Commission Research

Unjust Dismissal and Other Termination-Related Provisions

Prepared by Geoffrey England

Executive Summary

This Report examines the provisions in Part 111 of the Canada Labour Code that deal with termination of employment: the unjust discharge provisions; the individual notice of termination/pay in lieu provisions; the individual severance pay provisions; and the group termination provisions.

1. The criteria for evaluating the effectiveness of the termination provisions.

The four benchmarks are as follows. Firstly, whether or not the provisions impose unacceptable economic costs on the employers which are subject to them, and to the federal government which administers them. Secondly, whether or not they adequately safeguard the employee's personal autonomy and dignity in dismissal situations. Thirdly, whether or not they provide employees in the federal jurisdiction with roughly equal safeguards compared with employees in other Canadian jurisdictions and compared with employees covered by other labour law regimes, notably unionized employees covered by collective agreements. Fourthly, whether or not the termination of employment provisions operate efficiently in their own right, which depends on their accessibility to employees, their cost to employees and employers, the speed with which they resolve complaints, the comprehensiveness of issues they cover, and the acceptability of their outcomes to the parties, including not only the quality of adjudicator's decisions and the scope of the available remedies, but also of mediated settlements prior to an adjudication decision.

It is submitted that the current legislation strikes a roughly acceptable balance between the goals of achieving economic efficiency, safeguarding employee personal dignity and autonomy, and equalizing treatment between different regimes and forums. No wholesale reduction in the level of protection is warranted on the ground of undue economic costs. However, a cautious and conservative approach is recommended when it comes to extending the level of protection in order to avoid imposing undue economic burdens on employers when terminating employees. The Report makes numerous recommendations for fine tuning the point of balance, all of which are relatively modest in nature.

It is submitted that the termination provisions by and large operate efficiently in their own right, but several recommendations are made to improve certain facets of the process, notably in order to speed up the enforcement of claims.

2. Recommendations regarding the unjust discharge provisions in section 240 of the Code.

Recommendations are made regarding: A, the qualification rules for filing a complaint; B, the standards of just cause; C, remedies for unjust dismissal; and, D, assorted procedural and administrative issues that arise in adjudication.

