BC Court finds, in class action, that local hotel constructively dismissed employees during the COVID-19 pandemic

In Escobar v. Ocean Pacific Hotels Ltd., 2024 BSC 1575, the British Columbia Supreme Court held, in the context of a class action, that a Vancouver hotel had fundamentally breached its employment contracts when it halted scheduling shifts for hourly employees during the Covid-19 pandemic.

Background

The defendant operates the Pan-Pacific Hotel (the “Hotel”) in Vancouver, where it employed over 440 employees, in both salaried and hourly roles. The employment contracts entered into by the hourly employees stipulated that employees must be available for any shifts, including nights, weekends, and holidays. It also included a clause stating employees’ hours could be increased or decreased based on the business needs of the Hotel.

The Hotel was significantly impacted by the economic downturn associated with the Covid-19 pandemic, with occupancy falling from approximately 80% to less than 1%. To cut costs in March 2020, the Hotel laid off salaried employees, ceased scheduling shifts for hourly employees, and eventually moved to a reduced operation model in which few employees received work. For most of the Hotel’s regular hourly employees, the cancellation of shifts was indefinite.

The plaintiff, Romuel Escobar, was a senior concierge at the Hotel. Mr. Escobar initiated a class action on behalf of regular hourly employees of the Hotel who had stopped receiving regular shifts from the defendant on or after February 20, 2020, and never resumed regular shifts. He claimed that the actions of the defendant met the first part of the test for constructive dismissal (with the second part of the test to be determined at each class member’s individual issues trial).

1. The employer imposed a unilateral change that constituted a fundamental breach of the contract; and,

2. The employer’s conduct would lead a reasonable person to conclude that the employer no longer intended to be bound by the terms of the contract.

Constructive Dismissal

The court reviewed the test for constructive dismissal; it occurs when an employer has not formally terminated an employee, but through their conduct has failed to uphold the employment contract, such that an employee can treat the employer’s conduct as repudiation of the contract and sue for wrongful dismissal. The Supreme Court of Canada set out a two-part test for constructive dismissal:

In the present case, Mr. Escobar argued the defendant altered a fundamental term of the class members’ employment contracts when it stopped assigning shifts, as the essence of an employment contract is the exchange of work for money. In general, British Columbia caselaw supports this assertion; a unilateral cessation of work is considered a substantial change in employment unless the employer and employee have an agreement to the contrary.  

The court considered whether the wording of the contract allowed for unilateral and indefinite cessation of work.  In considering whether the plain wording of the contract allowed the Hotel to cut employee hours, the court stated:

“It is not appropriate to interpret the term that hours may be increased or decreased due to business demand to provide that Ocean Pacific can decrease hours to zero indefinitely. That interpretation would amount to requiring the employee to be available for full time employment while Ocean Pacific is not providing any employment or pay indefinitely. That interpretation is not required by the words of the contract, and would exacerbate the power imbalance between the employees and the employers.”

The court also considered the impact of previous events that affected the Hotel’s business: the SARS outbreak, the 9/11 attack in New York, and the 2008 financial crisis, finding that employee hours were not decreased to zero in any of these circumstances. Accordingly, neither the plain meaning of the contract nor the previous conduct of the defendant supported the proposition that the contract allowed the employer to indefinitely eliminate employee shifts. Thus, the defendant’s actions were a fundamental breach of the contract.

Reasonable Notice

The court also considered whether class members’ notice entitlements should be increased because of the impact of the Covid-19 pandemic.  The court held that if class members established they had been constructively dismissed, the common law reasonable notice period would be lengthened in consideration of the difficulty the employees faced in finding similar employment during the pandemic.

Key Takeaways

This case exemplifies how employment contracts may be interpreted in favour of the employee, in recognition of the inherent power imbalance in employment relationships. This case also demonstrates that an employer’s conduct, even where motivated by valid and significant financial or business reasons, can constitute a constructive dismissal resulting in the employer being held liable to pay damages for wrongful dismissal.