Pandemic border closure didn't cause frustration of duty-free shop worker's employment

The employment contract of a duty-free shop employee was not frustrated when the shop closed because of a pandemic border closure, the British Columbia Court of Appeal has ruled.

Aldergrove Duty Free Shop was a small, family-owned business that sold duty-free merchandize to holiday and vacation travellers on the Canadian side of the Canada-US border at Aldergrove, BC. It employed the worker since 2010 as a retail sales clerk who also performed some janitorial work.

In March 2020, the international border was closed to all non-essential travel because of the COVID-19 pandemic. As a result, on March 17, the shop temporarily closed and laid off its employees, including the worker, who was 78 years old at the time. According to the shop, “there was essentially no work for employees to do.”

On Aug. 30, the shop remained closed and the worker’s layoff became permanent under the BC Employment Standards Act (ESA). However, the shop didn’t pay the worker severance pay.

Employer claimed frustration

The shop eventually re-opened in November 2021 when the border re-opened to fully vaccinated Canadians travelling to the US for non-essential reasons. The worker filed a claim for wrongful dismissal damages, but the shop countered that the employment contract had been frustrated by the border closure so it wasn’t required to provide reasonable notice of termination or payment in lieu under the ESA.

The BC Supreme Court found that the worker was unilaterally laid off with no right of recall. However, the court disagreed with the shop’s frustration argument, finding that the collapse in the travel market affected the consumer demand for the shop’s business, but it didn’t affect the nature of its obligation in the employment contract.

The court found that the border closure didn’t make it impossible for the shop or the worker to perform their obligations under the contract. The worker’s layoff was caused by the “economic viability” of the shop decreasing significantly by continuing to operate under the contract, said the court in stipulating that hardship from changed circumstances alone did not cause frustration.

Since the shop didn’t pay any severance pay to the worker, the court determined that the worker had been wrongfully dismissed and ordered the shop to pay the worker 10 months’ salary with a reduction for any benefits the worker received from the Canada Emergency Response Benefit (CERB).

Employment contract

The shop appealed the decision, arguing that the court erred in principle by not analyzing the purpose of the employment contract before assessing frustration, and that the court filed to consider evidence showing that the performance of the contract during the border closure would have “radically changed the parties’ obligations.”

The worker also cross-appealed, contending that the court erred in deducting CERB benefits from the damage award.

The Court of Appeal noted that frustration of the employment contract occurs when “a situation arises through no fault of the parties that is not provided for in the contract and renders performance of the parties’ obligations under the contract something ‘radically different’ from what they undertook.” The impact of the change must significantly affect the nature of the contractual obligations themselves, said the court.

There are three elements that must be proven to show frustration, said the appeal court – a qualifying supervening event that wasn’t contemplated by the parties when they entered into the contract, the event isn’t the fault of either party, and the event rendered performance of the contract radically different from what was initially undertaken.

Border closure unforeseen event

The Court of Appeal found that the first two elements were clear. The closure of the Canada-US border was not an event that the parties contemplated when they entered into the employment contract, and it was a government response to the pandemic that had nothing to do with either the shop or the worker.

The appeal court found that the BC Supreme Court focused on the proper assessment of frustration and whether the border closure transformed their contractual obligations and required them to do something radically different than what the employment contract set out to do.

The appeal court also found that it was open to the lower court to determine that the border closure affected the shop’s ability to live up to its contractual obligations, but it didn’t affect the nature of those obligations. The worker’s primary obligation was to perform retail sales and janitorial work in exchange for an hourly wage, which wasn’t changed by the reduced business from the border closure – although it would have placed significant financial pressure on the shop until it re-opened, said the appeal court.

“There was no evidence the parties structured their employment agreement in a manner explicitly dependent upon the existence of certain market conditions, a specific level of customers accessing the duty-free shop, a particular volume of sales, or the [shop’s] profitability,” said the Court of Appeal, noting that any unique features of the business weren’t built into the employment contract that could apply to the changed circumstances of the pandemic border closure.

The Court of Appeal noted that it appreciated the shop’s position that “it made absolutely no sense” to pay workers wages to have them “sit around… and do nothing,” but said that was an economic rationale for non-performance of the contractual obligations, not a radical change to the employment contract itself.

The appeal court dismissed the shop’s appeal. It also accepted the worker’s cross-appeal, referring to a 2023 decision in which the same court ruled that CERB benefits are not deductible from a wrongful dismissal damage award. See Aldergrove Duty Free Shop Ltd. v. McCallum, 2024 BCCA 28