When an employment contract is frustrated, an employer is exempt from providing the employee with notice or pay in lieu of notice. An employment contract will be frustrated when a situation arises, through no fault of the parties involved, that is not provided for in the contract and renders the performance of the parties’ obligations under the contract into something radically different from what they undertook when the contract was signed. Courts have held that for an employer to prove that the contract has been frustrated, they will need to demonstrate three things:

  1. A qualifying supervening event, that was not contemplated by either the employer or the employee when they entered into the contract;
  2. The supervening event is not the fault of either the employer or the employee; and
  3. The supervening event rendered the performance of the contract into something radically different from that which was initially promised.

It is challenging to prove these three elements. A supervening event that radically changes the nature of an employment contract is rare. We are now seeing the results of cases where employers have unsuccessfully tried to argue that COVID-19 and its restrictions frustrated their employment contracts. One such case is the Aldergrove Duty Free Shop Ltd. v MacCallum (2024 BCCA 28) decision.

Aldergrove Duty Free Shop Ltd. v MacCallum (2024 BCCA 28)

In Aldergrove Duty Free Shop Ltd. v MacCallum, Barbara MacCallum was a 78-year-old retail sales clerk for Aldergrove Duty Free Shop Ltd. (Aldergrove). Aldergrove is a small family-owned duty-free shop on the Canadian side of the Canada-United States border. In March 2020, the Canadian and United States land border was closed for non-essential travel due to the COVID-19 pandemic. This reduced Aldergrove’s customer base by ninety-nine percent. Due to the border’s closure, Aldergrove temporarily closed its doors, later resulting in the effective termination of Ms. MacCallum’s contract. Ms. MacCallum sued Aldergrove for wrongful dismissal. In response, Aldergrove claimed that the border closure frustrated the employment contract, thereby relieving it of any obligation to provide notice or pay in lieu of notice.

The Court of Appeal upheld the trial judge’s finding that the employment contract was not frustrated by the border closure. The Court of Appeal found that the first two elements of the frustration defence, noted above, were established. This was not in dispute, as neither party would anticipate the COVID-19 pandemic and neither party was at fault for the border closing. The Court of Appeal found that the frustration defence failed on the third ground, as the closure of the border did not radically change Ms. MacCallum’s job duties. Instead, it was the economic viability of Ms. MacCallum continuing to do her job was what led to Aldergrove ending the employment relationship.

Takeaways from Aldergrove Duty Free Shop Ltd. v MacCallum

This case shows that courts have a stringent standard for the frustration defence. Courts will not bend the rules for small businesses that were affected by the COVID-19 pandemic. Though it may be tempting to claim that a contract is frustrated, as you will not have to pay any notice if successful, it can be even more costly when you get it wrong. In this case, even with legal counsel, the employer ended up paying ten months of pay in lieu of notice.

Any employer who plans to end an employment relationship due to a perceived frustration of the employment contract should meet with an employment lawyer. An employment lawyer can help by analyzing the facts of your case and determining if you fall into the defence of the contract being frustrated. If the employment lawyer believes that the employment contract was not frustrated, the lawyer can then provide other options to end the employment relationship.

How Suzanne Desrosiers Professional Corporation can help

At Suzanne Desrosiers Professional Corporation we have a team of employment lawyers who understand when a contract becomes frustrated. We can help employers who want to end the employment of one of their employees while also minimizing the legal cost of termination. We can also help employees whose employer is improperly claiming that their employment contract has been frustrated. To speak to one of our employment lawyers, please call us at 705-268-6492 or email us at info@sdlawtimmins.com.