A. The qualification rules.

1. "Employee" status.
   - The Code should be amended to provide that "dependant contractors" as defined by section 3(1) should be covered as "persons" under section 240(1) so as to enable them to file a complaint of unjust dismissal.
2. "Employer" status.
   The Code should be amended to include an express "common employer" provision that applies to Part 111 of the Code, including the unjust discharge provisions. Such a provision would enable the adjudicator to "pierce the corporate veil" where two or more possible employers are carrying on business under the common control of direction of one of them, and would allow the adjudicator to declare that all employers involved can be joined to the complaint as a single employer and be jointly and severally liable for an unjust dismissal.
3. "Managers"
   The exclusion of "managers" as that term is currently defined by the courts and adjudicators should be retained.
4. The requirement that the employee must have accrued "12 consecutive months of continuous employment" with his or her employer prior to the date of dismissal. This qualification should be retained, subject to the following amendments:
   1. Section 189 of the Code should be amended to express that an employee's seniority with a predecessor employer operating within the provincial jurisdiction will be preserved vis-à-vis a successor employer operating within the federal jurisdiction;
   2. Section 30 of the Canada Labour Code Regulations should be amended to express that temporary lay-offs, as defined in section 29 of the Regulations, do not to interrupt continuous employment for the purpose of section 240 of the Code;
   3. The Code should be amended to provide that an hiatus in employment of less than 12 weeks duration will not rupture continuity of employment for the purpose of all of the provisions in Part 111 that deal with individual and group terminations of employment;
   4. Human Resources and Skills Development Canada (hereinafter referred to as HRSDC) should investigate whether the one year qualifying period indirectly discriminates against women and/or visible minorities in breach of section 15 of the Charter by disproportionately excluding them from protection against unjust dismissal, on account of their holding short term jobs, and, if so, whether the infringement can be "saved" under section 1 of the Charter.
5. Timeliness of applications.
   The 90 day time limit for filing a complaint should be retained. However, section 240(3) should be amended to empower the Minister to extend the time limit for applications to an extent that he or she deems to be reasonable, if he or she believes that the interests of justice would be served by so doing.
   4. The requirement that the employee be "dismissed."
      In order to safeguard against the abuse of revolving fixed term contracts of less than twelve months duration, the Code should be incorporate the British approach which states that if fixed term employees have contracts renewed, or they are re-engaged on a new fixed term contract, when they already have a period of four or more years of continuous employment, the renewal or new contract takes effect as a contract for an indefinite term, unless employment under a fixed term contract is "objectively justified". A renewal will be "objectively justified" only if it can be shown that the use of a further fixed term contract is the necessary and appropriate way to achieve a legitimate business objective, for example, professional sports players, entertainers or other similar professionals, or workers in cyclical industries. Furthermore, this amendment should also be applied to the individual termination and severance pay provisions in Part 111 of the Canada Labour Code.
   5. No complaint can be brought by an employee who is "laid off because of lack of work or because of the discontinuance of a function."
      This exclusion should be retained in its current form since it sensible purpose of insulating from adjudicative review the employer's determinations of what the objectives of the organization should be and how they can most efficiently be achieved; the employer has the superior expertise to make such decisions, not an adjudicator. A common criticism of the layoff bar is that the definition is complex and sometimes does not correspond with what a layperson understands a layoff might be. It is recommended that this problem is best addressed by having the HRSDC prepare clear and comprehensive guidelines, containing lots of practical examples, rather than by amending the section itself in a fruitless quest to cover all the possible factual scenarios that could arise. Any such guidelines should not have the force of law so as to bind an adjudicator.
   6. The collective agreement bar.
      It is recommended that a unionised employee covered by a collective agreement should be permitted to bring a complaint of unjust dismissal under section 240 if the collective agreement covering him or her provides less protection than that afforded under section 240. This would probably not happen very often, but the HRSDC should monitor the caseload to determine whether or not it is resulting in unduly burdensome administrative costs. If so, the issue can be revisited at a future time to deal with that problem.
   8. The alternate statutory relief bar.
      It is recommended that an adjudicator should be given the discretion to hear a complaint of unjust dismissal provided that he or she is satisfied that the substance of the complaint falls substantially within his or her zone of expertise, as opposed to falling substantially within the zone of expertise of the alternate statutory forum. However, if an employee has previously elected to pursue his or her complaint in the alternate statutory forum, it usually makes sense for the adjudicator to defer to the latter forum, and the Code should provide for such discretion. If an employee has already obtained a judgement in the alternate statutory forum, the doctrine of issue estoppel would come into play.
   9. The pre-requisites of compulsory mediation and ministerial discretion.
      Compulsory mediation is very effective in producing a high rate of voluntary settlements of unjust dismissal complaints and should be retained as a pre-requisite to adjudication. However, another objective of mediation is educative: employers should be expected to reform defective disciplinary procedures as a result of the mediation experience. Small firms appear to have the least understanding of what section 240 entails, and First Nation employers, in particular, appear to have a poor record of non-compliance with the statute, losing far more adjudicative decisions than they win. It is recommended that the small firm sector should be the focus of Department's educative efforts.

      It is also recommended that the Department should do spot-checks of firm's disciplinary systems, and conduct follow-up audits of the disciplinary procedures in firms against which complaints of unjust dismissal have been filed in the past, providing training seminars where needed in order to bring employers up to speed. Whether or not the resources can be made available for this purpose is for others do decide. Be that as it may, empirical studies have yet to be undertaken to demonstrate whether mediation has had much of an educative effect, especially in the small firm sector. It is recommended that the Department should conduct a study to investigate the educative effect of mediation.

      In addition, the substantive quality of the settlements reached in mediation must also be taken into account in assessing its merits. There is unquestionably a risk that mediation might short-change the employee. The legally unrepresented employee must rely heavily on the inspector to protect his or her legal rights in the mediation process. Anecdotal evidence suggests that some inspectors have been willing to trade off the rights of an un-knowledgeable claimant for a "quiet life", notably in regard relinquishing the claimant's wish to be reinstated. It is recommended that the Department conduct empirical studies to examine the extent of this risk. It would be inappropriate at this juncture to amend the Code in order to attempt to eliminate a risk whose extent is unknown. Rather, it is best dealt with by the Department's internal performance appraisal and quality control mechanisms over its inspectors.

