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Alberta Wrongful Dismissal: Employment Law, Covid and Frustration of the Contract of Employment

An interesting question arises due to the current Covid Epidemic. Does the current economic situation mean that there has been frustration of the contract of employment? Frustration of the contract means outside conditions have led to circumstances which have led the performance of the contract being impossible and the parties are relieved of performance.

In the context of employment law, frustration of the contract occurs most commonly in situations where employees are on long-term sick leave and unable to return to work.

The Covid situation is more akin to any other recession, and it appears the Covid situation will be treated like any other economic shock, meaning it will not relieve employers of their obligation to pay severance.

Frustration has already been considered more broadly in a recent Ontario case:FSC (Annex) Limited Partnership v. ADI 64 Prince Arthur L.P, 2020 ONSC 5055 (CanLII). Justice Koehnen, speaking of a situation where in a real estate context a buyer tried to be relieved of their obligations said at paragraph 3:

On my review of the circumstances of the case, the obligation to purchase under the shotgun clause has not been frustrated. At best, the ability to borrow money has become more limited than it was before the pandemic. Limitations on financial liquidity do not amount to frustration. They are regular events that occur during each economic cycle. If decreased liquidity was tantamount to frustration, it would mean that a large number of contracts for which parties required financing would be frustrated in every recession.

Covid is essentially treated as an economic downturn, which has never been a ground for frustration. The reasoning is this case is in our view sound.

Given the above, employers tempted to use frustration to terminate employment without paying appropriate pay-in-lieu of notice or severance, in our view do so at the peril of bad faith damages, aggravated damages, punitive damages and possibly facing down class action lawsuits.

If you have been terminated and your employer has alleged frustration, please feel free to contact us.

The information contained in this article is not legal advice. No solicitor client relationship is formed through this article. The reader is encouraged to retain counsel for advice in these matters.

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