Travel Agency, no frustration of contract despite pandemic

Verigen v. Ensemble Travel Ltd., 2021 BCSC 1934

In this recent BC Supreme Court decision, the court tackled various employment issues which were directly caused by the Covid-19 pandemic. Verigen worked as a business development director for Ensemble Travel Ltd. (“ETL), a travel agency cooperative. Verigen’s employment was terminated without cause after 18 months of employment. In this case ETL argued that Verigen’s employment agreement was frustrated due to the pandemic, and in the alternative that the employment contract limited Verigen’s notice entitlement to the ESA minimums. ETL was unsuccessful on both points. The court found that Verigen was entitled to 5 months of reasonable notice without deduction. The court briefly noted the uncertain employment market due to the pandemic in its analysis.

Facts

Verigen had been a sales manager and business development director in the tourism and hospitality industry for 30 years. Verigen received an offer of employment on February 5, 2019 and started working for ETL on February 18, 2019.  Like most businesses in the travel industry, the pandemic took a severe toll, and ETL responded by temporarily laying off a significant number of their staff. Verigen was advised of her temporary layoff on March 25, 2020, effective April 1, 2020. After a series of extensions to her temporary layoff, which Verigen agreed to, she was terminated on August 24, 2020. Verigen was paid two weeks’ salary in lieu of notice. ETL eliminated 14 positions in Canada, and overall reduced its North American workforce from 73 to 30 employees. Verigen started this action seeking reasonable notice. She was 58 at the time of her termination.   

Issue #1 Frustration

ETL argued that Verigen’s employment contract was no longer binding on the parties because it had been frustrated by the pandemic, specifically the global collapse in consumer demand for travel and the resulting loss of the market directly related to Verigen’s position. Verigen’s response was that the employment contract was not frustrated, relying on the authority that the contract had merely become more onerous, expensive, or less remunerative – the test for frustration had not been met since performance of ETL had not been rendered impossible by the pandemic. The court agreed with Verigen as it found that although much of the consumer demand driving the ETL’s business had significantly decreased, it did not disappear entirely, and this reduction was not permanent. ETL did terminate a large portion of its staff, however they still maintained some positions and even filled a vacant role. The terminations were found to be a cost-cutting strategy to weather the storm, therefore ETL could not maintain that the contract was frustrated.

Issue #2 Employment Contract – ESA Minimums

In the alternative, ETL argued that Verigen agreed to limit her notice claims to the statutory minimum notice period on the basis that her original offer of employment was made contingent on her acceptance of the terms contained in ETL’s employment handbook. The handbook contained the termination provisions that ETL relied upon. The court did not agree and noted the following: 1) Verigen’s offer of employment was sent by email on February 5, 2019, and attached to that email were 15 documents; 2) on February 15, 2019, three days before Verigen’s start date, an additional 12 documents were sent for her review and signature; 3) none of these attachments contained the ETL handbook. The ETL handbook was given to Verigen 3 months after her start date. The court found there was a lack of fresh consideration and the ETL handbook was not binding; therefore ETL could not rely upon the termination provisions.

Issue #3 Termination Date

Verigen argued that she was constructively dismissed on April 1, 2020 when she was first laid off as she agreed to the layoffs on the false premise that the layoffs were temporary, and that she would eventually return to work. The court accepted that ETL did believe that the situation with the pandemic would improve, and only terminated Verigen when ETL realized that was not the case. Verigen’s termination date was determined to be August 24, 2020.

Notes to Employers

As always, it is important to make sure you have an enforceable employment agreement with all of your employees and that they are executed in an appropriate fashion. Despite the severe and damaging effects of the pandemic on a wide range of industries and businesses, it remains a challenge to argue that employment contracts have been “frustrated”

Questions? Comments? Please contact Ryan Chan at [email protected] or anyone else from our team listed on the Authors page.