Nova Scotia: The Risks of Tenured Employees

September 24, 2015

In Nova Scotia, employees with ten years of service are provided with special protections under the Labour Standards Code. Section 71 of the Code provides that, subject to certain exceptions, an employer can only dismiss an employee with ten years of service or more for just cause. This is called the tenured employee rule.

A finding that an employer violated Section 71 can have serious consequences. In addition to the potential time and cost involved in defending a Labour Standards complaint, the employer may be ordered to reinstate the employee and provide them with back pay and benefits, or to pay damages to the employee.

In the past, many employers in Nova Scotia chose to dismiss tenured employees without cause despite the risk of a Section 71 complaint. These employers would offer the employee a severance package in exchange for a release, with the assumption that the release would shield them from Section 71 liability. However, in November, 2014, the Labour Board held that a release does not afford the protection that an employer might expect.

In Demone v Composites Atlantic Limited, 2014 NSLB 163, an employee with more than 18 years of service filed a complaint that he had been dismissed in violation of Section 71. The employee had signed a release after taking time to consider the employer’s offer and receiving legal advice. In exchange for signing the release, the employee received 27 weeks of pay. Despite the presence of these hallmarks of an enforceable release, the Labour Board found that the release did not bar the complaint because parties cannot contract out of the Labour Standards Code.

This was a preliminary decision which only decided whether the complaint could proceed, and it did not determine whether Section 71 had in fact been violated. Many employment lawyers and employers in Nova Scotia have been waiting to see how the complaint itself would be decided.

The Labour Board’s decision on the complaint has now been released. In DeMone v Composites Atlantic Limited, 2015 NSLB 141, the Board found that Section 71 had not been violated because DeMone’s position had been eliminated due to the employer’s restructuring. The permanent lay-off of an employee as a result of the good faith elimination of an employee’s position is a well-established exception to Section 71. This aspect of the decision does not change the applicable principles in assessing a Section 71 complaint.

The Board also reconsidered its previous decision with respect to the effect of the Release. The Board accepted that the parties may not have appreciated the full importance of the issue during the preliminary hearing, and therefore provided them with the opportunity to make further arguments.

The Board varied its decision and concluded that the release, in the particular circumstances of this case, barred the complaint. This was based on the Board’s finding that Section 71 was not violated because there had been a good faith elimination of DeMone’s position. As DeMone had received his statutory entitlement to 8 weeks’ pay in lieu of notice and an additional 19 weeks’ pay, DeMone had received a benefit that exceeded his entitlement under the Code. Accordingly, the Board concluded that the release was enforceable because the parties had not attempted to contract out of the Code.

Notably, however, the Board declined to decide whether a release is binding in a situation where an employer is unable to establish that an employee had been permanently laid off by the elimination of a position and the employee is therefore entitled to the protection of Section 71. The Board stated that this remains to be determined in a different case.

This decision slightly varied the November, 2014 preliminary decision. There is now no clear statement from the Labour Board that a release will not bar a Section 71 complaint. Instead, it now seems that a release likely will be enforceable in circumstances where an exception to Section 71 applies. However, there remains significant uncertainty regarding whether a release will bar a Section 71 complaint in circumstances where an exception to the provision does not apply. Accordingly, given the significant risks of a Section 71 complaint, employers in Nova Scotia would be well-advised to seek legal advice before dismissing an employee with more than 10 years of service.

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