Employment Law and COVID-19

In these uncertain times with businesses and public entities being ordered to shut down or voluntarily shutting down, employers and employees dealing with mass lay-offs, an employment insurance system being vastly revised and many other pressures, it is clear that our employment law is being looked at with a different interest at the moment.

Most of our employment law arises from the 1960s forward and our last significant pandemic was over 100 years ago. Accordingly, there is not a lot of information available to give individuals advice on these COVID-19 circumstances, but we can give information on the way the law does look at issues generally to help try to predict legal ramifications.

As things are continually changing, we will endeavour to keep this page updated with new information as we get it. The information contained below is complicated and each case really depends on the individual facts and circumstances. Accordingly, we suggest that you use this information as a guide only and get legal advice tailored to your specific situation.

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Contents

 

Employment Insurance Eligibility and Sickness Benefits

As announced by the Prime Minister, the federal government has decided to extend aid to workers using the existing employment insurance system. This system is created by the federal Employment Insurance Act, SC 1996, c. 23 (“EIA”).

The essential features of this legislation that govern benefits under the EIA are as follows:

  • S. 7(2) of the EIA says that an insured person qualifies if the person (a) has had an “interruption of earnings” from employment and (b) has a required number of hours for their region.
  • S. 30 of the EIA disqualifies individuals who voluntarily leave their employment or are dismissed for “misconduct”.
  • An “interruption of earnings” means an interruption that occurs in the earnings of an insured person or a person to whom Part VII.1 of the EIA applies at any time and in any circumstances determined by the regulations.
  • S. 14 of the Employment Insurance Regulation, SOR/96-332, (“EIR”) says that, subject to certain other sections, “an interruption of earnings occurs where, following a period of employment with an employer, an insured person is laid off or separated from that employment and has a period of seven or more consecutive days during which no work is performed for that employer and in respect of which no earnings arise from that employment…”
  • The “certain other sections” of s. 14 say generally:
    • S. 14(2): interruption in earnings starts at beginning of week if earnings are less than 40% of regular pay in a week;
    • S. 14(3) if the person is working full time elsewhere then they cannot collect
    • S. 14(4) if the person is entitled to be paid even if no work is done then they cannot collect
    • S. 14(5) if a person is a real estate agent who loses their license to practice or has earnings less than 40% of regular; or otherwise employed under commission and their contract is terminated then they can collect
    • S.14(6) the person decides to take unpaid leave then they cannot collect; and,
    • S. 14(7) an interruption of earnings occurs where continuing to work can constitute harm to an unborn child.
  • S. 18(1)(b) of the EIA says that: “(1) A claimant is not entitled to be paid benefits for a working day in a benefit period for which the claimant fails to prove that on that day the claimant was […] b. unable to work because of a prescribed illness, injury or quarantine, and that the claimant would otherwise be available for work…”

Prior to the COVID-19 pandemic, it was a requirement for a claimant to have a physician submit a specified form outlining the illness or medical condition and that the claimant is unable to work as a result of that illness or medical condition. The claimant for sickness benefits must also meet the qualifying conditions for employment insurance benefits generally, being:

  • Accumulating a minimum of 600 hours of insurable employment during the qualifying period; and,
  • Having an “interruption of earnings” from employment as described above.

Self-employed individuals, individuals working under a work-sharing agreement, or those attending a training course are ineligible for EI benefits.

While the federal government has promised benefits to non-eligible individuals, it is not clear how these individuals will apply. The latest information from CBC News is that individuals will apply through their Canada Revenue Agency account. The exact details are still being determined.

EI benefits pay 55% of insurable earnings up to a maximum of $573 per week, less taxes, for a period of 15 weeks. Normally, there is a waiting period of one week before benefits start. There are potential extensions available in specific circumstances.

The federal government has announced that it will no longer require proof from a physician to provide sickness benefits and it will be waiving any waiting period to allow people to access benefits sooner.

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Employment Insurance Applications

You can apply for these benefits online through Service Canada. Please click this link and it will take you to the page.

While you can apply for benefits immediately, you will need a copy of a record of employment (“ROE”) from your employer still to complete the application. That requirement has not been waived to date. Please see this link for more information about acquiring a ROE for your application. An employer that refuses to produce a ROE can be subject to aggravated damages for claims of bad faith, so it is important for employers to ensure that they abide by their legal responsibility to issue ROEs as soon as possible.

