In a recent lower court decision in Ontario, the issue of frustration of contract was revisited. In the employment law context, a frustration of contract occurs when an unforeseen event renders one party incapable of performing the contract. Most often, a frustration comes into play as a result of a long-standing illness that prevents an employee from returning to work in the foreseeable future. Where an employer can establish a frustration of contract, it will be relieved from providing common law notice to the employee when the employment contract is terminated. In many provinces, however, employment standards legislation still requires statutory notice and severance pay (where owed) to be paid in the event of a frustration due to illness.
The issue of whether the employer had met the high onus for demonstrating a frustration due to disability was front and center in the case of Roskaft v. RONA Inc. The employee had been off work for almost three (3) years when RONA terminated the contract for frustration. RONA asserted that the medical evidence it had before it at the time of termination confirmed that the plaintiff was permanently and totally disabled from employment in any occupation and it was unlikely he would be able to return to work within a reasonable period of time. RONA brought a summary judgment motion to have the plaintiff’s wrongful dismissal action dismissed. The plaintiff argued that at the time of the termination RONA had not properly considered his ability to return to work.
The trial judge found that RONA was not entitled to rely on a letter from SunLife that simply said that the plaintiff was not able to return to work as proof that he was “permanently disabled”. However, the judge ultimately determined that SunLife’s decision to continue to extend LTD benefits and the representations of the plaintiff to SunLife that his medical condition had not improved such that he was totally disabled from performing the duties of any occupation allowed RONA to reasonably conclude that there was no reasonable likelihood that the plaintiff would return to work in the foreseeable future. As such, a frustration of contract was established and the plaintiff’s case was dismissed.
While this decision is good news for employers, it is important to note that being able to prove a frustration of contract in the employment context – especially on the basis of the insurer’s information alone – is the exception rather than the rule. Employers must proceed carefully when assessing whether the medical evidence supports a position that there is no reasonable likelihood that an employee will return to work in the foreseeable future before taking a frustration position and effectively denying the employee of his/her common law reasonable notice entitlements.
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