There’s a scene in the 1966 Batman movie in which the caped crusader is frantically racing around a pier, trying to safely dispose of a live bomb (the cartoon version that looks like a bowling ball, with a lit fuse sticking out the top). Stymied at every turn, Batman gasps in frustration, “Some days, you just can’t get rid of a bomb!”
Sometimes, being an employer feels that way. You’re trying your best to operate a profitable enterprise, employ people, obtain the necessary supplies, market the business, grow your customer base, etc., but it seems like the world is out to prevent you from having success.
Tariffs and Terminations
Canadian companies – many of which are really just recovering from the lingering impacts of the COVID-19 pandemic – now have potentially crippling tariffs to contend with (thanks to a delusional and orange-hued occupant of a white house located in Washington, D.C.).
Many of those businesses will, in the short term at least, lose business and will be forced to lay off and/or terminate some staff. Business owners may legitimately be wondering, “Will the tariff situation provide us with a basis to claim ‘frustration of employment’?”
Why is this a critical question for business owners? Because, when a “frustration of employment” occurs, the relationship between employer and employee simply ends. Neither party is required to provide advance notice to the other, and no severance (pay in lieu of notice) is required to be paid.
This is a common law concept, but it is also enshrined in B.C.’s Employment Standards Act, at s.65, which excuses employers from the obligation to provide notice or severance if the employment contract has become “impossible to perform due to an unforeseen event or circumstance”.
As it happens, the fallout of the pandemic provides the answer. I wrote on this topic a while back but, given recent events, I think it’s worthwhile revisiting this topic.
Verigen v. Ensemble Travel Ltd. – The Decision
Deidre Verigen sued her former employer for damages for wrongful dismissal after a pandemic-induced termination. Ensemble defended itself with the assertion that the pandemic had frustrated the employment relationship and, hence, Ms. Verigan was not owed any severance.
Ensemble relied on the “global collapse in consumer demand for travel and the associated loss of the market for the kind of work that she was hired to do”. It asserted that its very survival as an operating business had been in question.
Ms. Verigen opposed Ensemble’s “frustration” defence, asserting that where performance under a contract has merely become more onerous, expensive or less remunerative, the legal test for frustration has not been met. She argued that there can have been no frustration because performance by Ensemble “had not been rendered impossible by the pandemic”.
Frustration of Contract – The Law
The Court explained the concept of “frustration of contract”. In essence…
“[17] In KBK, at para. 14, Braidwood J.A. also expressly approved of Justice Sigurdson's summary of the test for frustration in Folia v. Trelinski (1997), 14 R.P.R. (3d) 5 (B.C.S.C.) at para. 18:
In order to find that the contract at issue has been frustrated the following criteria would have to be satisfied. The event in question must have occurred after the formation of the contract and cannot be self-induced. The contract must, as a result, be totally different from what the parties had intended. This difference must take into account the distinction between complete fruitlessness and mere inconvenience. The disruption must be permanent, not temporary or transient. The change must totally affect the nature, meaning, purpose, effect and consequences of the contract so far as concerns either or both parties. Finally, the act or event that brought about such radical change must not have been foreseeable.”
Verigen v. Ensemble Travel Ltd. – The Decision
The Court rejected Ensemble’s “frustration” defence, concluding that its pandemic-induced need to reduce staffing did not meet the applicable test. The Court stated (referring to Ensemble as ETL)…
“[60] [T]he collapse in the travel market goes to ETL’s “ability to perform”, rather than “the nature of the obligation itself.” … Although much of the consumer demand driving the business on which ETL and its members depend has abated, at least for the time being, not all of it has, and then not permanently. Moreover, although ETL 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. ETL chose to relinquish Ms. Verigen’s branch of the business with a view to cutting operating costs so that it could better weather an ongoing storm.”
For those reasons, the Court concluded that – notwithstanding the demonstrated impact of the pandemic on Ensemble’s business - Ms. Verigen’s employment contract was not frustrated by the pandemic and that she was entitled to damages for wrongful dismissal.
As a result, businesses have some useful (if unwelcome) guidance for the present tariff crisis. Businesses making tariff-driven decisions – affecting employment relationships - due to an economic shortfall shouldn’t expect to be able to rely on the “frustration” defence when its former employees sue for wrongful dismissal.
The ticking time bomb of severance pay is, it seems, not going to be easily gotten rid of.
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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.