The recent decision in Zakhary v United States of America 2012 CanLII 15690 (ON LA) addresses state immunity in the context of an unjust dismissal complaint filed under Section 240 of the Canada Labour Code. The complainant, Nadia Zakhary, a Canadian citizen, worked as a cashier at the Consulate General of the United States of America in Toronto for 12 years until her dismissal in August, 2010 based upon alleged cashiering mistakes and unauthorized absences from work.
The United States of America objected to the labour adjudicator’s jurisdiction to hear a Canada Labour Code complaint against it. The USA was given notice of the hearing but did not appear, advising beforehand through counsel that it would neither attend nor participate in the hearing.
The labour adjudicator notified the USA that its jurisdictional argument that Canadian labour laws did not apply to its employees would be dealt with at a preliminary issue hearing. Several weeks later, the employer advised that a U.S. Department of Justice representative would provide a response, but failed to do so, opting to send a letter dated July 4, 2011, from the USA’s Canadian counsel stating that employees of the Consulate did fall under the Canada Labour Code, and that in any event, service of the notice of claim failed to confirm with the requirements of the State Immunity Act.
Soon afterwards, the labour adjudicator received a message from HRDSC’s Labour Program referring to the letter from the employer’s Canadian counsel and requesting suspension of the proceedings until further notice. During this time and unbeknownst to the adjudicator, the USA had sent a diplomatic note dated July 7, 2011, to Canada’s Department of Foreign Affairs and International Trade asking it to alert the Labour Program to the USA’s jurisdictional objections, a copy of which was sent several months later to the adjudicator by USA’s counsel, who mistakenly believed that the adjudicator was an HRDSC employee and that it had been previously provided. The note read as follows:
The Embassy of the United States of America presents its compliments to the Department of Foreign Affairs and International Trade and has the honor to request assistance from the Minister of Foreign Affairs in Canada to relay the United States position to the Ministry of Labour relating to the Canada Labour Code Complaint initiated by Nadia Zakhary, a former employee of the Consulate General in Toronto, against the Government of the United States of America.
The Embassy wishes to provide the following details:
By letter dated April 26, 2011 from the Director General, Federal Mediation and Conciliation Service of Human Resources and Skills Development Canada, the Embassy was notified of the appointment of an adjudicator in a Complaint of Alleged Unjust Dismissal, Nadia Zakhary vs. United States Consulate General, Toronto. The Embassy never received any actual complaint in this matter, but instead received a letter from an attorney representing the former employee.
Customary international law provides that, before a foreign sovereign may be required to respond in proceedings of the receiving State, proper notice must be provided through diplomatic channels, with at least sixty days before an appearance or response is required. It is our understanding that Section 9 (2) of the Canada State Immunity Act provides for the same. The transmission of this facsimile, with only two days’ time for response, was not made in a manner consistent with Section 9 (2) of the State Immunity Act or customary international law. Any claim asserted by Nadia Zakhary, whether under the Canada Labour Code or otherwise, must be served in that manner. Because the United States did not receive appropriate papers through diplomatic channels with at least sixty days notice, the purported service on the United States is improper.
The United States also wishes to note that the Consulate General has no legal personality separate from that of the United States and has been improperly named in this matter.
As service on the United States was defective, the United States is not a party to this case and, therefore, the United States will not respond to further communications from the adjudicator under the Canada Labour Code, and will not appear at the hearings the adjudicator is seeking to schedule.
In addition, the employees of the diplomatic mission of the United States do not fall within the provisions of the Canada Labour Code. Thus, the adjudicator appointed by the Minister of Labour lacks jurisdiction to consider her complaint. By letter dated July 4, 2011, an attorney retained by the United States informed the adjudicator of the defective service and lack of jurisdiction.
The Ministry is requested to forward the enclosed documents [enclosures listed were the letter from counsel of July 4 and the April 26 letter from the Labour Program advising of the appointment of an adjudicator] to the Ministry of Labour and to inform that service on the United States was defective. The Ministry also is requested to inform the Ministry of Labour that the employees of the diplomatic mission of the United States do not fall within the provisions of the Canada Labour Code. Finally, the Ministry is requested to inform the Ministry of Labour that because service was defective, the United States is not a party to this case and, therefore, the United States will not respond.
The Embassy of the United States of America avails itself of this opportunity to renew to the Department of Foreign Affairs and International Trade the assurances of its highest consideration.
A letter from the Labour Program to DFAIT later advised that after receiving legal opinions, “we have decided to let the Adjudicator decide on the issues raised by the United States.”
HRDSC thereafter advised the Adjudicator that he could resume the proceedings, and he then contacted the parties again regarding scheduling a hearing. Counsel for the USA responded that its position was stated in the diplomatic note and that he had been instructed to take no further steps.
The labour adjudicator was unimpressed, noting:
I regard the diplomatic note of July 7, 2011, as an improper attempt by this employer to interfere with the unjust dismissal adjudication process under the Canada Labour Code. It is not unknown for an employer in these complaints to object to the adjudicator’s jurisdiction. These jurisdictional arguments are dealt with at a preliminary issue hearing, and a decision is rendered. Here, despite the diplomatic language, the USA’s note is nothing less than an attempt by this employer to use a back channel to scuttle the hearing of a complaint against it by asking the Department of Foreign Affairs to bring the USA’s objections to the attention of the body that appointed me and which can – and did, for a time – ask me to halt the proceedings.
However, I have set out the full text of the note above because, given the USA’s failure to appear at the hearing, it is the best statement available of its jurisdictional objections, which I will consider below.
