Frustration of contract is a legal concept that allows the parties to end a contract where an unforeseen event occurs that fundamentally changes the parties' ability to perform the terms of the contract.
A contract of employment will be frustrated where the contract becomes impossible to perform, at no fault of either the employee or the employer. When frustration of contraction occurs, the employee is only entitled to minimum statutory entitlements under the Employment Standards Act, 2000, and not common law notice. To learn more about the difference between common law notice and statutory entitlements, read my previous article here.
A contract of employment may be frustrated where the employee is suffering from a long-term disability which has caused, or will cause, the employee to be medically unable to perform any role with their employer for an extended period of time.
Employers should carefully assess the facts before claiming frustration of contract due to an employee's disability. An employer who wrongfully claims frustration of contract can face significant damages for wrongful dismissal and damages pursuant to the Ontario Human Rights Code.
Legal Test and Analysis
Whether a disability frustrates an employment contract depends on the facts of each case. A contract of employment will only be frustrated by disability where that disability is permanent in nature. If there is evidence that a disability may be temporary, then the contract of employment is not frustrated.
In determining whether an employment contract has been frustrated by virtue of a disability, the Court in Roskaft v. RONA Inc., 2018 ONSC 2934 ruled that the central question is: whether at the time of the Plaintiff's termination of employment there was no reasonable likelihood that they would be able to return to work within a reasonable period of time.
There is a misconception that an employer can claim frustration of contract where an employee has been absent from work and in receipt of Long-Term Disability (LTD) benefits for a two-year period. Despite this common belief, the "two years" threshold should not be relied upon. The decision in Naccarato v. Costco, 2010 ONSC 2651, confirms that the central question in assessing frustration of contract is whether there is evidence of a permanent disability with no reasonable likelihood that the employee will be able to return to work in the foreseeable future, not the amount of time that an employee has been absent from work.
In Naccarato, the employee had been absent from work for five years due to illness or injury, and the employer claimed that the employment contract had been frustrated. However, the Court found that the plaintiff had been wrongfully dismissed, as the employer failed to provide sufficient evidence demonstrating that there was no reasonable prospect of the employee returning to work in the foreseeable future.
Evidence of a Permanent Disability
The only relevant evidence is evidence of the employee's disability at the time of termination. Evidence of the extent of the employee's disability post termination will only be useful as it relates to the employee's condition at the time of termination.
Frustration may be available where there is medical evidence that states that an employee is "permanently" disabled.
In Rona the Court found the employee's contract of employment was frustrated as the employer could reasonably conclude that there was no reasonable likelihood the employee would be able to return to work. This conclusion was evident due to the fact that the employee continued to receive LTD Benefits, the employee continuously represented that his medical condition had not improved, and the employee remained totally disabled from performing the duties of any occupation.
Similarly, in Katz et al. v. Clarke, 2019 ONSC 2188, the Court concluded that the evidence was undisputed: the employee was unable to fulfill the basic obligations associated with the employment relationship for the foreseeable future. In such circumstances, the employer's duty to accommodate the employee in the workplace had ended. The medical documentation provided to the employer was clear that the employee could not return to work.
In Fraser v. UBS Global Asset Management, 2011 ONSC 5448, the Court confirmed that, absent a contract explicitly agreeing to employ an individual indefinitely despite an inability to work, an employment contract may be frustrated. The Court found that the employee was permanently disabled based on the prognosis of the treating medical team, and there was no reasonable likelihood of a return to work within a reasonable time.
As can be seen from these three cases, medical documentation and the employee's prognosis will be critical in establishing that the employee will not be able to return to work in the foreseeable future.
Conclusion
If you are an employer considering a frustration claim, or an employee whose contract was terminated on this basis, contact a member of our employment law group to review the evidence and advise whether frustration is legally supported in the circumstances.
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.
