FRUSTRATION OF CONTRACT DUE TO COVID-19 – ESA EXAMPLE

09. April 2020 0

With the current COVID-19 pandemic affecting virtually all industries, many businesses have been forced to temporarily close their doors or scale back their operations due to the nature of their business. This has resulted in employers considering their options and liabilities for reducing their workforce by laying off or terminating their employees. We discussed these options in our blog post on March 31st.

One of the issues raised in our previous blog post was “frustration of contract”. If an employment contract is “frustrated”, the employer is not required to provide notice of termination or payment in lieu of notice.

The Employment Standards Act (ESA), in section 65(1)(d), recognizes that statutory notice or payment in lieu of notice is not required for an employee “employed under an employment contract that is impossible to perform due to an unforeseeable event or circumstance”. Typical examples of this are fires, floods, or natural disasters. Recently the BC government has provided specific guidance on its website about how this section relates to the COVID-19 pandemic:

“Many business closures or staffing reductions that are due to the current COVID-19 pandemic could be seen as resulting from unforeseeable events that make an employee’s work impossible to perform. If the closure/reduction is directly related to COVID-19 and there is no way for the employee to perform work in a different way (for example, working from home) the exception may apply to exclude employees from receiving compensation for length of service and group termination pay. However, this may not always be the case.

If an employer terminates an employee for reasons that are not directly related to COVID-19, or if the employee’s work could still be done (perhaps in a different way) this exemption would not apply. These situations will be dealt with on a case-by-case basis.”

The “Exceptions – Act Part 8, Section 65” can be found here.

A couple of key points to note:

  • These situations will be dealt with on a case-by-case basis and it is still the responsibility of the employee and employer to work together and be flexible to find ways for the “employee to perform work in a different way” such as working from home, which many employees are now doing.
  • This section in the ESA only relates to statutory notice or payment in lieu of notice (not any applicable common-law entitlement).
  • The test is “impossible” to perform.

A business failure for reasons of cancellation of orders, insolvency, landlord eviction, or loss of key personnel are events considered to be part of the normal business cycle and cannot be construed as “unforeseen”, and would not discharge an employer’s obligation to pay severance.

This update was authored by Ryan Chan. Questions? Comments? Concerns? Or looking for more information on developments regarding the evolving COVID-19 pandemic? Contact Ryan at rchan@harpergrey.com or anyone else listed on the authors page.