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By Mark Repath

For almost 40 years, it had been an open question whether federally regulated employers could be ordered to reinstate an employee who had been dismissed without cause.

The confusion came from the interpretation of Division XIV of the Canada Labour Code (ss. 240-246) and whether terminating an employee “without cause” was equivalent to an “unjust dismissal” under the legislation (which governs most federal employers).

For years, employees argued that the two terms were interchangeable, for the obvious reason that a finding of an unjust dismissal would entitle a dismissed employee to a broad range of remedies under the Code, including, most importantly, reinstatement with full back pay. Employers, on the other hand, argued that even if a termination was “without cause,” so long as appropriate notice of termination or pay in lieu thereof was provided, then a dismissal was not unjust.

Unfortunately, for employees and employers alike, adjudicators appointed to determine unjust dismissal complaints under the Code agreed with both interpretations, in ways that could not be reconciled. There was little certainty in the state of the law and therefore the risk to either party in commencing or responding to an unjust dismissal complaint was difficult to measure. This caused tremendous second-guessing by managers and HR professionals employed with banks, railways, airlines and telecommunications companies (among many other federally regulated employers) as to how to properly manage the dismissal process – particularly for problematic employees.

This pivotal issue was put before the Supreme Court of Canada in the 2016 case of Wilson v. Atomic Energy of Canada Ltd. (“Wilson”). Although the Supreme Court’s interpretation of the Unjust Dismissal provisions will not be welcomed by employers, they ought to take note of this final and binding decision as it will significantly limit the ways in which they can manage their workforces.

The third limit to the application of the unjust dismissal provisions is where an employee is dismissed due to lack of work, or discontinuance of a function that they performed for their employer.

In Wilson, the Supreme Court confirmed that simply providing an employee with ample notice of termination, or a package in lieu thereof, was insufficient to avoid an “unjust dismissal” determination pursuant to the Code. The Supreme Court found that Parliament’s intention, when introducing the Code in 1978, was to replace – not to co-exist with – the common law right of employers to dismiss employees without cause or reasons thereof, in a manner comparable to employees who worked in unionized environments. Therefore, effective immediately, a federally regulated employer’s ability to dismiss its employees is significantly hampered – it can no longer terminate without just cause. This will provide employees with obvious leverage during a dismissal process.

However, federally regulated employers should note that there are important limits to the unjust dismissal protections of the Code that remain, despite the decision in Wilson. First, the provisions do not apply to employees who are governed by a collective agreement or who have completed less than 12 consecutive months of employment. Therefore, employers would be wise to conduct reviews prior to an employee’s first anniversary of employment.

Second, employees who are “managers” are not entitled to the protections afforded by Division XIV of the Code. However, before undergoing an organization-wide process of re-labelling job titles in an attempt to squeeze as many positions into this managerial exception – for example, changing the position of “sales representative” to “account manager” – HR professionals must know that adjudicators will look at many factors beyond just the formal job title in determining whether a dismissed employee is a “manager” or not. There are numerous cases where employees with the title of supervisor, manager and even director have been found to be subject to the protections of Division XIV of the Code. Indeed, whether or not an employee is a “manager” has traditionally been interpreted very narrowly pursuant to the Code.

Ultimately, the test for demonstrating that an employee is a manager is whether that person had significant autonomy, discretion and authority in the conduct of the employer’s business. This requires satisfaction of two criteria: first, the employee must be engaged in the administration of the employer’s affairs, and second, the employee must have the power of independent action, autonomy and discretion in a significant range of matters within her or his area of responsibility.

The third limit to the application of the unjust dismissal provisions is where an employee is dismissed due to lack of work, or discontinuance of a function that they performed for their employer. Similar to the managerial exception, this limit to the unjust dismissal protections is also interpreted narrowly by adjudicators; however, it can often be helpful to employers who are undergoing major changes in their workforce, whether brought on by internal or external factors.

For example, if a particular set of activities which form an office are merely handed over to another person, or if the activity or duty is simply given a new name and different title so as to fit another job description, there would be no “discontinuance of a function.” On the other hand, if the employment activities are disbursed, decentralized or spread amongst many other employees or a third party provider, if done in good faith, a discontinuance of a function has occurred and the unjust dismissal protections do not apply.

In sum, considering the current uncertain economic climate and the fact that a number of federal employers are currently (or may soon be) in the process of downsizing or restructuring, the Wilson decision should be front of mind for HR professionals in their attempts to efficiently manage and organize their workforce; otherwise, many of these efforts could be easily reversed by adjudicators enforcing the now clearly defined import of the unjust dismissal provisions of the Code.

Mark Repath is an associate at Van Kralingen Law, a boutique firm with a practice focused on employment litigation and all aspects of workplace law.

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