Frustrated by the Pandemic? That Doesn’t Mean Your Contract Is
Verigen v. Ensemble Travel Ltd., 2021 BCSC 1934, is the latest decision of the BC Supreme Court (“BCSC”) to provide insights into the impact of COVID-19 on employment contracts and the legality of temporary layoffs.
Ensemble Travel Group Canada (“ETL”) hired Deidre Verigen (“Verigen”) to be their business development director in Western Canada in February 2019. A year later, ETL was forced to temporarily lay off a portion of its workforce, including Verigen, because of the COVID-19 pandemic. The layoff period was set to last until June 2020 but was subsequently extended to July and then into August.
A week before her expected return to work at the end of August, ETL notified Verigen that she was being terminated and offered her two weeks’ salary in lieu of notice. Verigen commenced an action against ETL for their failure to provide reasonable notice and sought damages reflecting a nine-month notice period. In response, ETL argued that Verigen’s claim should be dismissed because her employment contract had been frustrated by the pandemic and was no longer binding at the time she was terminated. Alternatively, ETL suggested that Verigen’s notice period should be governed by the BC Employment Standards Act (“ESA”), rather than by common law notice.
The Verigen case is a good reminder of the following issues and best practices for employers:
- Business disruptions, even significant and unforeseeable ones, do not frustrate the contract of employment;
- It is crucial to ensure your employees sign enforceable contracts with enforceable termination clauses;
- Workplace HR manuals are inherently unreliable to limit an employer’s termination obligations; and
- Temporary layoffs need to be approached cautiously, and as a best practice, should be included as a terms of the written employment contract.
How did we get here? Keep reading below!
Not Frustrating Enough
The BCSC held that the employment agreement was not frustrated by the COVID-19 pandemic and that Verigen was entitled to damages for wrongful dismissal.
In general terms, a contract is frustrated when a situation arises, by no fault of the contracting parties, that makes the contract impossible to perform. The disruption must be unforeseeable, permanent, and more than a mere inconvenience. Applying these principles, the BCSC found that the decrease in consumer-demand for travel was only a temporary effect of the pandemic and that ETL had made a choice to cut operating costs in response. Further, the pandemic had not drastically changed ETL’s contractual obligations; it had only affected ETL’s ability to perform them. The BCSC noted that lacking the funds to fulfill your end of an agreement will typically not mean a contract is frustrated.
Tricky Termination Clauses
Employees who are wrongfully dismissed without a valid and enforceable termination clause are entitled to common law notice and statutory notice under applicable employment standards legislation. When common law notice applies, typically either because there is no written termination clause in the employment agreement or the clause does not meet employment standards legislation minimum requirements, courts assess several factors to determine what the employee should have been provided as reasonable notice of termination. These factors include the nature of the employment, the employee’s length of service, the age of the employee and the availability of similar employment taking account of the employee’s experience, training, and qualifications (otherwise known as the “Bardal” factors). Other factors can apply as well, including whether the employee was induced to leave secure employment and whether the employee is subject to non-competition obligations post-employment. As such, common law notice periods are almost always significantly longer than statutory notice periods. For example, the rough upper limit for common law reasonable notice is 24 months (with some exceptions going beyond this), whereas provincial statutory notice tops out at eight weeks.
Shorter statutory notice periods are advantageous to employers. However, courts will only impose a statutory notice period if an employment contract contains a well-drafted termination clause that properly incorporates the minimum requirements of employment standards legislation. In this case, ETL argued that Verigen’s employment offer was contingent on her acceptance of an employee handbook that contained a termination clause referencing the ESA, but Verigen did not sign the handbook until several months into her employment and ETL did not offer her additional consideration at that time. The BCSC commented that ETL could not rely on the statutory notice period under the ESA because the law in BC requires that employers offer fresh consideration when making a major change to an employment contract that is detrimental to the employee. Accordingly, the BCSC applied the Bardal factors and determined that Verigen was entitled to five months’ reasonable notice. As a comparison, under the BC Employment Standards Act, Verigen was only entitled to two weeks’ notice or pay in lieu, which would have been the scope of ETL’s liability if it had a well-drafted termination clause in their employment contract.
Employers should be just as cautious with temporary layoffs as with termination clauses. If a layoff is a unliteral act by the employer, an employee may argue that the layoff is in breach of their employment agreement and amounts to constructive dismissal.
In Verigen, Verigen argued that she was constructively dismissed by ETL when she was first laid off in April 2020. The BCSC disagreed, finding that Verigen had consented to the layoffs by signing ETL’s letters extending the layoff period. However, the Court noted that the result would have been different if ETL had obtained her consent in bad faith. The BCSC distinguished Verigen’s circumstances from those in Hogan v. 1187938 B.C. Ltd., (“Hogan”) another COVID-19 employment law case dealing with temporary layoffs. In Hogan, the employee signed a temporary layoff notice because he was told he had to in order to obtain a Record of Employment. This was not found to constitute consent, but rather a unilateral layoff by the employer amounting to constructive dismissal. Despite their different outcomes, both cases send the employers the same message: temporary layoffs need to be done correctly to avoid wrongful dismissal claims. As a best practice, the employment contract should include a clause permitting temporary layoffs, which avoids having to obtain the employee’s consent to the layoff later.
Our Workplace Law Group is available to help employers draft employee contracts and navigate employment relationships. If you would like assistance, please contact Ryley Mennie, Connor Levy, or Linette Lubke from our Workplace Law Group.