Does an unpredictable event that temporarily eliminates an employer's business amount to frustration of the employment contract? The British Columbia Court of Appeal's decision in Aldergrove Duty Free Shop Ltd. v. MacCallum, 2024 BCCA 28 says it does not.
Background
The employer, a small, family-owned business, operates a duty-free shop on the Canadian side of the border with the United States. Ninety-nine percent of their customers are holiday and vacation travelers. The employee, in her late 70s, worked for the employer as a retail sales clerk since 2010.
In March 2020, the land border between Canada and the United States was closed to all non-essential travellers because of the COVID-19 pandemic. The employer temporarily closed its doors and temporarily laid off its employees. Under the B.C. Employment Standards Act, the layoffs of the employer's employees became permanent effective August 30, 2020.
The employer remained closed until November 2021, when the land border re-opened to fully vaccinated non-essential travellers.
The employer declined to pay the employee severance, arguing that the employment contract had been frustrated by the border closure. The employee filed a claim in B.C. Supreme Court seeking damages for wrongful dismissal.
A Supreme Court judge found that the employee was wrongfully dismissed and that the employment contract was not frustrated. The judge awarded the employee the equivalent of ten months' salary. The employer appealed.
What did the Court of Appeal Decide?
The Court of Appeal dismissed the appeal, finding that the employment contract had not been frustrated by the border closure.
The Court of Appeal found that the border closure was an unexpected event that neither party anticipated or was at fault for. It acknowledged that to make the employer perform the employment contract between March 2020 and November 2021 would cause significant financial pressure as its business was virtually non-existent.
However, the employment contract was not frustrated because the border closure did not change the parties' primary obligations under the contract, which were for the employer to provide an hourly wage in exchange for the employee attending the duty-free shop and performing retail sales work. The border closure affected the employer's ability to live up to its contractual obligations under the employment contract, but it did not affect the nature of those obligations.
It was also significant that the employment agreement was not structured in a manner explicitly dependent upon the existence of certain market conditions or a specific level of customers.
Takeaways for Employers
As an appellate decision, this case will be persuasive across the country. Laws coming out of the Covid-19 pandemic have not been favourable to employers. An unpredictable event, such as the pandemic, that temporarily eliminates an employer's business will not amount to frustration of the employment contract, unless that contract is explicitly dependent on the existence of certain market conditions or a specific level of customers.
If you require advice regarding whether an employment contract has been frustrated or how to set up your employment contracts to limit your severance exposure during business hardship, please contact the author or your regular Fasken lawyer.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
