In a landmark 2004 decision, the Supreme Court of Canada ruled that employers must continue to pay an employee during an administrative suspension. While this case was decided in the context of Quebec civil law, it was largely decided based on fundamental common-law contract principles and has since been adopted in the remaining common-law provinces of Canada. The decision is an important one, not only for establishing the rule that employers must pay their employees on an administrative leave, but also because it establishes the rules governing the manner in which employees can be placed on administrative leave. If not done correctly, employers may be liable for wrongful dismissal arising out of an administrative suspension.

FACTS

Gilbert Cabiakman (“Mr. Cabiakman”) began working with Industrial Alliance Life Insurance Co. (“Industrial”) in 1995 as a Sales Manager. As a Sales Manager, Mr. Cabiakman was responsible for selling investment products and advising clients regarding transfers of money and securities, as well as hiring, training and supervising the branch’s sales staff. Three months into his job, Mr. Cabiakman was arrested and charged with attempted extortion for allegedly attempting to extort money from his securities broker. After an article was published in Montreal, about the incident, Mr. Cabiakman was placed on administrative suspension without pay. Two years later, Mr. Cabiakman was acquitted and reinstated to his position at Industrial. Nevertheless, Mr. Cabiakman sued for the money he lost while not working during the two years he was under administrative suspension.

The main issue to be decided by the Supreme Court of Canada was whether an employer has a power to suspend employment for administrative reasons, and if so, how such a power should be exercised.

The Supreme Court found that employers do have such a power, but that it must be exercised in the following manner:

“(1) the action taken must be necessary to protect legitimate business interests;
(2) the employer must be guided by good faith and the duty to act fairly in deciding to impose an administrative suspension; (3) the temporary interruption of the employee’s performance of the work must be imposed for a relatively short period that is or can be fixed, or else it would be little different from a resiliation or dismissal pure and simple; and (4) the suspension must, other than in exceptional circumstances that do not apply here, be with pay.”

Adopting this framework to the case at bar, the Supreme Court found that the suspension had in fact been appropriate, given that Mr. Cabiakman held a position of trust and there was a legitimate concern that Industrial’s business interests would have been damaged had he been allowed to continue working during the publicized criminal proceeding. The Supreme Court further found that Industrial had acted in good faith when suspending Mr. Cabiakman, and that they had sincerely done so to protect their business interests. However, the Supreme Court found that Industrial was nevertheless required to pay Mr. Cabiakman, and upheld the $200,000 in damages previously awarded by the Court of Appeal.

OUR THOUGHTS

This decision is not new by any means, but remains an important one for employers and employees alike who find themselves embroiled in an administrative suspension. This decision was later acknowledged by the Supreme Court of Canada in Potter v New Brunzwick (Legal Aid Services Commission), 2015 SCC 10.

What’s most notable about this decision is that in all but a few exceptional circumstances, employees must be paid during an administrative suspension. Failing to do so could result in substantial liability for breach of contract. Further, in both the Cabiakman and Potter decisions, the employment contract was silent as to the employer’s right to suspend for administrative reasons. Had the employer relied on an express contractual provision which outlined their power to suspend without pay, the cases may have been decided differently. As such, for employers it is always advisable to speak to an employment lawyer and discuss the option of having a well-drafted “administrative suspension provision” included in the employment contract.

Cabiakman v. Industrial Alliance Life Insurance Co.  [2004] 3 S.C.R. 195.