In the recent decision of Verigen v. Ensemble Travel Ltd., 2021 BCSC 1934, the Supreme Court of British Columbia considered whether a travel industry employee’s employment contract was frustrated by the COVID-19 pandemic. The Court found that the employee’s contract was not frustrated and awarded damages for wrongful dismissal.
Summary of Facts
The Plaintiff was employed as a business development director for Ensemble Travel Ltd. (“ETL”) since early 2019. In March 2020, ETL temporarily laid off the Plaintiff along with half of its workforce in Canada and the United States in response to the economic impacts of the pandemic on the travel industry.
The Plaintiff’s employment contract and ETL’s employee handbook did not authorize temporary layoffs. However, the Plaintiff accepted the layoff and subsequently agreed to two extensions of the layoff. ETL ultimately terminated the Plaintiff’s employment on August 24, 2020 without cause and paid her two-weeks’ salary in lieu of notice as required by the BC Employment Standards Act (“ESA”).
The Plaintiff brought an action against ETL alleging that she was wrongfully dismissed and sought damages for ETL’s failure to provide reasonable notice.
ETL argued that the employment contract was frustrated by the pandemic, such that no severance or pay in lieu was due and owing to the Plaintiff. Specifically, ETL relied on the global collapse in the demand for travel and the loss of market value for the work the Plaintiff was hired to do. Additionally, the Plaintiff’s job description called for her to spend up to 50% of her time travelling, which the Plaintiff was precluded from doing at times due to public health orders. Alternatively, ETL argued that the Plaintiff’s employment contract and termination language in the employee handbook limited her entitlements on termination to the minimum notice set out in the ESA, which had been paid.
No Frustration of Employment Contract
The Court found that the Plaintiff’s employment contract was not frustrated by the pandemic. Frustration occurs at common law “when a situation has arisen for which the parties made no provision in the contract and performance of the contract becomes ‘a thing radically different from that which was undertaken by the contract’” (at para 15). The collapse in the travel market affected ETL’s ability to perform its contractual obligation rather than impacting the nature of the obligation itself. The Court distinguished the case from situations where the subject matter of a contract was lost due to pandemic-related events. For example, a contract to provide a return flight from India was frustrated after all flights to and from India were cancelled (see: Sohi Vacations Ltd v. Waraich, 2021 BCCRT 1446). Although consumer demand driving ETL’s business had gone down, it was not eliminated entirely and was not impacted permanently. As the contract was not frustrated, the Plaintiff’s employment was terminated without notice.
Consideration Required for Contractual Amendment
The Court found that the Plaintiff was entitled to damages for wrongful dismissal. Although ETL’s employee handbook contained a termination clause limiting employees’ entitlements to ESA minimum notice, the Plaintiff did not receive or sign the handbook until three months after commencing employment. As a result, the termination clause was not binding because the Plaintiff did not receive fresh consideration when she signed the handbook. ETL argued that the lack of consideration was not fatal based on a recent British Columbia Court of Appeal decision (Rosas v. Toca). However, the Court did not accept this argument and found that consideration remains a requirement for amending employment contracts to add terms “detrimental to the employee.”
Reasonable notice was assessed at 5 months based on the Plaintiff’s age (58), her 18 months of service and her position as a business development director.
Takeaways for Employers
Frustration may still apply to employment contracts which came to an end as a result of the pandemic. However, frustration is unlikely to occur where an employment contract has merely become more difficult or costly for the employer to perform due to the financial impacts of the pandemic. Frustration requires circumstances in which the performance of the contract is impossible or the nature of the contract becomes something radically different from what the parties agreed.
This case also further underscores the importance of ensuring employees receive fresh consideration for all contractual amendments introduced mid-employment. Otherwise, amended terms are at risk of being unenforceable due to a lack of consideration.
If you have any questions about this article, please contact Nicole Toye, or your Harris lawyer.