Verigen v Ensemble Travel Ltd., 2021 BCSC 1934 (BCSC), is a new BC case where the court rejected the employer argument that the downturn in business caused by COVID-19 caused the employment contract to be “frustrated” such that no severance was owing to the employee.
This case is interesting and would be considered a win for employees. However, the case is also tragic in its way. It involves the competing rights of employees and employers in situations where the employer is required by serious financial downturn to reduce its workforce. This is a BC case, but the principles considered are applicable in Alberta employment law as well, and it would be considered persuasive authority here.
Facts
Below are the pertinent facts found by the Supreme Court of BC:
- The employee worked as the Business Development Director for an international travel agency, beginning in February, 2019
- The employee’s job included management activities, sales activities, and substantial travel
- The employer’s business suffered severely as a result of the pandemic. It laid off and terminated the employment of several employees as a result of the downturn in its business
- The employee worked there for 13 months, and was then laid off due to the business downturn
- She remained on lay-off for 5 months, at which point her employment was terminated
- The employee sued for wrongful dismissal (severance)
- The employer’s main defense was that the pandemic had harmed its business so badly that the employment contract was “frustrated” at law (no longer binding) and the employer should not have to pay severance
Analysis / Conclusion
The employer’s frustration argument was as follows: The global collapse in consumer demand for travel meant the loss of the market for the kind of work that the employee was hired to do. Additionally, her job description referred to “up to 50%” travel time.
The BCSC found against the employer on this point. The reasoning was essentially that an employment contract could be frustrated if the subject matter of the contract is lost – like for example where a particular flight cannot go ahead because of a pandemic flight ban – but it will not be frustrated just because the employer can no longer afford to pay:
[60] […] the collapse in the travel market goes to ETL’s “ability to perform”, rather than “the nature of the obligation itself.” This case is unlike the CRT decisions relied upon by ETL, where the very subject matter of the contract had been lost due to discrete, pandemic-related events. 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. […]
In the analysis of reasonable notice, the BCSC noted that the employer’s layoff of the employee 5 months prior to termination caused lost opportunity for the employee on the job market, and therefore extended the notice period:
[70] […] Regardless of ETL’s intentions, however, the fact of the matter is that Ms. Verigen was prevented from seeking alternative employment for five additional months, as a result of ETL’s conduct. I accept that this factor weighs in favour of a longer notice period, although the value of the lost opportunity to re-enter the job market five months earlier must also be considered in light of how difficult her job search proved to be thereafter.
In the result, this short-service employee was awarded 5 months’ reasonable notice (severance).
My Take
The law generally tries to hold people to the bargains they make, even where those bargains turn out to be somewhat unfair. “Frustration of contract” is an extraordinary remedy, because it can allow a party to walk away without any further obligation to the other side.
I have a great deal of sympathy for both sides in a challenging case like this. The pandemic has put many employers on the brink of insolvency or bankruptcy, and labour is very expensive overhead. These employers are put in a difficult spot without a lot of options. Naturally, they try to cut their labour ranks. The employees that are cut are in a very difficult spot too, because this situation often means their chosen profession does not have many available jobs at that point in time.
However, someone had to win and in this case it was the employee. The principle of the case is a win for employee’s generally.
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