The Supreme Court of Canada (“SCC”) has clearly determined that sections 240 to 246 of the Canada Labour Code (“Code”) displaces the ability of an employer to fire a federally regulated employee without just cause. In other words, employers cannot simply provide the employee with a severance package and dismiss the employee without having cause to terminate the employment.
Employers have the right to terminate employees for cause. Employees who are arbitrarily dismissed without just cause can seek out their entitlements from three sources:
- reasonable notice of termination or pay in lieu thereof at common law; and
- termination provisions contained in an enforceable employment contract.
In July, 2016, the SCC clarified the law for federally regulated employees who are employed for 12 months or more and are unjustly terminated from their employment. The SCC has decided that the Code completely displaces the common law right of an employer to fire a federally regulated employee without just cause by simply providing reasonable notice or pay in lieu thereof. The SCC stated that the purpose of the Code is to match the rights of unionized employees who can only be fired for just cause. Employers must give reasons showing why the dismissal is justified. Remedies under the Code include ordering that the employee be reinstated to his/her employment position. The reinstatement remedy would be meaningless if an employer could simply again terminate a reinstated employee without just cause by providing a termination/severance package.
Federally regulated employees who are unjustly terminated from their employment have two choices for seeking a remedy:
Canada Labour Code
In summary, employers of federally regulated employees:
- cannot fire an employee without cause;
- must provide the employee with a reason for the dismissal;
- can be fired without cause if the employees are:
- laid off because of a lack of work; or
- there is a discontinuance of function
- may be subject to broad ramifications if they unjustly dismiss an employee including having to reinstate the employee and pay the employee for all lost wages.
Prepared with the assistance of Brett Roane, Student-at-Law
Christina J. Wallis is a Partner lawyer practising civil litigation with a focus in Employment Law at Dale & Lessmann LLP, Toronto, Ontario, Canada, a full service business law firm. To speak to Christina please call 416-369-7832 or send an email message to her at mailto:firstname.lastname@example.org.
 Exception to this is where an employee is laid off because of lack of work or because of the discontinuance of a function (s. 242(3.1) of the Code).
 Dismissal for cause is a high threshold. The frequently cited test for “just cause” is that set out by Schroeder J.A. in Regina v. Arthurs (1967), 62 D.L.R. (2d) 342 (Ont. C.A.) at para. 11:
If an employee has been guilty of serious misconduct, habitual neglect of duty, incompetence, or conduct incompatible with his duties, or prejudicial to the employer's business, or if he has been guilty of wilful disobedience to the employer's orders in a matter of substance, the law recognizes the employer's right summarily to dismiss the delinquent employee.
 Unjust Dismissal provisions under the Code do not apply to managers (s. 167(3) of the Code).