"This is a pandemic. I felt it was a pandemic long before it was called a pandemic."
Donald J. Trump
It’s only been 3 days since my last bulletin about the coronavirus and the workplace, but things are changing, and fast. The questions I am receiving from employers have evolved once again.
Many businesses are now being advised or directed to shut down (or at least curtail) their operations. They are facing laying off significant numbers of staff and they are concerned about whether they are obligated to keep paying staff during an extended layoff, about the ramifications for employment relationships and about the possible liabilities they may be triggering.
Laying Off Staff During A Coronavirus-Motivated Shutdown
Again, let me emphasize, these are uncharted waters and we’re all trying to provide the best answers we can in a rapidly evolving situation. As one colleague has put it, we’re applying new facts to an old legal structure.
A layoff is intended to be a temporary interruption of the employee’s active provision of employment services and of the employer’s payment of wages. Temporary means, for the purposes of the B.C. Employment Standards Act, up to 13 weeks in any period of 20 consecutive weeks.
Practically speaking, if the layoff is continuous, the Act says that it can be up to 13 weeks in duration. In the union context, a layoff can be for the period specified in a collective agreement during which the employee has a right of recall.
During layoffs, employees can apply for E.I. benefits, and Service Canada is waiving certain waiting periods so people shouldn’t be going without at least some pay. Employers can also agree to pay out accrued vacation pay, banked overtime, etc. to employees who are being laid off.
After those temporary layoff periods elapse, the Act deems the layoff to be a termination of the relationship. In effect, the temporary layoff becomes a permanent one.
Given that many businesses are already shut down, and some governmental actors are now talking about a July or August timeframe (before the coronavirus threat eases), employers may well reach that deemed termination threshold before being able to recall some/all staff to work.
During The Temporary Layoff
As I explained previously, in normal circumstances I would be very concerned about employers facing legal risks and liabilities associated with being found to have constructively dismissed laid-off employees. That produces issues relating to (statutory and common law) damages claims.
In this virus-dominated world in which we’re suddenly living, however, employers temporarily laying off staff should be able to take some comfort that they would be protected against legal claims by the common law and statutory versions of the doctrine of “frustration”. In the words of the B.C. Act, an employer has no obligation to provide working notice or pay in lieu to an employee if he/she is
“employed under an employment contract that is impossible to perform due to an unforeseeable event of circumstance…”
That provision is essentially the codification of the common law doctrine of “frustration”. I have confidence that administrative tribunals and courts will view the spread of the coronavirus – and directly resulting workplace implications – as an unforeseeable event which is beyond control of the employer or the employee.
Not every employer, of course, will be able to rely on that possibility. There is a spectrum of coronavirus impact on businesses. If by government decree your business has been shut down, you can have a high degree of comfort that the “frustration” doctrine would apply. If you’ve simply chosen to shut down because you think it’s the right thing to do, your comfort level should be substantially lower (perhaps non-existent).
When The Layoff Becomes Permanent
If, after the initial coronavirus wave has passed, employers do not recall some or all staff to work, that would be a development which might undermine the applicability of the “frustration” doctrine. There are many permutations and combinations of possible circumstances, but let’s again look at the spectrum of possibilities.
Let’s say the coronavirus pandemic effectively wipes out your business. The resulting shutdown is a direct result of the spread of the virus, your business becomes insolvent, and resuming operations becomes an impossibility.
That’s a situation in which I would say your ability to continue to rely upon the doctrine of frustration (as a defence against claims for damages for wrongful dismissal or, in the statutory context, “compensation for length of service") would be at its highest. You can draw a direct line between the pandemic and the shutdown of your business and the resulting termination of employees, so it’s possible you won’t end up paying either common law or statutory severance.
At the other end of the spectrum, if you simply choose to not resume operations or you choose to do business differently and that choice results in the termination of employees, you shouldn’t bet on the frustration doctrine protecting you against severance claims. For instance, you might decide to reduce the scope of your restaurant to a “drive thru only” model, thus not recalling a bunch of your staff. Or, you might simply decide that the risky business world is no place for you and your assets, so you don’t recall anyone to work.
In those instances, the doctrine of frustration almost certainly will not allow you to avoid paying severance to terminated employees.
As with all things, there is a range of possible outcomes. It all remains to be seen how administrative tribunals and courts will view the impact of these unusual times. Employers would be well-advised to start thinking about where they sit on that range.
This item is provided for general information purposes only and is not intended to be relied upon as legal advice. Informed legal advice should always be obtained about your specific circumstances.