Covid-19 Layoffs in BC – what are the rules?

*This blog was revised effective March 22, 2020. *

We are starting to see the economic impact of Covid-19 in BC, with industries like travel and many others in crisis over the course of one week.  Layoffs are already happening, and more are expected.  What the rules?  The rules about temporary layoffs have been well-established in BC for many years.  We are all anticipating that there could be changes coming, but as of March 22, 2020, no new law or policy has been rolled out.  With our courts closed, it will be some time before we will be able to predict how judges will view this issue, taking into account Covid-19’s health and economic impacts.

(The blog is relevant only to non-union workers in provincially regulated industries in professions/occupations/industries covered by the Employment Standards Act.  This information will apply to most non-union workers in BC.)

  1. Layoffs (permanent or temporary) generally trigger severance pay

In almost all employment relationships, it has long been the law that a temporary or permanent layoff triggers a worker’s right to severance pay and so is the same as termination, being “let go”, or “getting fired.”  The primary exceptions to this have been temporary layoffs in industries where temporary layoffs are the norm, if you have a written employment contract that includes the right to temporary layoffs, or if the employee agrees to the temporary layoff.  If permitted, 13 weeks is the longest a “temporary layoff” can be per the Employment Standards Act before termination pay must be provided.

But what if Covid-19 has made the contract of employment “impossible to perform”?  Read on.

  1. Economics or financial circumstances of the business are not relevant, unless the employment contract is “impossible to perform” or the contract has been “frustrated”

To date, economic circumstances of the business have not generally been taken into account in determining whether or how much termination notice or pay is owed.  Even if a business was closing, termination notice or pay was required, and the amount was not impacted.  Now there is a question of whether a little-used section of the Employment Standards Act might apply to relieve the requirement for termination notice or pay for some businesses impacted by Covid-19.  Section 65(1)(d) of the Act states that notice of termination or pay in lieu is not required when the employment contract is “impossible to perform due to an unforeseeable event or circumstance.”

We have not received any guidance from the BC government on how this exception might apply.  In New Brunswick, the government has issued a statement saying Covid-19 is an unforeseeable event under the language of the NB Act.  If Covid-19 is similarly considered an unforeseeable event under our BC Act, the employer would still have to prove that the contract was “impossible to perform.”  Impossibility is a high standard, and while it could be met for a business ordered to shut down, it may not apply where a business still has work and is rolling out layoffs in anticipation of future work slowing.

Section 65(1)(d) of the Act only applies to determine whether the minimum termination notice or pay of up to 8 weeks is owed under the Act.  It is difficult to predict whether our courts will also find a way to relieve businesses from common law severance pay obligations.

There is speculation about whether Covid-19 may cause a “frustration of contract”.  Frustration occurs in employment contracts where through no fault of the employee or the employer, the essence of employment (work in exchange for pay) is impossible. Prior to Covid-19, uncertain economic conditions or employer finances were not considered a “frustration of contract” to justify dismissal of an employee without notice or severance, but it is hard to predict what our courts will do in future with this.

  1. How much notice of termination or severance pay is owed?

For most non-unionized workers, the amount of notice of termination or severance pay owed is based on the Employment Standards Act minimums, plus an additional amount for common law notice (unless limited by a valid contract).  If an employer can prove it is impossible for the employment contract to be performed due to unforeseen circumstances, we may see the Employment Standards Branch, and even possibly our courts, finding no termination or severance pay is owed.  If the “impossibility” standard is not met, then we expect the usual rules for calculating how much the employee gets will apply, which are summarized below.

Section 63 of the Employment Standards Act applies to set the minimums for notice of termination/severance pay, ranging from zero for workers who have been employed less than 3 months, to 8 weeks for those with 8 years or more of employment.  Section 65 of the Employment Standards Act has higher notice requirements for group terminations of 50 workers or more.

Written employment contracts can put a cap on the amount of notice of termination or severance pay, but many contracts are invalid.  Some common reasons for contracts failing are (1) if the contract was not signed before the employee started and nothing new was provided in exchange for signing the contract, (2) if the termination clause is vague or poorly worded, or (3) if the termination clause could fall below the Employment Standards Act minimums at any point.

If there is no valid employment contract, common-law notice/severance pay is applicable.  The amount is determined based on the worker’s age, length of service, nature of their job and availability of alternative employment.  As explained above, the financial circumstances of the business are not generally considered in determining the amount owed.  In the event of an extreme industry downturn, there actually may be more notice or severance pay owed since the availability of alternative employment is considered.

Employees who are laid off have a duty to mitigate.  That means they have to take reasonable steps to look for a new job, and whatever they are owed in common-law severance would be reduced by earnings from new employment during that severance period.  Most of these cases never get to court, but mitigation is a key factor in negotiating packages.

  1. What about working notice?

Employers are allowed to give working notice, which is a notice of termination at a specific future date.  If they give enough advance notice, or the worker quits before their last day, no further severance pay is owed.  This can be a cost-effective way for businesses to roll-out layoffs, as the workers continue to perform work and add value during the working notice period.

  1. Economic circumstances may impact severance pay negotiations

While there is some uncertainty in whether the economic circumstances of the business will be taken into account in determining whether severance is owed, the practical reality is that businesses and workers may be able to agree to a severance package that is fair in the circumstances.  If the business is truly unable to pay the amount of severance that might be owed, workers may decide to accept this and agree to less so that they at least get paid something.

This blog is not intended to serve as legal advice, and only provides general information.

Every situation must be considered on its own facts. Need legal advice? Contact me [email protected].

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