      It recommended that the Minister's discretion to refuse to remit unmeritorious complaints to adjudication should be retained. However, if the Minister does remit a complaint to adjudication, the delay between the appointment of an adjudicator and the commencement of the hearing is unacceptably long and results in undue harm to most complainants. Accordingly, it is recommended that the Code be amended to require that an adjudication hearing must commence within three months of the date of the adjudicator's appointment. The Department should monitor the three month deadline to ensure that it does not have the undesirable result of unduly reducing the pool of qualified adjudicators. If that is the case, then the deadline can be reconsidered at a future date.

B. The standard of "just cause."

Adjudicators have fashioned a comprehensive and - for the most part - a successful set of standards on "just cause" that mirrors in many ways the jurisprudence applied by collective agreement arbitrators, while simultaneously being sensitive to the different factors that sometimes are at play in the non-unionised sector. Legislative intervention is unnecessary in this area, with one exception. A minority of adjudicators persist in holding that section 240 is identical to the common law standard of "just cause," in the sense that if an employer gives the employee due notice to terminate the employment contract or wages in lieu thereof, then discharge is automatically "just" under section 240. This approach is plainly incorrect since it is repugnant with the fundamental purpose of section 240 which is remedial in nature, namely to counteract the deficiencies in these very common law principles of wrongful dismissal. In order to put this matter to rest once and for all, it is recommended that legislation be amended to state that, for the avoidance of any doubt, providing an employee with the requisite period of notice of termination (or pay in lieu) under the contract of employment does not automatically constitute "just cause" for dismissal under section 240.

C. Remedying an unjust dismissal.

1. Monetary compensation.
   The Code gives adjudicators a broad remedial authority to make whole the financial and psychological harm that an employee suffers as a consequence of being unjustly dismissed. This make whole remedial authority is the cornerstone of section 240, providing the motor that makes the section work effectively.

   Regarding monetary compensation, adjudicators, with the blessing of the courts, have successfully developed an elaborate and sophisticated jurisprudence that seeks to "make whole" the full spectrum of financial losses that result from an unjust dismissal. However, the effectiveness of the section can be improved in the four ways:

   1. A significant number of adjudicators persist in applying the traditional common law rules of wrongful dismissal for measuring damages under section 240. These principles should be regarded as relevant only in so far as their application produces results that are harmonious with the "make whole" philosophy, for example, the duty to mitigate. In order to put to rest the view that compensation for unjust dismissal is limited by the common law contractual notice period, it is submitted that section 242(4) should be amended to provide that, for the avoidance of any doubt, an adjudicator's remedial order is not limited by the common law rules of wrongful dismissal.
   2. Some adjudicators have questioned whether they have the jurisdiction to compensate an unjustly dismissed employee for benefits that he or she is entitled as a result of his or her termination under other sections of the Canada Labour Code. In order to avoid the inefficiency of requiring the employee to launch a separate action to recover such benefits, it is recommended that section 242(4) be amended to allow an adjudicator to determine the employee's entitlement to, and award compensation for any benefits conferred by part 111 of the Canada Labour Code that are owing to the employee at the date of his or her unjust dismissal.
   3. In order to ensure that the unjustly dismissed employee is fully "made whole", and to discourage employers from pressuring claimants to accept inferior settlements by "bleeding them white" by means of legal technicalities and delays, t is recommended that section 242(4) should be amended to permit adjudicators to award an employee his or her solicitor-client costs when the adjudicator regards it as "fair and reasonable" to do so. Furthermore, it would help adjudicators to determine what costs to award if the Code contained specific provisions, designed for the unique context of section 240 unjust discharge proceedings. In addition, it is recommended that adjudicators should be allowed to award the employer its solicitor-client costs when the adjudicator considers it as "fair and reasonable" to do so, in order to discourage employees from filing complaints with the purpose of plaguing and harassing the employer.
   4. Adjudicators should be allowed to award the employee punitive damages where it seems "fair and reasonable" in all the circumstances, and to direct that the damages in question must be used, in whole or in part, for the purpose of educating and training the employer's supervisors in disciplinary matters, at the discretion of the adjudicator.
2. Reinstatement and re-engagement.
   Reinstatement is the most obvious way of making whole the financial and psychological harm resulting from an unjust dismissal. However, the practical difficulties of re-integrating the employee in to the workplace explain why many arbitrators have refused the remedy even when the employee requests it. In order to prevent reinstatement from becoming a lost remedy, a start should be made to foster a culture in which reinstatement is regarded by employers, employees and adjudicators as the primary remedy for an unjustly dismissed employee. Accordingly, it is recommended that section 242 be amended to provide that reinstatement is presumed to be the primary remedy if it is requested by the employee, but that the adjudicator has the discretion either to deny reinstatement, or to make it subject to such other conditions as he or she sees fit, only if reinstatement would be demonstrably impracticable in all the circumstances of the case. As well, the role of Departmental inspectors should be expanded to include following up on reinstated employees in order to ensure that the order is being properly implemented. Also, in order to deter employers from violating a reinstatement order, the adjudicator should be empowered to award additional compensation to "make whole" any economic and psychological harm caused to the employee, in addition to an award of punitive damages that the adjudicator may direct to be used, in whole or in part, for educating and training the employer's personnel in disciplinary matters.

