mar. 20. 2020

No frustration where employer eventually re-opened following fire

Craig Manufacturing Ltd. v. Davidson, 2009 NBCA 42 (CanLII)

Summary: The plaintiffs’ employment contracts were not frustrated when the employer’s business was destroyed by fire but eventually re-opened in a new facility.

Background: On May 7, 2005, the employer’s 43,000 square foot complex was destroyed by fire. At that time, the employer had approximately 85 employees.

Shortly after the fire, the employer announced its intention to rebuild. A new 71,000 square foot factory was built using the insurance proceeds and other funding. By February 6, 2006, the employer had recalled most of its employees, returning to approximately 85 employees in total.

The plaintiffs, however, were not recalled to work following the fire. Instead, the plaintiff’s were dismissed as follows:

  • Mr. Davidson, an engineering draftsperson, on July 12, 2005;
  • Ms. Markey, an engineering assistant, on September 23, 2005; and
  • Mr. Delong, an oxyfuel operator, on September 22, 2005.

The plaintiff’s brought a wrongful dismissal action. The employer defended on the basis that the employment contracts had been frustrated due to the fire.

Issue: Were the plaintiff’s employment contracts ‘frustrated’?

At Trial: At trial, the New Brunswick Court of Queen’s Bench found that these facts were distinguishable from an earlier Saskatchewan decision where a fire had destroyed a business. In the earlier case, the fire caused the business to close permanently. On this basis the employment contract was frustrated, having been terminated through no fault of either party.

In the present case, however, the Court noted that the employer’s business had not shut down permanently. Instead, despite the temporary closure and rebuilding, it continued to be a viable business. As a result, the trial court concluded that the plaintiffs’ employment contracts had not been frustrated:

I find that after the fire Craig was much more than “nothing but rubble”. It was a viable business. In view of the continuation of the Craig business with a similar sized work force after rebuilding, in my opinion the plaintiffs’ employment contracts were only temporarily and partially suspended by the fire, not legally “frustrated”.

On Appeal: The employer appealed the trial judge’s decision regarding frustration. The New Brunswick Court of Appeal noted that the trial judge had found that there was no frustration “because the appellant’s business was still a going concern after the fire.” The appellate court agreed that this was a reasonable inference for several reasons, including because:

  1. A significant number of employees were kept on the payroll and worked out of temporary facilities immediately following the fire in order to honour prior business commitments;
  2. The appellant’s strong network of clients – secured over many decades of successful business operations – was intact despite the destruction of the plant and, as a result, the business itself remained viable; and
  3. Shortly after the fire, employees were informed that their absence from work was temporary as the plant was insured against fire and management was doing everything in its power to resume full production without delay and to call employees back to work as soon as possible to perform the tasks they performed prior to the fire.

The Court of Appeal agreed with the trial judge’s determination that there had been no frustration at law. Rather, despite the destruction of the employer’s premises, the purpose of the employment contract could continue to be fulfilled:

[11] [I] t is indisputable that those facts and inferences do not open the door to a finding of contractual frustration. To use the words reproduced above, it is obvious that all stakeholders considered that “the substantial object that they had in mind” was still attainable despite the destruction of a building and that the “original and common design” of the parties could still be fulfilled…

Author: Brendan Harvey is an employment lawyer in Vancouver, BC practicing on the North Shore with Yeager Employment Law.