B.C. hotel not exempt from severance pay for majority of furloughed staff members

A British Columbia company’s reduction in business because of the pandemic didn’t qualify for an exemption to a legislative requirement to provide laid-off employees with severance pay, an arbitrator has ruled.

Burnaby Crescent is a company that operates a full-service hotel with catering services, event hosting and a restaurant. When the COVID-19 pandemic hit in March 2020, public health measures were put into place by the B.C. government that forced a significant reduction in business for all branches of the hotel. Large gatherings were prohibited and food and beverage services were restricted to take-out only. Foreign nationals were banned from entering Canada by aircraft and anyone entering the country had to isolate for 14 days.

Although restrictions eased in the summer of 2020 as COVID-19 cases decreased and some work hours increased to a limited level, a second wave in the fall led to another lockdown. The hotel’s occupancy and average daily room rates dropped, the event hosting service was limited, and the restaurant could only do take-out service. The hotel continued to operate, but at a much smaller scale than normal.

The company decided to lay off junior employees due to a substantial reduction in the work available, while senior employees remained employed. Certain positions saw a drop in available work to nothing, in which cases any senior employees were reassigned. Laid-off employees were able to access government benefits such as the Canada Emergency Response Benefit (CERB).

The company did not provide any severance pay to the laid-off employees, as the B.C. Employment Standards Act (ESA) has an exception to that obligation for employees who are “employed under an employment contract that is impossible to perform due to an unforeseeable event or circumstance other than receivership, action under section 427 of the Bank Act (Canada) or a proceeding under an insolvency Act.”

The union filed a grievance against the layoffs. It acknowledged that the pandemic restrictions were an unforeseeable event or circumstance but it argued that the employment contract of each terminated employee wasn’t impossible to perform. The union pointed to the fact that the hotel continued to operate with reduced staffing in all departments, which was tied to a downturn in business. In addition, the business wasn’t closed by public health restrictions. While there was less work happening, it was still being done by some employees and therefore wasn’t impossible to perform, the union said.

The arbitrator noted that the exception to the severance pay requirement under the ESA required two elements — it must be impossible to perform the employment contract and it must be because of an unforeseeable event or circumstance. There was no doubt that the pandemic met the definition of the latter, so the issue was the ability to perform the employment contract of the laid-off workers, said the arbitrator.

The arbitrator referred to past jurisprudence that established that the ESA termination and severance pay provisions are meant to protect employees from the economic impact of termination, so they should be interpreted as much as possible to protect employees.

The arbitrator found that, although an essential feature of an employment contract is the exchange of work for wages and a layoff can be due to a shortage of work, such a layoff doesn’t mean an employment contract is impossible to perform. In this case, the company continued to employ people in its operations during the pandemic and its restrictions, meaning the employment contracts were possible to perform and the ESA exception to severance pay didn’t apply.

“In the present case, a series of regulatory constraints collapsed demand for the employer’s offerings. Those events led to a shortage of available work,” said the arbitrator in dismissing the grievance. “Nonetheless, the employer retained its capacity to employ persons in the continued operation of its business.”