In Cabiakman v. Industrial Alliance Life Insurance Co., 2004 SCC 55, the Supreme Court of Canada ("SCC") addressed if/when an employer can impose an administrative suspension on a non-unionized employee facing criminal charges.

The employer and employee were located in Quebec thus governed by the Quebec Civil Code. However, the principles enunciated by the court likely also apply to employment contracts formed in Canada's other jurisdictions.

Background

The employer was an insurance company and hired the employee as a sales manager in one of its branch offices. Approximately three months after he was hired, the employee was arrested at home for the attempted extortion of his securities broker. He was held in custody for about three days and then released after pleading not guilty to the charges. Shortly thereafter, a newspaper picked up the story and published an article.

The employer suspended the employee without pay, without investigating the situation and without providing the employee the opportunity to explain the situation.

Two months after being suspended the employee commenced the present legal action. His trial on the criminal charges took place approximately two years after his arrest. He was acquitted and the employer reinstated him to his position thereafter and he remained in the position at the time the SCC heard the case.

The employee sought damages totalling approximately $455,000, which included  $175,000 in moral damages.

Lower Courts

The trial judge ruled that the suspension had been imposed in good faith. However, the judge nonetheless allowed the employee's action in damages, awarding him $175,000 (which was two years salary plus interest). The judge dismissed the claim for moral damages on the basis that the decision to suspend was not made in bad faith.

The Quebec Court of Appeal upheld the trial judge's decision, finding that the suspension was justified. However, the appeal court increased the damages award to $200,000, on the basis of the parties' agreement regarding the quantum of damages.

Supreme Court of Canada

The SCC confirmed that an employer has the power to impose an administrative suspension because of acts of which the employee has been accused. However, it stated that this is a limited right and must be exercised in accordance with the following requirements:  

1. it 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 the suspension;
3. the suspension must be for a relatively short period that is or can be fixed; and
4. the suspension must, other than in exceptional circumstances, be with pay.

In relation to the third element, the SCC cautioned that, "the initial suspension could turn into a constructive dismissal or be regarded as one because of its length or because of an indefinite or excessive extension" (para. 71).

In relation to the final element, the SCC stated, "The employer cannot unilaterally, and without further cause, avoid the obligation to pay the employee's salary if it denies the employee an opportunity to perform the work" (underline added).

The SCC further stated that the following factors can guide the courts in determining whether an employer was justified in imposing an administrative suspension on an employee facing criminal charges:  

• whether there is a sufficient connection between the act with which the employee is charged and the kind of employment the employee holds;
• the actual nature of the charges;
• whether there are reasonable grounds for believing that maintaining the employment relationship, even temporarily, would be prejudicial to the business or to the employer's reputation; and
• whether there are immediate and significant adverse effects that cannot practically be counteracted by other measures (such as assigning the employee to another position). 
• whether the purpose of the suspension was to protect the image of the service that the employer is responsible for managing, taking the following factors, among others, into account:
   
  • harm to the employer's reputation,
  • the need to protect the public,
  • the employer's motives and conduct during the term of the suspension,
  • whether the employer acted in good faith, and
  • absence of intent to harass or discriminate against the employee.

The SCC further stated that the following passage from a 1991 arbitration decision provides a useful summary of the rules that are applied by arbitrators in determining whether an administrative suspension of an employee charged with a criminal offence is legitimate:

[translation]. . . in assessing the appropriateness of a suspension pending trial, rather than inquiring into the guilt or innocence of the accused employee, arbitrators will attempt to determine whether the effects of the alleged offence on the employment relationship are such that continuation of the employment pending the decisions of the competent authorities would create sufficient serious and immediate risk, contrary to the employer's legitimate interests, which encompass the employer's financial integrity, the safety and security of its property and of the other employees, and its reputation. In weighing these various interests, some arbitrators have concluded that it must be shown that the continuing presence of the employee at work would present a serious and immediate risk to the legitimate business of the employer,. . . and that [the employer] has taken the necessary measures to determine whether the risk of continuing the employment could be reduced by enhanced supervision of the employee, or by assigning the employee to another position.

Additional Comments of Interest

The SCC made the following additional comments in this case that will be of interest to employment lawyers:

• It stated that employer's power to impose a suspension as a disciplinary penalty has been uniformly recognized in the case law, including by the courts in their direct jurisdiction over disputes arising out of contracts of employment (para. 43). It did not, however, expressly confirm that such suspensions can be imposed without pay. 
• It stated that the employer will not generally "have to make its own inquiries, either of the employee or of the competent public authorities, to ensure that the charges are well founded" (para. 68). It does, however, have an obligation to allow the employee to explain the situation if the employee wishes to make representations and provide his or her version of the facts." (para. 68).
• An employer is free to set out in the employment contract that it has the power to suspend, and to establish the conditions on which it may do so within the bounds of the reasonable exercise of its rights (para. 73).