Impact of COVID-19 on Employers
Alberta businesses have been hit hard by the Coronavirus in the last few weeks, culminating with the announcement by Premier Jason Kenney on March 27, 2020 of the immediate closure of all non-essential businesses. Given the current economic environment, many employers are struggling to stay afloat, and are considering all their options. Unfortunately, many of them may have no choice but to temporarily layoff many of their employees. In this short post, we review some of the things that Albertan employers should keep in mind before notifying employees that they will not be returning to work for the near future. Please note that the content provided in this post is legal information only, and should not be relied upon as legal advice. If you need legal advice specific for your needs, you should speak with a lawyer.
Employment Standards Code and the Common Law
As you are likely aware, non-collective employment relationships in Alberta are governed, in part, by the Employment Standards Code, RSA 2000, c E-9 (the “Code”). This statute provides direction regarding, among other things, maximum work hours, rest periods, overtime pay, and holidays. It also contains provisions addressing termination of employment and temporary layoffs. It is important to note, however, that the Code is not the only source of law that deals with employment relationships. The Code itself explicitly states that the common law (i.e., law created by judges, as opposed to statutory law, which is law created and enacted by politicians) continues to apply to both employers and employees.
Temporary Layoff and the Code
The Code provides that an employer who wants to temporarily layoff an employee must provide that employee with a written layoff notice some time in advance of when the employee is laid off. For employees who have been employed with an employer for less than two years, one week of notice must be provided, while for employees with two or more years of service, two weeks’ notice is required. In special circumstances when an employer is unable to provide the notice in accordance with the time frames just mentioned, an employer must provide the notice as soon as possible.
A layoff notice must state: (a) that the layoff is temporary; and (b) when the layoff is to commence. Further, the notice must also refer to certain provisions of the Code and other information contained in relevant regulations. Note well—case law indicates that inadequate notice of a temporary layoff may amount to a constructive dismissal. (A constructive dismissal occurs when, by an employer’s actions, an employer shows an intention to no longer be bound by an employment contract, and the employee treats the contract as at an end. An employee who is constructively dismissed is entitled to severance pay.)
Prior to the COVID-19 outbreak, for a layoff to be considered temporary (in most cases) it could not exceed 60 days in a 120-day period. On April 6, 2020, however, the Government of Alberta issued a press release indicating that, effective immediately, the maximum time for a temporary layoff is now 120 days, not 60. The press release further states that this temporary change to the Code is retroactive to March 17, 2020, and “will be in place as long as government determines it is needed”.
Temporary Layoff and the Common Law
As noted above, the common law continues to apply to employment relationships in Alberta. This poses some unique challenges to both employers and employees since the common law is developed piecemeal and is not codified in an easily accessible document (like the Code). This is one reason why it is important to consult with a lawyer before proceeding with plans to lay off employees.
Under the common law, upon receiving notice of a temporary layoff, an employee is entitled to consider his or her employment to be terminated. As such, the employee is entitled to sue for pay in lieu of notice (i.e., severance pay). Courts in many Canadian provinces have held that this common law right of employees has not been rescinded or altered by the development of employment standards legislation. They have further held that unless an employment contract states that a temporary layoff does not constitute termination of employment (i.e., unless the agreement contains a “Layoff Clause”), an employee is entitled to rely upon the common law and treat any layoff as termination of his or her employment.
There is very little case law in Alberta dealing with this issue. The Court of Appeal deferred dealing with it in 2004, and only a few cases since have addressed it. In 2005, a justice of the Court of Queen’s Bench (Alberta’s superior court) followed courts in other provinces and held that the Code has not altered employees’ common law rights to treat a temporary layoff as termination of employment. However, the justice decided the case on the basis of a lack of notice of the temporary layoff. Accordingly, the justice’s comments regarding layoff as termination are likely not binding on future judges. Most recently, in 2019, a judge of the Provincial Court of Alberta held that unless an employment contract says otherwise, the common law continues to apply to temporary layoffs. Decisions of the Provincial Court of Alberta are not binding on the Court of Queen’s Bench or the Court of Appeal, and therefore this case is not necessarily determinative of what future decisions by the superior courts in Alberta will hold; however, decisions of Provincial Court judges can be very persuasive to the higher courts.
Considering that the law in Alberta in this regard is not yet clearly defined, the prudent course of action for employers whose employment agreements do not contain a Layoff Clause is to have employees sign waivers acknowledging that they waive their common law right to treat their employment as terminated, in exchange for which they will receive some form of immediate benefit. These waivers should be provided to, and signed by, the employees before the employees are provided with written layoff notices.
Frustration of Contract
The common law provides that a contract, including an employment contract, may be frustrated when the contract does not contain provisions dealing with an unexpected situation or event that has occurred and, as a consequence, the parties’ performance of the contract is radically different from that which the parties had originally contemplated and agreed to. An example of this is when an employee’s long-term disability makes his or her continued employment an impossibility. The effect of a frustrated contact is that neither party has any further obligations under the contract.
Historically, courts have held that the doctrine of frustration cannot be successfully invoked in circumstances where performance of a contract has merely become more expensive, or more onerous than that which was originally contemplated by the parties. Instead, the performance of the contract must be impossible. However, one leading academic commentator has indicated that, in his view, the test for frustration is broad enough to include extreme increases in cost.
In any event, in light of recent government directives regarding the closure of all non-essential business, and in light of extreme economic pressures relating to COVID-19, employers who have failed to properly issue layoff notices (and who have failed to ensure their employees sign layoff waivers, if necessary) will—in the event of litigation—be able to make strong arguments before the courts that their employment contracts were frustrated—either because of their sudden and unexpected drop in revenues, or because they have been ordered to shut their doors. Certainly, when most employers and employees signed their employment contracts, they likely did not contemplate the economic effects of a global pandemic, including the closure of all non-essential businesses for weeks (or, perhaps, months). Of course, no one can predict with certainty what the courts will decide. As such, employers should not take their chances, and should instead ensure that they follow proper procedures before laying off any employees.
Frustration of a contract should not be confused with a force majeur provision in an employment contract, which may set out the circumstances under which a party can claim a contract has come to an end as a result of an unexpected “act of God” (as it is sometimes called).
As always, if you have questions about your particular contract or circumstances, you should contact a lawyer to help you navigate these rather tricky legal concepts.