What is frustration of employment?
Frustration, in the employment law context, describes a situation where ongoing employment has been rendered untenable by an unanticipated change in circumstances beyond the parties’ control.
Prior to the COVID-19 pandemic, we most commonly saw frustration arise where an employee experienced a serious illness or injury that made continuing to work an impossibility.
Since March 2020, however, we have seen several employers assert that the employment relationship has been frustrated due to the negative impact of the pandemic on their business. Indeed, in the early days of the pandemic, as lockdowns took effect, many employers experienced a significant downturn in business. Restaurants were reduced to offering take out, hotels had limited capacity and people were urged to stay home, thus reducing financial activity in many sectors.
Guidance from a recent British Columbia decision
In a recent British Columbia case, Verigen v Ensemble Travel Ltd., the court grappled with whether a downturn in business due to the impact of COVID-19 resulted in a frustration of employment.
The plaintiff employee, Ms. Verigen, worked for a travel agency, Ensemble Travel (“ET”), that saw its business decimated by pandemic-related travel restrictions. On March 25, 2020, ET emailed Ms. Verigen to advise that she would be placed on a temporary unpaid lay-off with an anticipated return to work date no later than June 29, 2020. ET further noted that it would maintain Ms. Verigen’s enrollment in its employee benefits plans for the duration of the lay-off period.
Ms. Verigen responded to this information by requesting to see a copy of the ET employee handbook. Having reviewed the same, she then advised ET that it appeared to lack any contractual basis upon which to institute an unpaid lay-off but, given the exceptional circumstances, she would agree to be laid off until June 29, 2020.
Due to the ongoing impact of the pandemic on ET’s business, the lay-off period was twice extended. Then, in August 2020, ET terminated Ms. Verigen’s employment (along with 13 other employees). In total, the pandemic resulted in ET reducing its North American staff complement from 73 to 30 employees.
Ms. Verigen brought a claim for wrongful dismissal, seeking damages at common law. In response, ET argued that the parties’ relationship had been frustrated and, as such, Ms. Verigen had no damages entitlement.
ET relied upon three assertions to make this argument:
- There had been a “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”;
- Ms. Verigen’s job called for her to spend “up to 50%” of her time travelling, something that she was precluded from doing due to public health orders; and
- With “no retained earnings, its survival was in question in 2020.”
On her part, Ms. Verigen relied upon legal authority for the principle that simply because performance under a contract has become more onerous, expensive, or less profitable, a frustration will not have been made out. Ms. Verigen further noted that, while the situation may have become more difficult for ET, the pandemic had not rendered performance impossible.
The court ultimately rejected ET’s position and found that Ms. Verigen had been wrongfully dismissed. In reaching this conclusion, the court noted that “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.” As such, rather than a frustration having occurred, ET had made an operational decision to cut certain positions “so that it could better weather an ongoing storm.”
Takeaway for employers
While this case was decided in British Columbia, it is equally applicable to Ontario workplaces. There are several key takeaways:
- Employers should be sure to include a contractual right to temporarily lay-off staff in accordance with the minimum requirements of the Employment Standards Act, 2000. By taking this step, employers retain discretion to implement a temporary unpaid lay-off to meet changing business needs absent the risk of triggering a constructive dismissal (i.e., making a unilateral and fundamental change to the parties’ employment relationship without the authority to do so).
- Should an employer assert frustration of contract in response to an employee’s claim for wrongful dismissal, it should think carefully about how to show that the relationship became impossible to perform (rather than simply more onerous or less profitable).
- Employers should consider, when asserting frustration in response to employee claims of wrongful dismissal, whether their business was mandated to close during the material time period. It is far more likely that where an employer has been ordered to discontinue its operations (rather than choosing to do so), that a frustration argument may succeed.
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