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Lay-Off vs. Dismissal

There are significant discussions of lay-offs occurring to employees all over the private sector. The natural question for both employers and employees is what constitutes a lay-off and what does it mean for employees and employers. The answer to this question requires distinguishing between common law and contractual employment, public sector and unionized employment, and the impact of the Employment Standards Act (“ESA”).

[Note: The ESA applies to provincially regulated employers and industries. Federally regulated employers or industries are under the Canada Labour Code (“CLC”) and its regulations.]

In general, an indefinite lay-off has not been viewed any differently than a dismissal or constructive termination of employment, entitling the employee to sue for damages arising from wrongful termination.

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Lay-Off of Provincially Regulated and Non-Unionized Employees

The general rule is that a “lay-off” of any duration constitutes a dismissal of the employee at common law unless the written employment contract contemplates situations in which a lay-off is possible. “Temporary lay-offs” are defined in the Employment Standards Act (“ESA”). S. 63(5) of the ESA says that an employee who is laid off for more than a “temporary layoff” is deemed to have been terminated at the beginning of the layoff. A “temporary layoff” is defined as a layoff of up to 13 weeks in any period of 20 consecutive weeks.

While these provisions of the ESA may protect employers from claims under the ESA but they do not protect employers from claims under the common law. The BC Employment Standards Branch policy further suggests that the temporary lay-off provisions in the ESA are really only helpful to employers in specific industries. The Branch’s policy states that:

The Act does not give employers a general right to temporarily lay off employees.

A fundamental term of an employment contract is that an employee works and is paid for their services. An employer cannot temporarily lay off an employee unless temporary layoff:

  • Is expressly provided for in the contract of employment;
  • Is implied by well-known industry-wide practice (e.g. logging, where work cannot be performed during “break-up”); or
  • Is agreed to by the employee.

In the absence of an express or implied provision allowing temporary layoff, a layoff constitutes termination of employment.

The onus is on the employer to prove that the employment relationship provides for a temporary layoff in one of the above ways. In situations where temporary layoff is permitted by the terms and conditions of employment, the Act limits the length of the layoff.

If temporary layoff is permitted, employers may temporarily lay off employees for up to 13 weeks in a consecutive 20-week period. The 20-week period begins on the first day of the layoff and the 13-week period is exceeded on the first day of the 14th week of layoff. The layoff is deemed to be a termination of employment once the 13 weeks of layoff are exceeded.

Under the Act, any week in which an employee earns less than 50% of regular wages is considered to be a week of layoff for purposes of Part 8, Termination of Employment. (Refer to s.62, definition of “week of layoff).

So, it is quite clear that lay-offs must be expressly provided for in the contract, part of the industry, or agreed to by the employee to protect an employer from claims under the ESA.

With respect to the common law, it is also quite clear that these ESA provisions are largely irrelevant unless they are incorporated into the contract of employment.

In Hooge v Gillwood Remanufacturing Inc., 2014 BCSC 11, Joyce J. found that an indefinite lay-off (that was not accepted by the employee nor provided for as a term of the employment contract) resulted in a termination of the employment as of the first day of the lay-off. This would result in common law damages for wrongful dismissal being awarded to the employee. The reasons provided by Joyce J. are as follows:

[33] The plaintiff submits that an indefinite “lay-off”, unless it is accepted by the employee or provided for as a term of the employment contract, amounts to a fundamental breach of the employment relationship and, unless accompanied by pay in lieu of severance, amounts to a constructive dismissal.

[34] In Archibald v. Doman-Marpole Transport Ltd., [1983] B.C.J. No. 1284 (S.C.), McKay J. said at para. 4:

[4] The position of the defendants is set out in paragraph 6 of the statement of defence:

“5. The Defendants … say that the Plaintiff was neither dismissed, nor were his services terminated. Rather, on August 30, 1982, the Defendant, Doman-Marpole Transport Limited laid the Plaintiff off temporarily due to lack of work, at the same time advising the Plaintiff that his re-engagement would be considered in the near future.”

Rather than being a defence that position amounts to an admission of liability. There is nothing more fundamental to a contract of employment than that the employee be employed and that he be paid for his services. Doman unilaterally changed those fundamental terms. One can appreciate the need for employers to cut down on management or supervisory staff during economic downturns but the employee, subject to contractual arrangements, is still entitled to reasonable notice or payment in lieu of notice.

