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Pandemic did not nullify all employment contracts at pub, says B.C. court

by HR Law Canada

A pub’s argument that the COVID-19 pandemic frustrated all of its employment contracts, both at common law and under the Employment Standards Act, has been shot down by the Supreme Court of British Columbia.

The Shady Tree Neighbourhood Pub in Squamish, B.C., closed on March 17, 2020, and remained closed until the summer of 2022.

On March 20, 2020, B.C.’s Provincial Health Officer, Dr. Bonnie Henry, issued an order that allowed establishments such as the pub to stay open — but only for take-out and delivery service. Numerous orders were subsequently issued by the province, making tweaks to the policies.

On May 15, 2020, it allowed for standing and seated service with restrictions, including a maximum of six people at one table; a minimum distance of two metres between tables; and maximum capacity of 50 per cent.

At least 14 pubs and restaurants in Squamish re-opened for business, and “most of them” were of similar or smaller size than the Shady Tree Pub, the court said.

Eivind Tornes, the pub’s owner, said he couldn’t reopen because the physical dimensions of the kitchen prevented staff from maintaining a safe distance from each other.

Previous cases on frustration

The court noted that, “rather remarkably,” there was only one reported B.C. Supreme Court case addressing the doctrine of frustration in the context of a wrongful dismissal claim.

In Verigen v. Ensemble Travel Ltd, a 2021 ruling, the worker’s employment as a business development director for an international travel agency co-operative was terminated following a temporary layoff when the business collapsed as a result of the COVID-19 pandemic, the court said.

In that ruling, the court distinguished between the employer’s “ability to perform” the contract of employment and “supervening events radically altering the nature or purpose of the contractual obligation.”

In Verigen, the court said Ensemble Travel chose to shut down the branch in order to cut costs and “better weather an ongoing storm.”

Such a choice could not and did not amount to frustration of contract, it ruled.

The same applied to the pub, the court ruled. It made a choice to remain closed when it could have reopened on March 20 (takeout and delivery) or May 15 (limited seating and standing). It pointed to emails exchanged with Marco Fanzone, the plaintiff in this case, and Tornes.

“My family and I are in self isolation to limit the exposure to the virus,” Tornes wrote.

In another email he told Fanzone “I have to feel safe where I am working so no one has been inside (the pub) since shortly after we closed, except my wife, and it will have to continue so, until all is safe from contamination and spreading of this virus.”

The court said it was not criticizing Tornes for his choice to keep the pub closed.

“He did what he thought was the most prudent thing for him and his wife in difficult circumstances,” the court said.

“It is clear, however, that even when most if not all of the other pubs and restaurants in the Squamish area re-opened, he chose not to follow suit, whether with or without renovations necessary to accommodate any COVID–19 health and safety policies developed by WorkSafeBC.”

Therefore, frustration of contract did not occur and he was liable to Fanzone for wrongful dismissal.

The court also noted that the same outcome occurred with former pub employees who started proceedings with the Employment Standards Branch to collect severance pay. Tornes said the branch had found him liable for severance payments to those employees in the aggregate amount of $10,000.

The wrongful dismissal case

Fanzone was a long-serving employee, with a little more than 23 years’ service with the pub.

He was 56 and worked as the general manager, and his salary was $80,000 per year. He sought 24 months’ notice, but the court settled on 20 months.

That set the baseline damages at $133,333.33, the court said.

Fanzone also received a gas allowance of $25 per month and a phone allowance of $50 per month, amounting to $500 and $1,000 respectively for the notice period. The court “arbitrarily” reduced those amounts by 50 per cent to “reflect the amount of those fringe benefits that would actually have been incurred as an employment-related expense had he still been working with the pub during that period.”

For mitigation, Fanzone did find a serving position at a local brewpub — and worked there from July 2020 to September 2021 before moving to Victoria to accept another position. He earned a total of $70,000 during the notice period, making his net damages about $64,000 before taking into account the Canada Emergency Response Benefit (CERB).

CERB payments and the Yates ruling

Fanzone received CERB payments totalling $13,500. The court noted that rulings had gone “both ways” on whether CERB should be deducted from notice periods. But it relied on the ruling in Yates v. Langley Motor Sport Centre Ltd. from the B.C. Court of Appeal, released on Nov. 29, 2022.

“Broader policy considerations and the purpose of the CERB program support the conclusion that these payments should not be deducted from damages awards,” it ruled in Yates.

“CERB was an emergency aid program designed to support Canadian workers who lost all or a significant portion of their income due to the COVID-19 pandemic. It is a matter between the individual and the appropriate authority and should not result in a windfall for the employer.”

Therefore, the benefits were not deductible from the $64,000 net damages.

Punitive damages

Fanzone sought $35,000 in punitive damages.

His counsel was critical of the conduct of Tornes in deliberating withholding statutory and common law severance; “illegally” using the pandemic as an opportunity to retire without having to pay severance; and allegations of theft around vacation pay and an allegation that a raise in pay for Fanzone was temporary when it was “not time limited in any way.”

The court said Tornes’ conduct “has been reprehensible in several respects and is deserving of rebuke.”

But care has to be taken in drawing the line between punitive damages related to conduct at time of termination and reprehensible conduct during the course of subsequent litigation.

Special costs, not punitive damages, would be a more appropriate way to address the issue, it ruled.

It awarded $64,000, declined to award punitive damages and said costs will be assessed on Scale B, unless one or more of the parties sought a different outcome.

For more information, see Fanzone v 516400 B.C. Ltd., 2022 BCSC 2089 (CanLII)

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