate remedy for an employer that terminates an employee with less notice than contractually required? In theory it could be reinstatement; after all, Section 242 clearly contemplates that happening, and the Wilson decision tells us that the whole point of s. 240-242 is to give adjudicators additional remedies beyond what a court would order in the same situation. A court in this fact scenario would order damages arising from the breach of the contract term requiring notice (in the Canac Kitchens case, the court ordered damages based on 22 month’s notice). The adjudicator could order those precise damages too. So why would the proper remedy be reinstatement rather than just damages?
If the employee is reinstated as a remedy for the failure of the employer to give proper notice, then what is to stop the employer from simply turning around and firing the employee a second time, this time by giving proper notice?
Of course, it would be great for employees if a failure by the employer to provide adequate notice of termination could be dealt with entirely under Section 240, resulting in both the full range of common law remedies plus reinstatement. In fact, Section 240 damages can be greater than common law breach of contract damages, because they are not restrained by the reasonably foreseeable test applied in contract law. There would no longer be any need for federally regulated employees to sue for wrongful dismissal. Section 240 adjudicators would become common judges on steroids, reinstating employees every time an employer fails to provide adequate common law notice. That would be something.
But my sense is that the Court of Appeal had something else in mind, a system in which reinstatement is all but read out of Section 242.
Time will tell. Thoughts?