[35] In this case, there is nothing to suggest that there was a term of the contract of employment, either express or implied, which provided for layoffs of salaried employees, and it is clear that the plaintiff did not accept the lay-off.

[36] The defendant seeks to rely on s. 1 of the Employment Standards Act, R.S.B.C. 1996, c. 113, to argue that the layoff in this case was not a dismissal, and that an employer is entitled to temporarily lay off an employee. Section 1 of the Act provides the following definitions:

“temporary layoff” means

(a) in the case of an employee who has a right of recall, a layoff that exceeds the specified period within which the employee is entitled to be recalled to employment, and

(b) in any other case, a layoff of up to 13 weeks in any period of 20 consecutive weeks;

“termination of employment” includes a layoff other than a temporary layoff.

[37] The same argument was advanced in Collins v. Jim Pattison Industries Ltd. (c.o.b. Jim Pattison Automotive Group), [1995] B.C.J. No. 1201 (S.C.) and was rejected by Mr. Justice Sigurdson at para. 23, where he held:

[23] … In my view, the Act does not grant all employers the statutory right to temporarily lay off employees, regardless of the terms of their employment contract. Rather than creating new rights, the Act appears to be qualifying employment agreements in which the right to lay off already exists. Therefore, unless the right to lay off is otherwise found within the employment relationship, the above cited sections of the Act are not relevant.

[38] In accordance with the evidence and the authorities, I find that Mr. Hooge’s employment was terminated effective August 12, 2011, when he was laid off and that the termination was wrongful, as he was not given reasonable notice or pay in lieu.

Accordingly, unless the written employment contract specifically incorporates the lay-off and severance provisions in the Employment Standards Act (“ESA”), the use of the lay-off provisions by employers would still open them up to liability under the common law.

Interestingly, the motivation of an employer to issue a lay-off has been considered irrelevant to whether there was a dismissal (see Davenport v Metalfab Ltd, 2012 NBQB 371). As Sigurdson J. wrote in Collins v Jim Pattison Industries Ltd. (1995) 7 BCLR (3d) 13 (BCSC):

21 As a result of the statutory recognition of the distinction between termination and temporary lay-offs, the defendant submits that it no longer requires a contractual right to lay off the plaintiff, as long as the lay-off is bona fide and does not exceed 13 weeks.

22 In reply, the plaintiff’s counsel argues that if the statute intended to give a general right to lay off, it would have expressly stated such an entitlement. Rather, Mr. Shore submits that the legislation is intended to provide protection to employees in situations where lay-offs are otherwise permitted by limiting temporary lay-offs to 13 weeks.

23 I agree with the plaintiff’s counsel. The plaintiff does not bring this proceeding under the Act and is not seeking its protection. In my view, the Act does not grant all employers the statutory right to temporarily lay off employees, regardless of the terms of their employment contract. Rather than creating new rights, the Act appears to be qualifying employment agreements in which the right to lay off already exists. Therefore, unless the right to lay off is otherwise found within the employment relationship, the above cited sections of the Act are not relevant.

24 Even if the right to temporarily lay off is not provided by the Act, the defendant says that in this case, the employer nonetheless has that right. The cases relied on by the defendant generally involve interpretation of statutory lay-off provisions or collective agreements under which temporary lay-offs are allowed. Beyond that, these cases say little more than that the whole of the circumstances must be scrutinized carefully in order to determine whether a lay-off constitutes a wrongful dismissal or, to put it another way, whether a temporary lay-off is permitted by contract. For example, in Greene v. Chrysler Canada Ltd. (1982), 1982 CanLII 234 (BC SC), 7 C.C.E.L. 166 (B.C.S.C.), aff’d (1983), 7 C.C.E.L. 175 (B.C.C.A.), the defendant had received, three years prior to being laid off, a brochure on compensation and benefits from management which contained an executive employee’s notice of the benefits payable to an employee in the event of a lay-off from employment. In those circumstances, Hinds J., whose reasons were adopted by the Court of Appeal, said at page 172:

From all of the foregoing I find that the plaintiff was by no means unaware of the possibility of being laid off work and was aware, or should have been aware, that in such event he would have been eligible for lay-off benefits.

