UK: Frustrating Employment Contracts

Last Updated: 17 January 2001

Where a contract of employment is frustrated it is terminated by operation of law and there is no dismissal. Consequently, the employee is unable to make a claim for unfair dismissal. It follows that in unfair dismissal cases it benefits the employer to assert that the contract has been frustrated and for the employee to allege that it has not. Frustration occurs where 'without default of either party a contractual obligation has become incapable of being performed'.

Essential Facts Necessary To Frustrate A Contract

  • There must be some external change in a situation that is not foreseen or provided for by the parties at the time of contracting that either makes it impossible for the contract to be performed at all or at least renders its performance radically different from that which the parties originally contemplated
  • This external event changes the situation and must have occurred without the fault or the default of either party to the contract

The concept of fault in this context can lead to bizarre results. If the employee successfully argues that the 'outside event' was his or her fault, the result is that the employee is at least able to establish that he or she has been dismissed and therefore the tribunal will be able to hear his or her case of unfair dismissal. However, case law has held that a contract can be frustrated by employees receiving custodial sentences, even though the employee is at 'fault'.

In F C Shepherd & Co Limited v Jerrom an apprentice plumber was sentenced to imprisonment for a minimum of six months, maximum of two years, when his apprenticeship still had some 24 months to run. On his release from prison his employer refused to take him back. His employer alleged that his contract been frustrated. The Court of Appeal agreed. The contract was frustrated due to the imposition of the custodial sentence, even though the frustrating event arose due to the fault of the employee.

However, the question still arises as to how long a sentence of imprisonment needs be in order to frustrate the contract. This is a question of fact for the employment tribunal in every case. The fact that an employee is going to be absent from work for a period of time does not necessarily render the contract frustrated by operation of law in all cases.

A short sentence ought not to be treated as a frustrating event. In Chakki v United Yeast Company Limited the employment appeal tribunal took the view that in imprisonment cases the question of frustration has to be answered by asking the following questions:

  • looking at the matter commercially, when would it be necessary for the employer to decide about the employee’s future and (in this particular case) as to whether a replacement driver would have to be engaged?
  • at the time when the decision had to be taken what would a reasonable employer have considered to be the likely consequence of an employee’s absence over the next few months?
  • if in the light of this absence it appeared necessary to engage a replacement, would it be reasonable to engage a permanent replacement rather than a temporary one?

Application To The Facts

Whether a contract has been frustrated depends upon the length of time the person will be in custody. The longer the period of time the more likely it is that the contract is frustrated. Where the contract is frustrated, employment can be terminated without notice and without risk of an unfair dismissal claim.

Where a short sentence is imposed, the employer may have to rely on the defence of 'some other substantial reason', if an employee brings an unfair dismissal claim. The employer will need to show that it acted reasonably in all the circumstances.

The case of Kingston v British Railways Board 1984 IRLR 146 makes it clear that the nature of the offence is relevant as well as the length of the sentence when determining whether the dismissal is fair. The employment appeal tribunal supported the employment tribunal's finding that it was fair to summarily dismiss a man who received a three month custodial sentence for assaulting the police at his workplace. Although the appellant had been dismissed without any application of ordinary disciplinary procedures, this did not render the dismissal unfair.

Bailey v BP Oil (Kent Refinery) Limited made it clear that although disciplinary procedures are matters which employment tribunals and employers should always have fully in mind, whether or not they are applied in any given case must depend upon the circumstances of each case. In Bailey the employment appeal tribunal correctly held that since the appellant was in prison the ordinary disciplinary procedures could not have been followed.

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.

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