   Orders to re-engage an unjustly dismissed employee in to a different position are a useful adjunct to the adjudicator's remedial authority. In order to avoid any doubt that the adjudicator has the jurisdiction to award re-engagement, following one recent adjudication award that suggests to the opposite, it is recommended that section 242(4) be amended to state that an adjudicator can order re-engagement into a different position if that is required in order to "make whole" the employee's losses in the circumstances of the case.

(D) Assorted procedural and administrative matters.

1. The Code should be amended to permit adjudicators to order the production of documents prior to the commencement of the hearing.
2. The Department should conduct a study to consider whether a European, inquisitorial style model of adjudication should be included in the Code for persons who prefer not to be legally represented.
3. In order to attract a pool of competent adjudicators, the Department should examine how its current procedures for adjudicator training could be improved in order to ensure that newly appointed adjudicators are of the highest calibre. Furthermore, the current maximum fee of $500 per day should be substantially increased.
4. H.R.S.D.C. should modify its training programs so as to provide inspectors with a reasonable level of knowledge of related legal areas that may arise in section 240 proceedings such as the common law of the employment contract, the law of evidence, the Charter and the human rights legislation.
5. H.R.S.D.C. should conduct four studies in order to evaluate the efficiency of section 240. First, the efficacy of conciliated settlements by departmental inspectors, prior to the claimant retaining legal counsel, needs to be assessed. A comparison between the quantum of settlements at this stage, and the quantum of settlements once legal counsel have been retained, and even in adjudication itself, would provide insights into how effectively inspectors are performing their role of guardian of the claimants' interests.

   Second, the educative effect of section 240 needs to be assessed. The extent to which the enactment of the section has resulted in employers within the federal jurisdiction upgrading their disciplinary and dismissal procedures remains unexplored. Anecdotal evidence suggests that many small employers, and especially First Nation bands, are ignorant of their statutory obligations - or, if they are not, that they take their public responsibilities too lightly.

   Third, further evidence is needed on the efficacy of reinstatement orders, and the success of employee rehabilitation. It was noted above that the absence of a trade union as the guardian of the employee's statutory rights appears to undermine the efficacy of reinstatement as a remedy, so that more potent enforcement machinery than currently exists will probably have to be devised. Also, further information is needed on the degree to which reinstated employees successfully rehabilitate themselves.

   Fourth, study is needed of the impact of s. 240 on business performance: has it improved productivity, or is it a "job-killer" which merely protects those lucky enough to have a job?