25 In contrast, the circumstances before the court in Obara v. Slocan Forest Products Ltd. (16 May 1984), Nelson S.C. 3 29-1982 (B.C.S.C.) were “… much closer to the facts in Archibald than they [were] to the facts in Greene.” Accordingly, the lay-off amounted to a dismissal.

26 The defendant relies on Mackenzie v. Atlantic Neon & Plastic Signs Ltd. (1986), 1986 CanLII 5173 (NB QB), 14 C.C.E.L. 52 (N.B.Q.B.) for authority that a temporary bona fide lay-off with the intention to recall when work is available is not a termination. If that case stands for the proposition that, in the absence of a contractual provision, there is a general right of an employer to temporarily lay off its employees, then it is inconsistent with Archibald, supra, which I think is correct and am required to follow.

27 The issue, therefore, is whether the employment contract in the present case contained a provision which entitled the employer to temporarily lay off the plaintiff. That seems to be the issue that was addressed by Southin J. (as she then was) in Chaffee et al. v. Federated Co-operatives Ltd. et al. (11 May 1987), Vernon 8600252 (B.C.S.C.) where, after applying the decision in Archibald, supra, she stated:

In other words, in the absence of any contractual provision to the contrary, a lay-off by the employer is a repudiation of the contract of employment.

In summary, the temporary lay-off provisions of the ESA are applicable to claims under the ESA only. They are not helpful to employers hoping to lay-off staff and avoid claims of wrongful dismissal unless the written employment contracts specifically contemplate such lay-offs. However, we suggest that you look below for information on “frustration” and “mitigation” as those common law doctrines may be of assistance in defending employee claims of wrongful dismissal.

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Lay-Offs in Federally Regulated Industries

The rules for federally regulated industries differ from provincially regulated industries in terms of lay-offs. A lay-off under the Canada Labour Code (“CLC”) is defined in the Canada Labour Standards Regulations, CRC c 986, s. 30. This regulation sets out when a lay-off becomes a dismissal for the purposes of the CLC severance payments:

30 (1) For the purposes of Divisions IX, X and XI of the Act and subject to subsection (2), a lay-off of an employee shall not be deemed to be a termination of the employee’s employment by his employer where
(a) the lay-off is a result of a strike or lockout;

(b) the term of the lay-off is 12 months or less and the lay-off is mandatory pursuant to a minimum work guarantee in a collective agreement;

(c) the term of the lay-off is three months or less;

(d) the term of the lay-off is more than three months and the employer

(i) notifies the employee in writing at or before the time of the lay-off that he will be recalled to work on a fixed date or within a fixed period neither of which shall be more than six months from the date of the lay-off, and

(ii) recalls the employee to his employment in accordance with subparagraph (i);

(e) the term of the lay-off is more than three months and

(i) the employee continues during the term of the lay-off to receive payments from his employer in an amount agreed on by the employee and his employer,

(ii) the employer continues to make payments for the benefit of the employee to a pension plan that is registered pursuant to the Pension Benefits Standards Act or under a group or employee insurance plan,

(iii) the employee receives supplementary unemployment benefits, or

(iv) the employee would be entitled to supplementary unemployment benefits but is disqualified from receiving them pursuant to the Employment Insurance Act; or

(f) the term of the lay-off is more than three months but not more than 12 months and the employee, throughout the term of the lay-off, maintains recall rights pursuant to a collective agreement.

(2) In determining the term of a lay-off for the purposes of paragraphs (1)(c), (d) and (f), any period of re-employment of less than two weeks duration shall not be included.

The difference only applies to entitlements under the CLC for severance (the federal equivalent of the ESA). Our comments above pertaining to the importance of the written employment contract and the common law would still apply equally to employers in the private sector of federally regulated industries.

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Lay-Off of Unionized Employees

All unionized employment falls under an applicable collective agreement and the vast majority of these collective agreements tend to incorporate the terms of the relevant employment standards legislation into their collective agreement. As a result, we suggest that you consult with your union and review the applicable collective agreement to determine your rights upon a lay-off.

