SUSPENDING EMPLOYEES: Do employers have the right to suspend employees with or without pay?

The answer to this question was addressed in the Supreme Court of Canada case, Cabiakman v. Industrial Alliance Life Insurance Co. [2004] 3 S.C.R. 195, 2004 SCC 55.

Facts

Gilbert Cabiakman (“Cabiakman”) was a sales manager at Industrial Alliance Life Insurance Co. (“Industrial Alliance”). Three months after Cabiakman was hired, he was arrested and charged with conspiracy to extort money. Once Industrial Alliance got wind of these charges, it suspended Cabiakman because of the connection between the nature of the charges and Cabiakman’s position.

Cabiakman had been on an indefinite suspension without pay for two years while the charge was pending. After Cabiakman was acquitted of all charges, he was reinstated in his position at Industrial Alliance. Cabiakman commenced proceedings against Industrial Alliance for lost wages during the period of suspension and for moral and punitive damages.

The Supreme Court of Canada (“SCC” or “Court”) upheld the decision of the Quebec Court of Appeal that ruled that Industrial Alliance was not justified in suspending Cabiakman without pay and awarded him $200,000 in damages. However, the SCC affirmed the employer’s right to suspend an employee for administrative reasons.  The Court stated that the employer conducted itself properly, however, since the suspension remained administrative in nature at all times, there was no reason to refuse Cabiakman’s salary as he remained available to work.

Suspending Employees as a Disciplinary Penalty

The SCC affirmed that an employer’s power to impose a suspension as a disciplinary penalty is generally recognized by tribunals and courts but stated that it was not the issue in the appeal.

Suspending Employees for Administrative Reasons

The SCC stated that an employer has the right to suspend an employee for administrative reasons, during an internal investigation or when criminal proceedings are ongoing against the employee. 

The SCC stated that employer must, subject to the limits imposed by law, be given the power necessary to manage the business and protect its business interests. The Court stated that an employer is permitted to waive its right to performance of the employee’s work but the employer cannot waive the employee’s right to receive the entitled salary if the employee is available and willing to perform the work.

The Court stated that if an employee is suspended for administrative reasons without pay and has not consented to such a suspension, the employee may be able to regard such a measure as constructive dismissal.

Criteria to Suspend

The SCC confirmed an employer’s right to suspend employees for administrative or non-disciplinary reasons but said such a right must be exercised in accordance with the following requirements:

  1. The suspension must be necessary to protect legitimate business interests;
  2. The employer must be acting in good faith;
  3. The suspension must be for a relatively short period of time or for a fixed term; and
  4. Other than in exceptional circumstances, the suspension must be with pay.

The SCC also listed the following factors to be considered by courts when determining if an administrative suspension of an employee was justified:

  1. Whether there was sufficient connection between the act the employee was charged with and the employment held by the employee;
  2. The nature of the employee’s charges;
  3. Whether there was reasonable ground to believe that maintainting the employment relationship, even for a temporary period, would prejudice the business or the reputation of the employer/business;
  4. Whether there were immediate and significant adverse effects that could not reasonably be counteracted by other measures (such as assigning the employee to a different position); and
  5. Whether the purpose of the suspension was to protect the image of the employer/business, taking into account:
    1. Harm to the employer’s reputation;
    2. The need to protect the public;
    3. The employer’s motives and conduct during the term of the suspension;
    4. Whether the employer acted in good faith; and
    5. Whether there was intent to harass or discriminate against the employee. 

Employer’s Burden and Obligations in Suspending

The Court ruled that the onus is on the employer to show that the decision to suspend an employee was fair and reasonable taking into account the above-noted factors.  In determining if a suspension was fair and reasonable, the decision must be considered from the perspective of the point in time when it was made, even if subsequently the employee was acquitted of all charges.

The employer does not normally have to make any inquiries to ensure that the charges against the employee were justifiable. However, the employer does have the obligation to allow the employee to explain the situation at hand, if the employee wishes to do so.

Employment Agreements

The Court stated that the employer can include suspension provisions in employment agreements and specify the conditions under which the employer can suspend employees. However, any uncertainties will be interpreted strictly against the employer.

If the employer wants to suspend an employee without pay in order to investigate an act that the employee is accused of, whether criminal or a customer/employee complaint, the employee has the option to agree to such terms as the employer proposes in light of the circumstances. However, the employee is under no obligations to agree to such terms and may refuse a suspension without pay and such a refusal would not constitute a resignation.

Practical Application for Employers

The SCC has clearly stated that employers have the right to suspend non-union employees for administrative, non-disciplinary reasons but such suspensions must be with pay. Employers must meet the requirements enumerated above when suspending employees and should bear in mind that the tests are essentially the determination of the employer’s legitimate business interest and whether the employer acted in good faith.

 

 

Mariana Fonar is a Corporate Associate specializing in Employment Law at Dale & Lessmann LLP, Toronto, Ontario, a full service business law firm. To speak to Mariana please call 416-369-3811 or send an email message to her at mfonar@dalelessmann.com. To download a pdf of this article, please click here.