The USA relied upon section 3 of the State Immunity Act, R.S.C., 1985, c. S-18 [“SIA”], which reads as follows:
3. (1) Except as provided by this Act, a foreign state is immune from the jurisdiction of any court in Canada.
(2) In any proceedings before a court, the court shall give effect to the immunity conferred on a foreign state by subsection (1) notwithstanding that the state has failed to take any step in the proceedings.
Assuming that the State Immunity Act applies to labour tribunals, Adjudicator Slotnick considered and rejected the USA’s defective service argument under section 9 of the SIA, noting that while it does not define the term “originating document” a complaint filed pursuant to Section 240 of the Code sufficed.
On the issue of waiver of immunity under s. 4 of the SIA, Adjudicator Slotnick referred to a letter from a US Embassy human resources officer to a Labour Program inspector dated November 16, 2010 which reads:
As stated in our 30 September 2010 correspondence with Mr. Markowitz [counsel for Ms. Zakhary], the decision to terminate Ms. Zakhary for cause was carefully thought out and the reasons for the decision were provided to Ms. Zakhary in writing on August 3, 2010, a copy of which you can obtain from Ms. Zakhary. The Consulate continues to stand by its decision.
The Adjudicator cites with approval the Ontario Labour Relations Board decision in Public Service Alliance of Canada v. Defence Contract Management Agency – Americas (Canada) 2011 CanLII 42999 (ON LRB), 2011 CanLII 42999 (ONLRB), which concluded that, by responding to the application, the responding party had waived any immunity that it later claimed, noting:
[t]he decision also points out that there is no requirement in the State Immunity Act for 60 days’ notice referred to in the diplomatic note as part of “customary international law,” and goes on to say (in paragraph 11) that “in any event, any defect with respect to service has clearly been waived” by the responding party’s participation in the proceeding.
In my view, this decision is applicable here. The originating document is the complaint filed by Ms. Zakhary. Under the Canada Labour Code process, the complaint is not served on the employer by the complainant; the Labour Program inspector brings it to the employer’s attention. Here, the inspector, in accordance with usual procedure, requested the employer to provide the reasons for Ms. Zakhary’s dismissal. The employer responded. The response did not raise any claim of immunity. In the context of this proceeding, the employer took a step and therefore has waived immunity pursuant to Section 4 of the State Immunity Act. By responding, it also waived any objection to defective service that it might have under Section 9 of the State Immunity Act.
On the issue of the commercial activity exception under s. 5 of the SIA (as defined under s. 2 of the SIA), the Adjudicator distinguishes the Supreme Court of Canada decision in Re Canada Labour Code  S.C.J. No. 49 which dealt with state immunity in a collective bargaining context, and held:
In summary, an individual contract of employment such as this one ought to be viewed as a commercial activity of the foreign state. Using the language of the common law test from I Congreso del Partido  1 A.C. 244 (H.L.), which as the Supreme Court pointed out, is codified in the State Immunity Act, “to require a state to answer a claim based upon such [commercial] transactions does not involve a challenge to or inquiry into any act of sovereignty or governmental act of that state. It is, in accepted phrases, neither a threat to the dignity of that state, nor any interference with its sovereign functions.
In considering the USA’s argument that the Canada Labour Code does not apply, the Adjudicator observes,
The USA’s position suggests that it believes employees of its embassy and consulates may be governed by U.S. employment laws. Without exploring this question in relation to individuals such as members of the diplomatic staff and consular officers, I find this position problematic to the extent that it suggests Canadians working in Canada in a clerical or administrative capacity at a foreign country’s embassy or consulate do not have the protection of Canadian law in their employment relationship.
Aside from the procedural questions this view would raise, the complainant in this case points to a further issue: Canadians may work in administrative or clerical capacities in embassies and consulates of countries where employers may be allowed to terminate employees who are pregnant, or for their sexual orientation or religion, or for other reasons prohibited in Canada. I see no necessity of subjecting Canadian administrative and clerical employees who are working in Canada to the laws of the country that employs them. As the dissenting Supreme Court judges put it in the Re Canada Labour Code case, (at paragraph 107), “a Canadian worker, working on Canadian soil, should not be deprived of the benefits of Canadian law unless the foreign state is acting in a context which warrants immunity.”
In my view, therefore, the Canada Labour Code applies to Ms. Zakhary’s employment relationship with the USA.
Having failed to discharge its onus of establishing that the termination of Ms. Zakhary was justified, the Adjudicator ordered her reinstatement, retroactive lost pay and benefits from August 3, 2010 to the date of reinstatement, and fixed costs at $5,000.
The Zakhary decision resembles the Ontario decision in Kais v. Abu Dhabi Education Council et al, 2011 ONSC 75 (CanLII), where Master Roger of the Ontario Superior Court of Justice considered whether that the commercial activity exception applied in the employment context and held that it does:
 Adopting a contextual approach and considering both the nature of the activity and its purpose and relationship to the domestic court, as suggested in Canada Labour Code and Kuwait Airways [ 2010 SCC 40 (CanLII) —  2 SCR 571; 2010 SCC 40 (CanLII)], the commercial activity exception would apply to the facts of this case. This was an employment contract to assist math teachers in Abu Dhabi. The nature of the act is an alleged breach of contract. The subject of the litigation is the alleged breach of an employment contract and, if so, resulting damages. Even if the purpose of the alleged breach of contract could be connected to state purposes, such as security and immigration, any such connection is too distant to the subject of the litigation. As indicated, this action is not a challenge to any state ability to control such state issues as security and immigration but whether, in this case, this particular employment contract was breached (and whether the tort of misrepresentation is made out).
See also, Collavino Incorporated v. Yemen (Tihama Development Authority), 2007 ABQB 212 (CanLII).