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Frustration: Impact on BC Employment Standards Act

The Employment Standards Act (“ESA”) sets out statutory minimum severance requirements, which were discussed above. The ESA also has a section that deals with unforeseen events that make complying with an employment contract impossible. Section 65(1)(d) of the ESA says the following:

65 (1) Sections 63 and 64 do not apply to an employee: […] (d) employed under an employment contract that is impossible to perform due to an unforeseeable event or circumstance other than receivership, action under section 427 of the Bank Act (Canada) or a proceeding under an insolvency Act

Section 63 is the ESA section that requires employers to give notice to employees as follows:

  • Employees with tenure longer than 3 months but less than 1 year: 1 weeks’ notice;
  • Employees with tenure longer than 1 year but less than 2 years: 2 weeks’ notice;
  • Increasing each year of tenure to a maximum of 8 weeks’ notice.

The “notice” can be done by written notice in advance of the termination, pay in lieu of said notice, or a combination thereof.

Section 64 is group terminations that applies to 50 or more employees at a single location to be terminated within any 2-month period. For the sake of completeness, I have included the entire section:

Group terminations

64 (1) If the employment of 50 or more employees at a single location is to be terminated within any 2 month period, the employer must give written notice of group termination to all of the following:

(a) each employee who will be affected;

(b) a trade union certified to represent, or recognized by the employer as the bargaining agent of, any affected employees;

(c) the minister.

(2) The notice of group termination must specify all of the following:

(a) the number of employees who will be affected;

(b) the effective date or dates of the termination;

(c) the reasons for the termination.

(3) The notice of group termination must be given as follows:

(a) at least 8 weeks before the effective date of the first termination, if 50 to 100 employees will be affected;

(b) at least 12 weeks before the effective date of the first termination, if 101 to 300 employees will be affected;

(c) at least 16 weeks before the effective date of the first termination, if 301 or more employees will be affected.

(4) If an employee is not given notice as required by this section, the employer must give the employee termination pay instead of the required notice or a combination of notice and termination pay.

(5) The notice and termination pay requirements of this section are in addition to the employer’s liability, if any, to the employee in respect of individual termination under section 63 or under the collective agreement, as the case may be.

(6) This section applies whether the employment is terminated by the employer or by operation of law.

The BC Employment Standards Tribunal in Re MJM Conference Communications of Canada (20 October 2004) BCEST #D182/04 held that, in interpreting s. 65(1)(d) set out above, a business failure or a slowdown in business is not to be equated with frustration of the employment contract (i.e. it is not impossible) (see also Re Nordel Restaurant Corporation (17 November 2004) BCEST #D198/04 for the same conclusion). The BC ESA Interpretation Guidelines Manual does suggest that destruction of workplace by a natural disaster is an example of a case where it would be impossible to perform an employment contract, making the s. 65(1)(d) exception applicable.

In essence, the Employment Standards Tribunal has interpreted s. 65(1)(d) very closely to the doctrine of frustration at common law. While this section definitely can limit ESA severance claims, it does nothing to common law wrongful dismissal or constructive dismissal claims. In Goodall v Wakefield Home Builders et al, 2013 BCPC 43, Merrick J. succinctly said the following: “[10] Section 65 of the Employment Standards Act applies only to claims made under the Employment Standards Act. This is not such a claim.”

We do expect this provision to get more interpretation for those businesses that are unfortunately unable to survive. S. 96 of the ESA allows employees to make claims against directors and officers personally if the business is in insolvency proceedings for lost wages caused by a dismissal under the ESA. We expect a number of claims to be made against directors and officers personally when a business does not survive this pandemic and s. 65 will be an important determining factor on whether the severance provision of the ESA applies.

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Frustration: Common Law

Otherwise, the employer must rely on the common law doctrine of frustration. Frustration has usually been applied to employment in cases of long-term disability or destruction of the employer’s premises in a fire or landslide. The definition of the frustration of a contract was described in Naylor Group Inc v Ellis-Don Construction Ltd, 2001 SCC 58:

Frustration occurs when a situation has arisen for which the parties made no provision in the contract and performance of the contract becomes “a thing radically different from that which was undertaken by the contract”….

The court is asked to intervene … to relieve the parties of their bargain because a supervening event … has occurred without the fault of either party. For instance, in the present case, the supervening event would have had to alter the nature of the appellant’s obligation to contract with the respondent to such an extent that to compel performance despite the new and changed circumstances would be to order the appellant to do something radically different from what the parties agreed to under the tendering contract….

