Contract was not 'frustrated' and employee deserved more notice despite agreeing to layoff extension
The Supreme Court of British Columbia recently ruled against a travel agency employer who laid off and ultimately terminated an employee’s job during the pandemic, refuting the employer’s argument that COVID-19 had frustrated the employment contract so that ETL owed no notice or severance.
The decision in Verigen v. Ensemble Travel Ltd. noted that the pandemic is not necessarily a sufficient reason for a contract to be frustrated if the employer is cutting its costs but is still able to function. Justice Warren Milman wrote that the travel agency “chose to terminate a large part of its work force in the summer of 2020, at least some positions have been preserved and a recently-opened vacancy has been filled.”
The employer decided “to relinquish [the employee’s branch] of the business with a view to cutting operating costs so that it could better weather an ongoing storm.”
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“This is the first case I’m aware of, at least in British Columbia, where the where the court considered frustration of an employment contract resulting from COVID-19,” says Christopher Munroe, with the employment and labour law firm Roper Greyell LLP.
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“There are a lot of employers that took the position that employment contracts were frustrated due to the global pandemic, right. And so this is an important case for those employers.” He noted the legal test on frustration is that it occurs when “performance of a contract becomes a thing radically different from that which was undertaken by the contract as a result of a situation that arises that’s outside the control of the parties.”
Christopher Munroe, Roper Greyell LLP
Deidre Verigen had been employed with ETL since February 2019 as a business development director. ETL carries on business in Canada as Ensemble Travel Group Canada, an international travel agency cooperative with an office in Toronto. It provides travel-related programmes and services to its members, travel agencies in Canada and the United States. Its primary source of revenue comes from sales generated by its members.
As a result of the pandemic’s impact on travel, the ETL’s was severely affected, and Verigen was issued a series of temporary layoff notices commencing Mar. 25, 2020. Verigen accepted each layoff notice, and each contained an anticipated return to work date.
The final notice had an anticipated return to work date of Aug. 31, 2020. However, Verigen’s employment was terminated on Aug. 24, 2020, and she was paid two weeks’ salary in lieu of notice. She then subsequently sued ETL for wrongful dismissal seeking additional notice.
Verigen argued she was not limited to the minimum notice of termination under the province’s Employment Standards Act, that her employment was terminated when she was first laid off in the spring of 2020. She sought nine months’ notice of her termination.
ETL responded that Verigen was limited to the legislated minimum of two weeks and that the termination occurred in August 2020. ETL also argued that the employment contract had been frustrated by the pandemic and was no longer binding on the parties. As such, no damages or other amounts were owed to Verigen.
The court then reviewed the applicable test for frustration and found that the collapse of the travel market was relevant to ETL’s ability to perform the contract but that it had not lost its entire business. ETL had retained some employees during the pandemic and had remained in operation.
ETL’s decision to terminate Verigen was made to cut costs and allow ETL to weather the pandemic, but it was not impossible to continue with Verigen’s employment.
“For those reasons, I have concluded that [Verigen’s] employment contract was not frustrated by the pandemic and that she is therefore entitled to damages for wrongful dismissal.
Says Munroe: “So essentially, the judge determined that the obligation to provide an employee with notice of termination didn’t change because of the pandemic. It just became more difficult or more expensive for the employer.”
He added that the employer’s financial circumstances changed, but that doesn’t change the actual legal obligation. “And because that the pandemic didn’t change the legal obligation, the court found the contract was not frustrated, and the employee was entitled to pay in lieu of notice of termination.”
The court also ruled Verigen was not limited to receiving the minimum legislative notice, as the provision that ETL relied on for this limitation was contained in a policy that she had not seen when she signed her employment agreement.
As well, the court found ETL’s conduct in issuing multiple layoff notices with intended dates of recall prevented Verigen from seeking other employment. That made her deserving of a longer notice period than two weeks.
“Regardless of ETL’s intentions, . . . the fact of the matter is that . . . Verigen was prevented from seeking alternative employment for five additional months, as a result of ETL’s conduct,” Justice Milman wrote.
“I accept that this factor weighs in favour of a longer notice period, although the value of the lost opportunity to re-enter the job market five months earlier must also be considered in light of how difficult her job search proved to be thereafter.”
At the time the decision was released, Verigen was still unemployed. Justice Milman wrote she “was left to find new work relatively late in life and in the midst of an employment market devastated in an unprecedented way by the effects of the pandemic, particularly in the travel sector where she has made her career.”
As a result, “she has been unable to find work since losing her job over a year ago, despite what is acknowledged to have been a diligent and wide-ranging effort on her part to find work.” Verigen had been a sales manager and business development director in the tourism and hospitality industry for 30 years.
Munroe says many employers may react to the judge’s ruling on multiple notices and layoff extensions as “unwelcome news.” They had to “make prudent, tough difficult decisions to maintain their business through the pandemic, and now they may feel they are being punished for that.”
On the other hand, Munroe says how the court dealt with the layoff extension issues is “generally good news for employers.” The court found that in cases where the employee has agreed to the layoff, and subsequent extensions, as in this case, “that’s not a breach of contract and that’s not constructive dismissal by the employer.”
This is consistent with the laws on constructive dismissal: there is no constructive dismissal until there is a breach of contract. If an employee agrees to the layoffs and extensions, there is no breach of contract,” Munroe says. The question, in this case, is whether the employer gave reasonable notice in only giving a payout of two weeks salary.
Verigen was seeking an award reflecting nine months’ notice, which she calculated at $48,750. Justice Milman awarded her five months’ notice, with no deductions for the $2,000 a month she received in federal CERB payments between April and August 2020. And despite a 10 per cent pay cut imposed on active ETL employees in April and May, and a further 10 per cent cut starting in June, ETL was ordered to pay her full salary for that five-month notice period.
“The salary reduction [10 per cent at first, then 20 per cent] was imposed in that year only on active employees, not those like . . . Verigen who had been laid off and were now being terminated. Whatever the rationale for reducing the salary of ETL’s remaining active employees may have been, it cannot have applied to someone like . . . Verigen.”
Munroe says the one takeaway from this case is that employers are obligated to either reply on a contractual right to lay off an employee or get their consent, which was done in this case. “The second key takeaway is that difficult economic circumstances do not generally result in frustration of contract.”