Can an Employment Contract Be Terminated Due to Force Majeure as a Result of COVID-19?

Due to the emergency caused by COVID-19 at all labor and business levels, a concern has arisen as to whether force majeure may be invoked to terminate an employment contract without paying any additional amount for unfair dismissal or severance. Force majeure is a legal concept defined by Article 30 of the Civil Code as “an unforeseen event that cannot be resisted.”

In this regard, numeral 6 of Article 169 of the Labor Code establishes that a contract may be terminated due to “fortuitous event or force majeure.” This provision mentions: fire, earthquake, storm, explosion, crop pests, war, “and, in general, any other extraordinary event that the contracting parties could not foresee or, if foreseen, could not avoid.” In this sense, COVID-19 could indeed be considered a case of force majeure.

However, there are divided opinions regarding the initial concern. Ecuadorian case law has not considered force majeure as an exemption from the payment of this type of compensation, even when the business stopped operating and closed completely. This occurred, for example, in cases involving mass dismissals due to the closure of casinos in Ecuador after such activity was prohibited by a popular consultation. The judiciary ordered gambling companies to pay dismissal compensation, although in practice this did not materialize due to business bankruptcy.

Other views are less radical and consider that the employment contract may only be terminated if the company is unable to continue operating; that is, if it must close and completely cease its activities due to the emergency. The employer could not terminate the contract of one person or a small group of employees by invoking force majeure or fortuitous event while another group of employees continues under contract. This would show that the company’s work has not been rendered impossible, since part of its workforce remains active.

In this sense, great care must be taken when considering force majeure as a total exemption from the payment of additional compensation for unfair dismissal or severance. The final decision will rest with a judge in relation to a specific case, even though both the Civil Code and the Labor Code define the situation caused by COVID-19 in the economy and in businesses.