Frustration has typically been applied to employment situations when an employee is unable to work (e.g. due to long-term disability) or when a situation arises that destroys the business (e.g. a fire burns down the building). It is clear that frustration is not established in poor economic circumstances. Consider this statement from Damery v. Matchless Inc., 1996 CanLII 5518 (NS SC), 151 N.S.R. (2d) 321 (S.C.), that absent a provision in the employment contract permitting the employer to suspend the obligation to provide work, an employer may not lay-off an employee without providing reasonable notice (at paras. 36-37):

With respect, it is difficult to understand how an “indefinite term lay-off” does not amount to “repudiation by the employer of the employment contract”. In an employment contract, the essential elements are the offer by the employee to work and by the employer to provide work and to pay compensation. Absent a provision permitting the employer to suspend the obligation to provide work for an indefinite term, even with an undertaking to recall upon work being available, the effect on an employee is really no different than in a termination where the employer undertakes to rehire, if a position later becomes available. In each case, the employee is at the mercy of the employer.

Although such a contingency may be incorporated in a contract of employment, as Justice Hinds found in the Greene case [Greene v. Chrysler Canada Ltd.,1982 CanLII 234 (BC SC), 38 B.C.L.R. 347 (S.C.); aff’d (1983), 7 C.C.E.L. 166 (B.C.C.A.)] the employer is not to be permitted to avoid responsibility for providing the employees with the reasonable periods of notice long recognized to be the right of employees under indefinite term contracts, even in times of economic adversity, by the simple expedient of calling the termination a “lay-off until further notice”, or even a “temporary lay-off until further notice”, rather than what it really is, the cessation of the employee’s rights under the contract until the employer decides otherwise.

There is really no solid case law interpreting this doctrine in the times our society is facing with COVID-19. There will naturally be litigation arising out of the COVID-19 pandemic that try to balance the difference between employers ceasing operations due to economic adversity and employers who really could not continue to operate. In other words, this

In our view, an employer’s business that is either specifically ordered not to operate or the general government orders (e.g. travel restrictions, no gatherings over 50, no bars, etc.) would have a strong argument that s. 65(1)(d) functions. As Aitken J. found on behalf of the court in Cowie v Great Blue Heron Charity Casion, [2011] OJ No 5573 (QL) (Div. Ct.), a contract can be frustrated when “a change in the law renders it illegal to perform the contract in accordance with its terms”. For the change in the law to qualify as a frustrating event, it must be one

  1. That was not foreseen by the parties,
  2. that for which no express or implied provision is made in the contract,
  3. that the illegality must not be temporary or trifling in nature when viewed in the context of the contract as a whole.

According to Aitken J. if these conditions are met then the contract of employment is automatically discharged the moment performance in accordance with its terms becomes illegal. The focus is on the “impossibility of the services contemplated under the contract continuing to be performed due to a change in the law”.

Another useful summary of the law is found in St. John v TNT Canada Inc., 1991 CanLII 420 (BCSC), in which Cowan J. wrote:

In Peter Kiewit v. Eakins Construction Ltd. (1960), 1960 CanLII 37 (SCC), 22 D.L.R. (2d) 465, Judson J. speaking for the majority of the Supreme Court of Canada (Locke, Abbott, Martland JJ. concurring), defined this principle at p. 483:

“I take the statement of the principle from p. 729 [A.C.] of the Fareham case ( Davis Contractors Ltd. v. Fareham U.D.C., [1956] A.C. 696, [1956] All E.R. 145 (H.L.)]: Frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which the performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do. It is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.” [emphasis added].

[…]

The Supreme Court of Canada in Atlantic Paper Stock Ltd. v. St. Anne-Nackawic Pulp & Paper Co. (1975), 1975 CanLII 170 (SCC), 56 D.L.R. (3d) 409, considered the issue of a radical event reaching into the very nature of the contract and “unforeseeability”. The court stated that a buyer was not excused from the contract even though he had a clause that allowed non-performance in case of “nonavailability of markets” for his manufactured goods. Dickson, J. (as he then was) speaking for the Court stated that in order for an event to be so radical so as to strike at the root of the contract it had to be, “unexpected: something beyond reasonable human foresight and skill” (at p. 411, emphasis is mine). In his view, a discharging condition must be limited to an event over which the defendant exercises no control (at p. 412, emphasis added).

