Federally regulated employers should think twice before firing away

Exclusive to Canadian HR Reporter from Rudner Law.

Being dismissed is hard to take. When we speak to employee clients who have been dismissed, they often struggle with what they believe is the lack of a good reason for their dismissal.

While empathetic, we usually inform them that in Canada, there is no such thing as job security. Employers enjoy a significant amount of discretion when dismissing employees without cause, and are not required to give reasons; they can generally fire away so long as they pay the requisite amount of termination pay.

However, things are a bit different in the federally regulated arena. A recent decision from the Federal Court of Appeal (FCA) reminds us that federally regulated employees enjoy a special remedy, granting them a higher degree of job security. Employees can file an unjust dismissal claim, and if an adjudicator finds that the employer did not have just cause for dismissal, then the employee can be awarded remedies including reinstatement and other forms of compensation.

Thus, federally regulated employers have much less discretion when it comes to dismissing employees.

Unjust dismissal

The Canada Labour Code provides non-managerial, non-unionized employees, who have at least 12 consecutive months of service the ability to file a claim with the Canada Labour Program within 90 days of dismissal. Once filed, an adjudicator will review the claim and assess whether the dismissal was unjust.

Unjust dismissal occurs when an employee is dismissed for any reason other than just cause at common law, or the elimination of their role. Employers cannot dismiss employees for any other reason.

The unjust dismissal process is relatively straightforward and moves faster than the courts, making it a powerful tool for employees who would otherwise have to resort to a civil claim for wrongful dismissal. When unjust dismissal is found, an adjudicator can order virtually any remedy that counteracts the effects of the dismissal.

The FCA’s decision, discussed below, confirms that adjudicators’ authority to award remedies, including costs, is broad.

FCA confirms unjust dismissal has teeth

In Amer v Shaw Communications Canada Inc., 2023 FCA 237, the employer dismissed the employee and alleged that it had just cause, in the form of consistently poor performance. The adjudicator disagreed and found that the employee never received a job description, or an opportunity to correct the alleged issues. She had also received several positive performance reviews prior to her negative assessments.

Hence, the employer was not able to establish that she was deficient in her core duties, and that progressive discipline was not required.

The adjudicator awarded her severance, damages for lost wages and benefits, and her legal costs on a substantial indemnity basis. On appeal, the Federal Court overturned the award on the grounds that the adjudicator did not have the authority to award costs, because such awards were only available where the employer’s conduct was reprehensible.

The employee appealed the Federal Court’s decision, and the FCA found in her favour, reinstating the adjudicator’s award. The FCA confirmed that the option to award substantial indemnity costs is available to adjudicators for a number of reasons, not just because of the employer’s poor conduct. Interestingly, it also confirmed that the adjudicator was right to award severance, on top of damages for lost wages.

This is notable because employees are not usually allowed to “double dip,” but the FCA held that severance was warranted to compensate the employee for the value of losing a job covered by the Code’s unjust dismissal regime.

Protections akin to unionized workers

The FCA highlighted that the unjust dismissal regime was established to grant federally regulated employees with protections akin to unionized workers. Therefore, the scheme’s purpose is to protect employees from dismissals without just cause, and to provide a statutory alternative to common law claims.

Since the purpose of unjust dismissal is to put employees on similar footing as their unionized peers, it follows that adjudicators can award remedies to effect that alignment. The broad authority to award costs on a substantial indemnity basis mirrors the fact that unionized employees receive legal representation throughout proceedings at no cost. Depriving adjudicators of the authority to award such costs defeats the purpose of the unjust dismissal regime, and results in situations where victorious claimants are worse off due to the legal fees incurred.

The FCA concluded that it is appropriate for adjudicators to award substantial indemnity costs to an employee who wins their case.

Given the FCA’s reasoning, and the fact that many non-managerial employees are not high wage earners, it would not be surprising to see adjudicators award costs more frequently to uphold the purpose of unjust dismissal under the Code.

Pith and substance

The FCA’s decision reminds federally regulated employers that their non-managerial employees are protected against dismissals without just cause, and that they are entitled to a remedy that is in many ways superior to a wrongful dismissal action. The FCA confirmed that not only can employees get their costs back, but that they are also entitled to damages such as severance and compensation for lost wages and benefits rather than one or the other where reinstatement is not an option. All of that is available without risk of a costs award against them and on a shorter timeline.

In light of this decision, federally regulated employers would be well advised to consult with HR counsel when thinking about dismissing an employee. Experienced counsel can assist with putting together a strategic approach to dismissals in order to minimize exposure, and assess whether there is just cause.

Even when employers believe they have just cause, as we just saw an adjudicator may disagree, exposing the employer to potentially substantial liability.

David Gelles is an associate at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].