Force Majeure Clauses: Part of Your Emergency Toolkit

Written by Daniel Standing, LL.B., Editor, First Reference Inc.

Force majeure clauses are commonly included in commercial agreements to reduce the effect or risk of disruptive events that are beyond the control of the contracting parties. The concept of force majeure is related to the contract law doctrine of frustration since they both deal with the implications of an event that affects a party’s ability to comply with the contract. Force majeure provisions are distinct, however, in that they seek to define the types of events that qualify as force majeure, and they should define the contractual consequences that flow from the event.

For a look at how force majeure could apply in a unionized work setting, this article will consider Salade Etcetera! Inc. and UFCW, Local 1518 (Overtime Pay), Re, 2021 CarswellBC 2347. When the COVID-19 pandemic reduced the company’s workforce and jeopardized its ability to fulfill its customers’ orders, the company offered overtime to keep the ship afloat. But was this a force majeure that would allow the company to pay a reduced overtime rate? Read on to find out.

Key facts

Food retailers in Canada rely on the timely delivery of fresh ingredients so that they can meet their customers’ demands. Salade Etcetera! delivers ingredients to retailers nationwide. Time is of the essence in this industry, and orders must be turned around in as little as three business days. Salade Etcetera! meets its demand using a centralized ordering and delivery system that coordinates its facilities in Clearwater, BC and in Sherrington, PQ.

Fresh produce is a competitive field where companies continually vie for each other’s business. Striving to minimize disruptions to production is, therefore, a critical goal. When the Clearwater facility learned that some of the Sherrington employees tested positive for COVID-19 on January 11, 2021, it was concerned. The scale of the problem became known two days later when Clearwater learned that 40 percent of Sherrington’s workforce was infected and unable to work. More than 1600 shifts were missed, leading to an unexpected surge in work at the Clearwater facility just to complete existing unfilled orders.

On January 13, the employer simply told the union, “Just a heads up, we are requesting overtime on Jan 16th.” Thirty employees each worked five hours of overtime on January 16, a Saturday. This raised the question of the proper pay rate under the collective agreement. Was it the double-time rate for working “on a regularly scheduled day of rest?” Or could the employer take advantage of the article that paid time-and-a-half in instances of unanticipated schedule changes “in the event of emergencies and/or acts of God, and the breakdown of machinery or other instances of force majeure?”

The decision

The meaning of an emergency or an instance of force majeure was central to the decision. As in any interpretive exercise, the plain meaning of the words used in the contract is the starting point. The arbitrator noted that the contract allowed the employer to fix work schedules, subject to certain conditions as set out in the collective agreement relating to “basic workweek,” “work shift,” overtime premiums, schedule changes and rest periods.

The double-time premium was, in the arbitrator’s view, a disincentive to the employer requiring an employee to work on a weekend in the normal course of business. On the other hand, the force majeure provision was said to give the employer partial insurance against the risk that the employer could not reasonably avoid having to schedule work on a day of rest.

Against the backdrop of the Alberta Court of Appeal’s statement that force majeure clauses protect parties from events “outside normal business risk,” the arbitrator considered numerous arbitration cases where employers tried to invoke emergency provisions of one type or another. A variety of keywords and catchphrases used in these cases paint the picture of an urgent situation that was not reasonably foreseeable and could substantially disrupt operations. Force majeure is to be assessed in light of a “proximate event,” not the “ultimate cause.” The force majeure cases also require an employer to do everything within its power to avoid having to contend with the problem. Turning back to this case, the arbitrator determined that Salade Etcetera! took all reasonable steps to avoid having to schedule employees on Saturday. Its January 13 email was in anticipation of problems on the horizon. It did everything it could to meet existing orders before the weekend, but attendance was worse than predicted on the preceding Thursday and Friday, making that impossible. The Saturday work assignment was not a situation of Coldwater assisting Sherrington in the ordinary course of business. This was an emergency. While the ultimate cause was the COVID-19 pandemic, the proximate cause of the emergency was the need to fulfill the existing orders at the Coldwater facility on January 16. Therefore, the union’s grievance was denied and the employees were eligible to be paid time-and-a-half, not double-time.

Takeaways

Cases of this nature are extremely fact-specific and, because of the nature of an emergency, often present little opportunity for planning or taking preventative measures, let alone discussion with the other contracting party. Before seeking to rely on a force majeure clause, an employer would do well to have contingency plans in place to deal with foreseeable emergencies. A willingness to explore creative solutions to other unforeseen situations is also a necessity. When all else fails, a force majeure clause can save an employer from what would otherwise amount to liability for breach of contract, so long as it has done what it can to avoid the situation. Consider including one in your next contract. It could save a lot of headaches, and potentially a lot of money.