There has been significant media reporting with respect to layoffs across the country in response to the COVID-19 pandemic. However, there appears to be a common misperception that simply because various employment standards legislation in Canada, including the Alberta Employment Standards Code ("ESC"), allows for temporary layoffs, employers automatically have the right to layoff employees in response to business slow-down or closure. This is not the full story.

As set out in our March 19, 2020 article COVID-19: An Overview of Federal and Provincial Aid Packages and Alberta Employment Implications, the ESC sets out certain requirements with respect to temporary layoffs. However, even if the ESC layoff provisions are complied with, an employee may have been constructively dismissed or wrongfully terminated if they are laid off. This is because, in general, employers do not have an automatic right to temporarily layoff their employees.

Courts in Canada have generally held that while employment standards legislation may permit employers to temporarily layoff employees, an employee otherwise maintains the right sue for constructive dismissal or wrongful termination if they are laid off in the absence of a collective bargaining agreement or employment contract that specifically allows for temporary layoffs. That is, the ESC layoff provisions are meant to address those situations where a collective bargaining or employment agreement already allow for temporary layoffs - not give employers an automatic statutory right to layoff employees.

So where does that leave employers who are faced with a business slow-down or closure as the result of COVID-19?

First, employers should consult with legal counsel before instituting layoffs or reducing employee hours. Doing so without proper legal advice could result in wrongful dismissal claims - the last thing employers looking to reduce cost need right now.

Second, employers facing reduced revenues may want to consider the following:

  1. In the event that their employment contracts allow for a temporary layoff, employers should ensure that all requirements of the ESC with respect to layoffs are followed (see our article COVID-19: An Overview of Federal and Provincial Aid Packages and Alberta Employment Implications for further information). Failure to do so may result in constructive or wrongful dismissal claims.
  2. In the event that employee contracts do not speak to temporary layoffs, an employer can ask employees whether they would agree to a temporary layoff or reduction in hours. Given these uncertain times, some employees may readily agree to this arrangement. That said, even asking an employee to agree to a temporary layoff or pay cut can amount to constructive dismissal (which reiterates why proper legal advice should be obtained prior to taking steps to temporarily layoff employees or reduce their hours).

Finally, unlike some business which are only dealing with a reduction in revenue, some businesses (like bars, nightclubs, theatres and casinos) have been ordered closed by municipal, provincial or federal authorities. Employers in these truly unprecedented circumstances may be able take the position that their employment contracts have been frustrated.

As set out in our article Does COVID-19 Give Rise to a Force Majeure Event?, frustration of contract occurs when an event occurs (without the fault of either party and for which the contract makes insufficient provisions) that significantly changes the nature of the parties' rights and obligations under the contract such that it would be unjust to hold the parties to the contract. In the case of frustration, both parties are excused from further performance of their obligations under the contract.

Indeed, the ESC contemplates frustration and provides that no notice of termination is required if the employment contract is or has become impossible for the employer to perform by reason of "unforeseeable or unpreventable causes beyond the control of the employer." There is a strong argument that the mandatory closure of a business as the result of the COVID-19 crisis would qualify as an "unforeseeable or unpreventable" event. In these circumstances, employers may not have to provide severance or any other termination pay other than the statutory minimums in the ESC.

It should be noted that anything short of the mandatory closure of a business, such as a reduction in revenue, may not lead to the frustration of employees' employment contracts. As such, given the harsh result of frustration of contract to employees, it is likely that Courts will be skeptical of employers arguing frustration in circumstances other than mandated business closures.

It is not all bad news for employers and employees, however. As set out in our recent articles, COVID-19: An Overview of Federal and Provincial Aid Packages and Alberta Employment Implications and COVID-19: An Update to the Federal Aid Package Now Called the Canada Emergency Response Benefit ("CERB"), there are Federal aid programs for both employees (by way of the Canada Emergency Response Benefit as well as Employment Insurance) and employers (by way of the Temporary Wage Subsidy for Employers) who are experiencing loss of work or reduced business as the result of the COVID-19 crisis.

We understand that these are stressful times for employers and employees. Scott Venturo Rudakoff's employment group is here to assist employers and employees navigate the uncertainty surrounding layoffs and terminations created by the COVID-19 situation. Do not hesitate to call or email any of our employment law practice members if you have a question about your obligations as an employer or rights as an employee.

About Mackrell International - Canada - Scott Venturo LLP is a full service business law firm in Calgary, AB and a member of Mackrell International. Mackrell International - Canada is comprised of four independent law firms in Alberta, British Columbia, Ontario and Quebec. Each firm is regionally based and well-connected in our communities, an advantage shared with our clients. With close relations amongst our Canadian member firms, we are committed to working with clients who have legal needs in multiple jurisdictions within Canada.

This article is intended to be an overview and is for informational purposes only.