Wrongful Dismissal and the COVID Pandemic

The COVID-19 pandemic brought with it vast and varied disruptions, interruptions and consequences to our health, social lives, and work lives.

As businesses shut down to comply with public health orders, owners and employees alike worried about whether their jobs and businesses would survive and when business could resume.

But what about those businesses that were allowed to open but chose to stay closed? Can an employee who received CERB payments also seek damages for wrongful dismissal?

What obligation does an employee have to find alternative employment in a job market affected by the pandemic? Recent British Columbia cases have addressed these questions and the effect of the pandemic on the employer/employee relationship.

Frustration of the Employment Contract and COVID-19

In two recent cases, an employer’s attempt to defend an employee’s wrongful dismissal action by arguing the employment contract was “frustrated”, or in other words became impossible to perform, due to the pandemic, was rejected by the British Columbia Supreme Court.

In Verigen v. Ensemble Travel Ltd., 2021 BCSC 1934, Verigen worked as a business development director for an international travel agency for 13 months prior to being temporarily laid off in March 2020 due to the pandemic.  She was informed of her termination in August 2020 and paid two weeks’ salary in lieu of notice. The employer, who had reduced the number of its employees from 73 to 30, did not expect to reinstate the cut positions, including Verigen’s, in the foreseeable future. It argued that the global collapse in consumer demand for travel, and the fact that Verigen’s position required her to spend a significant percentage of her time travelling, meant the employment agreement had been frustrated.

In Fanzone v. 516400 B.C. Ltd., 2022 BCSC 2089, Fanzone was employed as the general manager of a Pub for 23 years when the Pub was forced to close due to the COVID-19 pandemic in March 2020.  Subsequently, public health orders allowed the Pub to re-open with restrictions but the Pub remained closed until the summer of 2022. The employer argued that Fanzone’s employment agreement was frustrated, as it was impossible to re-open because the physical layout of the Pub prevented it from meeting the public health restrictions.

In determining that the employment agreements were not frustrated by the pandemic, the court in both cases distinguished between the employer’s “ability to perform” the contract versus supervening events that radically altered the nature or purpose of the contractual obligation itself. The collapse of the travel market in Verigan, and the public health restrictions imposed on restaurant establishments in Fanzone, were related to the employer’s ability to perform the employment agreement rather than to the nature of the obligation itself.

In both cases, the employer’s choice to keep its business shut did not amount to a “frustration” of the contract. In Verigan, the employer had made the choice to cut its workforce, including Verigan’s position, with a view to cutting operating costs so that it could better weather the ongoing economic turmoil. In Fanzone, the employer chose not to re-open or renovate to accommodate health and safety policies, although other pubs and restaurants in the area had done so.

The employers in both cases were liable to the employees for wrongful dismissal. Fanzone was awarded the equivalent of 20 months’ notice. The court, relying on Yates v. Langley Motor Sport Centre, discussed below, did not deduct the CERB payments Fanzone received. Verigan was awarded damages equivalent to five months’ notice.

CERB payments and Wrongful Dismissal

In Yates v. Langley Motor Sport Centre Ltd., 2022 BCCA 398, the British Columbia Court of Appeal held that Canada Emergency Response Benefit (“CERB”) payments are not deductible from a damages award for wrongful dismissal.

Yates was temporarily laid off from her employment between March and August 2020. During that time, she received CERB payments. Yates brought an action for wrongful dismissal after her employer did not recall her back to work. The employer conceded it had terminated Yates without cause. The trial judge’s decision to deduct Yates’ CERB payments from the damages award of five months’ salary in lieu of notice was reversed by the Court of Appeal.

The Court of Appeal noted that Yates received the CERB benefits because her work had stopped due to COVID-19, not because of a breach of her employment contract. It would be wrong for an employer who has breached an employee’s employment contract to enjoy a windfall from an income support program designed to benefit workers impacted by the COVID-19 pandemic.  Whether or not the CERB payments were repayable by the employee was irrelevant to the issues between the employee and employer.

The court pointed out that while CERB payments were to support employees, employers had also benefitted from government support, through measures such as the extension of the temporary layoff period to 24 weeks, so that employers had extra time to recall their employees without being liable for severance pay.

Conclusion

The effects of the pandemic continue to reach into our daily lives, including the job sector. An employment lawyer can advise both employees and employers on these and other employment issues that may arise as a result of the COVID-19 pandemic.

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