What is the Frustrated Contract Act and how does it apply to employment in British Columbia?
There are situations when events outside of our control can make it impossible to honour the terms of an employment contract. When this happens, legislation allows for the parties to get out of that contract. One option that can apply in these situations is the Frustrated Contract Act.
What is the Frustrated Contract Act and how does it apply in employment contract disputes?
In general, courts have found that frustration occurs when performance of an employment contract becomes something radically different from the language of the contract due to a situation that is outside the control of the employer and employee. This is not an easy standard to meet.
Based on this generally accepted legal test, many employers believed that their employment contracts met these requirements during the COVID-19 pandemic. In some cases, they were likely correct. In others, maybe not. The Supreme Court of British Columbia recently took on this question in Verigen v. Ensemble Travel Ltd. In this case, the court looked to whether an employer could argue that employment contracts were frustrated as a result of the global pandemic.
What were the facts in this case?
ETL provides travel-related programmes in Canada and the United States. Not surprisingly, their business suffered during the pandemic. As a result, they issued temporary layoff notices to some of their employees. ETL chose to terminate the contract of one employee after issuing multiple layoff extensions.
The company argued that the law allowed for termination in this situation because the global pandemic led to frustration of the contract. ETL pointed to the reduction of demand for travel which made it impossible for the employee to complete the work they hired her to complete as evidence to support this claim. The employee countered that the situation did not warrant frustration of her employment contract because the pandemic merely made the performance more expensive not impossible, thus the employer had not satisfied the test for frustration.
How do courts in British Columbia determine frustration of contract?
After presented with the arguments, the court dug into whether the employee’s contract was frustrated by the pandemic. The court’s analysis included a review of the fact that the company had terminated a part of the workforce in 2020, but not all. This, the court noted, meant the company was still viable during the pandemic.
The court also noted that the company’s main revenue had not been completely lost. Even during the pandemic there was some demand, and the drop was temporary. Another piece of evidence the court reviewed was the fact that the company began to refill at least one recently opened vacancy during the same time it terminated the employee who brought this suit.
Based on this analysis, the court ultimately held in favor of the employee and issued an award for wrongful dismissal.
What does this mean for employment contract disputes in British Columbia involving frustration and the pandemic?
It provides some guidance on how the court will analyze the situation, but it is important to note that the courts do not always take a negative approach when it comes to similar claims by employers. The courts held in the employer’s favor in another recent case. In Sohi Vacations Ltd v. Waraich the court held that a contract that required the company provide a flight back from India was frustrated because all flights were canceled due to the pandemic.
As such, the court will likely review the evidence and facts of each case when coming to its holding.