When an employee is terminated for cause, he or she may not be eligible for EI benefits because the loss of employment is a result of their own misconduct. Consequently, the choice of Code M is a choice that should be considered very carefully.

Depriving an employee of EI benefits means that there is likely to be conflict with that employee since the employee is motivated to obtain a different Code. There is a high likelihood the employee will make a complaint to the  provincial or federal Labour Board. An employer should be certain that the choice of Code M is appropriate, and that the employer has complied with all applicable  laws and employment policies both theoretically and in practice prior to making that selection.

It is very important to know that an employer, who uses Code M in circumstances where it does not have grounds to assert cause, may be exposed to a claim for punitive damages or bad faith damages, in addition to wrongful dismissal damages. These damages, plus legal fees, mean that this is a potentially costly choice.

An employer may follow best practice when terminating an employee – only to find that the selection of Code M overturns the best practice entirely.

This was the result for the employer in the recent case of Alexander v. Huron Commodities Inc. 2019 CanLII 11915. The employee, Paul Alexander, had been
employed for 6 years. The employer terminated his employment by letter – providing no reasons for the termination in the termination letter, and advising that
Mr. Alexander would be paid 2 weeks’ notice plus 10 days of severance.

Although the employer provided no reasons for the termination in the termination letter, the employer used Code M, “Dismissal,” in the ROE. Consequently, Mr. Alexander would be deprived of EI benefits.