Termination under the Canada Labour Code: A Lack of Work or Discontinuance of a function

In Ontario, provincially regulated employers have a lot of freedom and flexibility when it comes to choosing to end an employment relationship, especially in comparison to federally regulated employers.

For federally regulated organizations, if an employee has worked for the organization for 12 or more continuous months, then the employer must have just cause to terminate the employment relationship. Just cause can occur through a series of inappropriate behaviour on behalf of an employee or a serious incident that is so egregious it irreparably harms the employment relationship. Just cause is a high threshold which can be difficult to prove. Typically, employers need to have properly applied progressive discipline to prove just cause. If an employee feels that their employment has ended improperly, they may make a complaint of unjust dismissal under the Canada Labour Code (section 240).

But what about circumstances where an employee has not done anything wrong but the employer needs to end the employment relationship? There are very limited circumstances where a federally regulated employer can terminate the employment relationship without just cause. Under the Canada Labour Code there is an exception that has been termed “lack of work” or “discontinuance of a function” (section 242 (3.1) (a)). The Supreme Court of Canada established that a discontinuance of a function is defined when a “set of activities which form an office is no longer carried out as a result of a decision of an employer acting in good faith.” (Flieger v. New Brunswick, [1993] 2 S.C.R. 651).

If an employer can prove that the reason they terminated an employee was because of a lack of work or discontinuance of a function then a complaint of unjust dismissal may be waived. In order to claim that it was a lack of work or discontinuance of a function it cannot be an after thought once the employee contest the termination. It must be noted in the termination letter that the termination is as a result of lack of work or the discontinuance of a function. This means that the employer will have the onus to show that the dismissal was genuine by establishing that there is a valid economic justification for the termination and that there is a genuine reason for that specific employee to be terminated or laid off. An employer must be prepared to open its books to prove this. An employer cannot simply terminate an employee and claim a lack of work or discontinuance of a function, they must genuinely prove that the job they held can no longer exist for economic reasons. An employer cannot hire another employee to fill the role or just remove a job title. This exemption is not a way around the termination rules under the Canada Labour Code. However, it does provide an avenue for employers who no longer need a position to be filled or can no longer support a position due to lack of work, to terminate an employee without an act of misconduct that would warrant just cause.

At SD Law, we are available to support employees and employers with all employment related matters, including unjust dismissal concerns and termination under the Canada Labour Code. For more information, reach out to our team of lawyers at 705-268-6492.