Canada: Do Employers Have An Obligation To "Frustrate" An Employment Contract?

Employment contracts can be considered "frustrated" when an unforeseeable event occurs that makes it impossible to fulfill the terms of the contract. Where frustration occurs, an employer can end the employment relationship without any liability other than what is required under statute. Under Ontario's Employment Standards Act, 2000, employees are entitled to statutory termination and severance pay if their employment contract has been frustrated by injury or illness.

The decision to terminate an employment contract on the basis of frustration is often challenging for employers as it is difficult to pinpoint when the contract can be considered frustrated. Where challenged, these decisions can expose employers not only to common law damages, but also human rights claims. As a result, where an employee is on leave as a result of injury or illness, employers are often advised to wait until a significant period of time has passed before relying on frustration to end the employment relationship.

However, a recent decision of the Ontario Superior Court of Justice has held that employers may have an obligation to consider an employment contract frustrated much earlier in an employee's leave. In The Estate of Christian Drimba v Dick Engineering Inc., 2015 ONSC 2843, the Court considered the doctrine of frustration in the context of an employee who was unable to work due to illness, and passed away shortly thereafter.

Mr. Drimba worked for the defendant for 17 years. In June 2013, he commenced a leave of absence after being diagnosed with terminal cancer. Following the diagnosis, the defendant urged Mr. Drimba to apply for group insurance benefits and confirmed that his employment would continue until he was well enough to return to work. On September 17, 2013, Mr. Drimba passed away.

At issue for the Court was whether Mr. Drimba's contract of employment was frustrated by illness prior to his death such that statutory termination and severance pay were owed to his estate. Counsel for Mr. Drimba's estate argued that given the seriousness of the illness, the defendant ought to have known that Mr. Drimba would never be able to resume employment. On that basis, Mr. Drimba's estate submitted that the employment contract had been frustrated by illness prior to Mr. Drimba's death such that termination and severance pay under the ESA were owed.

The defendant countered that Mr. Drimba's employment was severed only by his death and, as a result, no termination or severance pay was owed to his estate. The defendant submitted that the ESA contemplates severance of employment as the unilateral initiative of the employer. In this case, the defendant took no action to terminate Mr. Drimba's employment having expressly confirmed that his employment would continue. Further, the defendant argued that, by submitting claims under the disability policies available to employees, Mr. Drimba clearly intended that his employment would continue after his diagnosis.

The Court disagreed with the defendant and held that, although it was not possible to identify a precise point in time, Mr. Drimba's contract of employment was frustrated by his illness prior to his death. Accordingly, Mr. Drimba's estate was entitled to termination and severance pay under the ESA. The Court went out to find that, while it was generous of the defendant to keep Mr. Drimba's position open for him, given the seriousness of the diagnosis, the defendant ought to have known that Mr. Drimba would not be returning to work and that the contract of employment had become impossible to perform.

This decision is concerning for employers in Ontario as it creates a potential obligation to consider an employment contract frustrated where an employee is unable to return to work due to a critical illness. It is important to note however that in its decision, the Court relied on the employer's knowledge of Mr. Drimba's diagnosis and the severity of the illness in finding that the employment contract was frustrated. This result can likely be distinguished from situations where an employer is unaware of an employee's particular illness or where the severity of the illness is not as apparent.

When faced with these difficult situations, employers should remain mindful of the risks associated with attempting to terminate an employment relationship on the basis of frustration and consider each employee's circumstances on a case-by-case basis.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.