Frustration of Employment Contracts

Frustration of an employment contract is a remedy available to employers when the circumstances of the contract have changed so dramatically that further performance of the contract would be impossible or radically different.  In these situations, and where one party claims frustration, the contract is terminated and there is no liability.  

Through frustration of contract could occur for a number of reasons, we most often see it in cases where an employee is unable to return to work for one reason or another.  Court cases throughout Canada appear to be in agreement that frustration of contract may occur where a permanent disability is at play.  Where an employer seeks to terminate an employee for frustration of contract, the onus is on the employer to prove that frustration of contract has occurred.¹

Though a British Columbia decision suggests that the general period of time in which frustration will occur is somewhere between 18-24 months,² there is no hard and fast rule and frustration may occur outside of that time range. Where frustration of contract occurs, the employer is obligated to pay to the employee the statutorily imposed minimums and severance pay.³  However, if frustration of contract is proven, the employer is not obligated to pay out the common law notice period.

Frustration and Disability Benefits

As frustration of contract most often occurs while an employee is off work on disability, it’s interesting to note that the existence of Long Term Disability Benefits and Short Term Disability Benefits in the employment contract suggest that frustration of contract will be harder to prove. In at least one Ontario case, the court noted that the existence of LTD and STD benefits suggested that the parties had contracted for and anticipated that the employee may be off for a period of time with a disability.⁴  

In sum, a permanent disability may provide opportunity for an employer to terminate an employee based on frustration of contract.  However, there are certain factors that must be taken into consideration, including: the potential to return to work, the length of the time the employee has been off work and the existence of disability benefits.  Each case is different and the surrounding circumstances are integral in determining whether frustration of contract has occurred. 

 

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1 Naccarato v Costco Wholsesale Canada Ltd., [2010] OJ No. 2565 (Ont. SCJ)

2 Demuynck v. Agentis Information Services Inc., 2003 CarswellBC 93 (BCSC)

3 Ontario Nurses Association v Mount Sinai Hospital (2005), 75 OR (3d) 245 (ONCA)

4 Dragone v. Riva Plumbing Ltd., 2007 CarswellOnt 6177