Can employment contract be frustrated by COVID-19?

Dear Mirror Lawyer, I am an employee of a private company in Tema. I was employed by the company four years ago. In the past few months since Ghana started experiencing the effects of COVID-19, I have been going to work.

During the lockdown I was working remotely from home. Just last week, my boss informed me that the company can no longer pay me because of the impact of COVID-19. She added that my services would no longer be required because my employment contract has been frustrated.

I would be very grateful if you could explain what this means and whether it applies to my situation.
 Edwina Jackson, Tema

Dear Edwina, The doctrine of frustration is one way by which parties to a contract are discharged from their obligations under the contract. What this means is that parties are no longer in a contract with each other.

A contract is said to be frustrated when there is an unforeseen event which makes the performance of the contract impossible, illegal or radically different from the performance which was contemplated by the parties under the contract.

It is, however, important to point out here that it is not just any change in circumstances that leads to frustration but rather an unforeseen event which makes it such that if obligations under the contract were to be performed, they would be fundamentally different from what the parties had in contemplation.

In determining whether there would be a fundamental change in the performance of the obligations of the parties, the court in the case of  Barclays Bank v Sakari [1996-97] SCGLR 639), looked at the nature of the obligation to be performed. Therefore, where the parties have their obligations and there are external unforeseen circumstances, as long as those circumstances do not change the nature of the obligations, the contract is not frustrated.

The effect of frustration is that it brings the contract to an end. Therefore, parties no longer have any future obligations under the contract.

However, parties are required to fulfil their obligations which have accrued under the contract before the contract became frustrated.

Thus, in the case of Barclays Bank v Sakari [1996-97] SCGLR 639), the court held that a serious inconvenience, hardship, financial loss or even a delay in the performance of a contract is not in itself sufficient to frustrate a contract.

This is because as long as these factors do not completely alter the nature of the obligation to be performed or the performance of it, the contract is not frustrated.

In the same case, the court held that the question whether a contract has been frustrated is an issue for the determination of the court, taking into account the contract in relation to the nature of the obligation created on the parties.

The question in this situation is whether as a result of the ongoing COVID-19 pandemic, the inability of an employer to pay an employee can lead to the frustration of the employment contract.

According to Section 9 (b) of The Labour Act, 2003 (Act 651) an employer has a duty to pay for work done whereas Section 11 (a) of the same Act imposes a duty on an employee to work conscientiously in the job that he finds himself.

While the impact of COVID-19 on businesses cannot be understated, it cannot be said to radically alter the

nature of the obligation of an employer to pay employees who had already rendered their services to the employer.

 It definitely may result in some hardship or even a delay in the performance of this obligation. It, however, does not alter the nature of the obligation of employers to pay employees.

As long as work has been done by employees, they are required to be paid. The unfortunate situation as a result of the pandemic cannot be used to relieve an employer of that duty.

Consequently, the inability of an employer to pay an employee as a result of the COVID-19 pandemic generally does not result in the frustration of the contract.

However, if as a result of the pandemic, the employer’s business collapses and is unable to make money to support the business or pay the staff for the future, a factor which the parties did not foresee at the time they entered into the contract, frustration would be said to have set in and the parties would be relieved from further performance of the contract.

A classic example is the airline and hospitality businesses where because of the closure of borders of countries and the ban on social activities and gathering as a result of the pandemic, airlines have been grounded and hotels/ restaurants are closed for lack of guests for businesses and conferences.