3. Recommendations regarding the Individual notice of termination provisions in section 230 of the Code.
   1. The length of the minimum notice of termination should increase with the employee's period of continuous employment rather than be a fixed period of two weeks, as is currently the case. It is recommended that Nova Scotia and Quebec models should be adopted, so that the minimum period would be one week between three months and two years continuous employment; two weeks between two years and five years; four weeks between five years and ten years; and eight weeks for 10 years or more.
   2. The Code should be amended to provide that a hiatus in employment of less than 12 weeks duration will not rupture continuity of employment for the purpose of section 230 as well as all of the provisions in Part 111 that deal with termination of employment and unjust dismissal.
   3. Thirdly, an employee who refuses an offer from his or her employer of "reasonable" alternative employment should be disentitled from receiving statutory notice of termination.
4. Recommendations regarding severance pay in section 235 of the Code.
   Despite the uncertainty of its theoretical pedigree, it is recommended that the severance pay provision should be retained in its current form, in the absence of any compelling arguments from employers that the provision is causing them undue economic hardship. However, there is a risk that by disqualifying an employee who receives a pension, no matter how small, section 235(2)(b) disproportionately penalises older workers who have not put in enough years service to be eligible for a decent pension, and may be susceptible to a challenge under section 15 of the Charter as a form of indirect age discrimination. If so, the government would have to justify the exception under section 1 by proving that it is not disproportionately harmful to such workers when balanced against the benefits to be recouped from the exception. This may be difficult to do since the exception does not distinguish between decent pensions and meagre pension. It is recommended that the Department conduct a study to ensure that section 235(2)(b) conforms to the Charter.
5. Recommendations regarding the group termination provisions in section 212 of the Code.
   1. It is submitted that the requirement under section 212 for a minimum of 16 weeks advance notice of the layoff should be retained since it helps to lubricate the labour readjustment process. However, section 212 is inflexible in providing for a standard 16 week notice period; instead, a flexible notice period should be legislated which varies according to the number of affected employees, as is the case in most other jurisdictions' group termination provisions.
   2. The words '...an employer who terminates..." in section 212(1) appear to require that layoff notice need be served only after the employer has actually finalized its decision to implement the layoff, by which time it will often be too late to reverse the decision. It is recommended that the subsection be amended to require the employer to give notice when the employer "contemplates" imposing a layoff.
   3. The unique feature of the federal mass termination provisions is that a neutral adjudicator can impose a legally binding adjustment plan on the parties if the joint employer-employee planning committee cannot reach a voluntary agreement. This feature should be retained because it reflects the important principle that employees should be entitled to collective representation rights without having to go through the channel of formal trade union recognition. Furthermore, it is recommended that the decision to declare a redundancy should remain a unilateral managerial prerogative in the interest of enhancing economic efficiency.
   4. Section 229 of the Code states that the parties to a collective agreement can contract out of the joint planning committee. This can be done by including a provision in the group agreement to that effect, but only so long as the agreement also contains provisions either (a) for the negotiation and "final" settlement of "any" matters relating to termination of employment, or (b) which are intended to "minimize the impact" of dismissals on the employees and to "assist" them in finding other employment. Proviso (b) is problematic because there is no requirement that the collective agreement measures guarantee any objective level of protection. A clause which provides even the most insipid adjustment assistance appears to satisfy the strict language of the section. Moreover, the reference to a procedure for the "final" settlement of negotiations on terminations does not specify that it must be neutral adjudication: arguably, unilateral management regulation would suffice, although that would surely be inconsistent with the philosophy of the legislation. Nor can union bargaining power be guaranteed to avoid abuse, for weak unions may have no choice but to concede a "contracting-out" provision in return for inferior redundancy protections. In contrast, the discretion conferred on the Minister under section 228(d) of the federal Code to waive the "mass" termination provisions in general where the parties have adopted redundancy measures of their own is subject to the overriding requirement that those measures be "substantially the same or to the same effect" as the Code's provisions. This appears to ensure equal favourability. It is recommended that the same principle should be made to govern section 229.
   5. It is recommended that the Department conduct a study of how the Minister's discretion under section 228(a)-(c) to exempt an employer from the provisions has been applied in the past, in order to determine whether an appropriate balance has been struck between employee rights and employer business concerns. In the absence of any negative evidence, it is recommended that the "escape hatch" provisions serve a useful purpose and should be retained in the Code.