[…]

In Can. Govt. Merchant Marine Ltd. v. Can. Trading Co. (1922), 1922 CanLII 27 (SCC), 68 D.L.R. 544 (S.C.C.), the appellants undertook to carry cargo on a ship near completion. Due to labour problems, the vessels were delayed and the voyage could not be made. The appellants claimed frustration as a defence for not fulfilling their obligation. This defence was unanimously rejected by the Court. Each of the 5 judges sitting on the appeal wrote a separate judgment. The decision of the Court suggests that the allocation of risk approach discussed previously is applicable in such cases. […] Duff J. stated at p. 547‑8: “For the purpose of deciding whether a particular case falls within the principle you must consider the nature of the contract and the circumstances in which it was made to see from the nature of the contract whether the parties must have made their bargain on the footing that a particular thing or state of affairs should be in existence when the time for performance should occur, and if reasonable persons situated as the parties were must have agreed that the promisor’s contractual obligations should come to an end if that state of circumstances should not exist then a term to that effect may be implied. But it is important to remember that no such term should be implied when it was possible to hold that reasonable men could have contemplated the taking the risk of the circumstances being what they, in fact. proved to be when the time for performance arrived. … Real impossibility of performance, arising from the destruction of the ships by fire, for example, would have presented a different case. … Impossibility arising from such causes is not the impossibility contemplated by the case of Taylor v. Caldwell. [citations omitted, emphasis added].

While it is a simple doctrine to articulate, it becomes more complicated in practice. For example, the Public Health Officer’s order to shut down bars and clubs almost certainly causes frustration of employment contracts. A travel agency likely has the defence as well on account of the travel bans / restrictions. A restaurant may have a defence for some staff (e.g. service staff if the restaurant cannot accommodate the 50 person limits) but not others (e.g. kitchen staff as it is not impossible for the business to continue operating a take-out business) on account of the COVID-19 pandemic.

Each case must be considered on a case-by-case basis and determined if the circumstances truly made it impossible for the business to continue.

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Mitigation: Reasonableness in an Unreasonable Time

It must be remembered that whether an employment agreement is frustrated or not is a defence that will be adjudicated later in the day. All courts in British Columbia are closed. There is no means for any grieved employees to seek a common law remedy through the courts. The reality is that if the business is not generating revenue at the moment then the discussion is not necessarily about preventing litigation exposure but trying to find mitigation options for everyone.

If there is no revenue available to the business, then it must naturally close its doors and hope that after the pandemic’s impact on the economic climate slows it can reopen its doors. In this situation, we suggest that the business close down with a promise to employees to extend off to rehire when able to do so. This offer would activate the “duty to mitigate”.

Canadian courts have generally held that the duty to mitigate can require an employee to return to work with the same employer in specific circumstances. In Evans v Teamsters, Local 31, 2008 SCC 20, Bastarche J. found for the majority that where there are no barriers to re-employment it will be necessary for a dismissed employment to mitigate their damages by returning to work for the same employer. If the employee refuses an offer where terms of the employment are the same (e.g. the pay is the same, the type of work is essentially the same), then the employee will likely have breached this duty and lose any claimed damages after the date of the offer.

When the COVID-19 orders / restrictions / economic lags are removed and the employer extends the same offer of employment to the employee, at the moment the employment is re-offered, any employee that chooses to repudiate its contract and seek damages for wrongful dismissal would have any claim stopped (assuming no other defences such as frustration) essentially on the date of the offer. The claim is stopped because they have failed to mitigate their losses by not returning to work – i.e. they have acted unreasonably and the employer should not be required to pay that employee any damages after the date employment is re-offered.

As a matter of practicality, COVID-19 appears to be causing significant economic turmoil and an employee who chooses to repudiate their employment contract and consider the lay off a constructive dismissal is unlikely to find sympathy from a court when faced with a mitigation argument. Similarly, we expect that employers who use this pandemic as a means of dismissing otherwise entitled employees may find themselves subject to claims of bad faith in dismissal of employment.

In essence, if both employers and employees act reasonably in an unreasonable time then hopefully the employment relationship can resume without any problems once it is reasonably safe to do so.

If you need legal advice on this issue, then please feel free to contact us.

 

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