Canada: Court Rules Employment Contract Not Frustrated By COVID-19 Pandemic: Employer Ordered To Pay $64,000 In Damages For Wrongful Dismissal

Fanzone v. 516400 B.C. Ltd. o/a Shady Tree Neighbourhood Pub, 2022 BCSC 2089 is the latest decision of the B.C. Supreme Court to consider the doctrine of frustration of contract in the context of a wrongful dismissal claim arising out of the COVID-19 pandemic.

The employer operated a pub in Squamish, British Columbia (the "Pub"). On March 17, 2020, all pubs and restaurants were forced to close by order of the Provincial Health Officer as a result of the COVID-19 pandemic. All of the Pub's staff, including its general manager, Marco Fanzone, were laid off. They were all issued cheques in payment of their wages to the date of layoff and all accrued but outstanding vacation pay.

In the weeks and months that followed, COVID-19 restrictions eased and many pubs and restaurants in the Squamish area reopened. The Pub, however, remained closed. Its owner stated that it was "impossible" to resume operations because the "physical dimensions of the kitchen prevented staff from maintaining a safe distance from each other". The Pub's owner also argued that he and his family were in isolation and could not reopen the Pub until the risk from the pandemic had decreased and he felt safe to return work. The Pub did not reopen for over two years.

As a result of this lengthy separation from his employment, Mr. Fanzone brought a wrongful dismissal action seeking damages for reasonable notice at common law.

At trial, the Pub argued that the COVID-19 pandemic had frustrated Mr. Fanzone's employment contract. The Pub relied on both the common law doctrine of frustration as well as section 65(1)(d) of the B.C. Employment Standards Act ("ESA"). That section of the ESA which provides that notice of termination or pay in lieu is not required when the employment contract is "impossible to perform due to an unforeseeable event or circumstance".

Under the common law, frustration of contract occurs when, without the fault of either party, a contractual obligation becomes incapable of being performed because the existing circumstances render it "a thing radically different from that which was undertaken by the contract". Frustration is generally deemed to occur in situations where the employment relationship has become untenable due to a change of circumstances beyond the control of the parties. When frustration takes place, the parties are relieved of their obligations under the contract, and the employer is not required to provide the employee with termination notice or pay in lieu.

After reviewing the case law around the doctrine of frustration of contract, the B.C. Supreme Court concluded that it did not apply in the particular circumstances of Mr. Fanzone's case. The Court found that the Pub owner had made a deliberate choice to keep the Pub closed rather than reopen after public health restrictions eased. Such a choice could not amount to frustration of contract as a matter of law. As a result, the Pub was liable to Mr. Fanzone for damages for wrongful dismissal.

The Court held that Mr. Fanzone was terminated from his employment on March 17, 2020. At the time of dismissal, he was 56 years old and had been employed as the Pub's general manager for about 23 years. Applying the well-known Bardal factors, the Court determined that he was entitled to damages equal to 20 months of reasonable notice or $64,000 after taking into account his earnings in mitigation.

Notably, the Court did not deduct Mr. Fanzone's CERB payments from the damages award. It relied on the B.C. Court of Appeal's recent decision in Yates v. Langley Motor Sport Centre Ltd., 2022 BCCA 398.

Takeaways

This case serves as a good reminder that an employer's economic circumstances, or the choices made by the employer, will generally not be grounds for frustration of contract.

Frustration is deemed to occur when the employment contract has become impossible or "radically different" from the bargain into which the parties first entered. It must be caused by factors outside the control of both parties.

Employers who decide to shut down, even for legitimate business reasons, cannot rely on economic circumstances to reduce employee entitlements on termination. The best way for employers to reduce their exposure in respect of terminations without cause is to work with experienced human resources professionals or capable legal counsel and provide for enforceable termination language – language to either limit or restrict employee entitlement to ESA minimums or some other predicable and manageable amounts above the ESA.

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