When Can an Employer Consider an Employment Contract “Frustrated”?

frustration of contract

It is a reality of the modern workplace that there will be circumstances where an employee will be unable to work for the foreseeable future, with no return date in sight. We frequently receive calls from employer clients hoping that “enough” time has passed that they can consider the employment relationship to be at an end. Conversely, we also often meet with employees who are being met with constant demands from their employer for confirmation of a return date while they are still struggling through the slow process of recovery. An employee being away from the workplace for a significant length of time is often a frustrating experience for both employers and employees – but when will this situation actually result in the frustration of the employment contract itself?

What is “Frustration of Contract”?

Frustration of contract occurs when there is no reasonable likelihood that an individual will be able to return to work in the foreseeable future. As we noted in our earlier blog post on this topic, there is no specific time period after which, if an employee is still off work, the contract will be deemed to have been frustrated. Every case must be assessed on its own specific facts, and the medical evidence that is available.

Such an assessment was recently performed by the Ontario Superior Court of Justice in Roskaft v Rona Inc. In this case, the Plaintiff had commenced a medical leave of absence in 2012. He applied, and was approved for, both short-term disability (STD) and long-term disability (LTD) benefits with the employer’s insurance carrier, Sun Life. In December of 2014, Sun Life wrote to the employer and advised that the Plaintiff could not return to work. The employer also alleged that Sun Life’s letter concluded that the Plaintiff was “permanently” totally disabled in relation to both his own occupation and any occupation.

In September 2015, roughly three years into the employee’s leave, the employer determined, in reliance on the December 2014 letter from Sun Life and the absence of any other evidence, that it was unlikely that the Plaintiff would be able to return to work within a reasonable time. As a result, the employer advised the Plaintiff that it was terminating his employment as a result of the frustration of the contract.

The Plaintiff sued for wrongful dismissal, arguing that the employment contract had not, in fact, been frustrated, and noting in particular that the employer had not properly considered the possibility of his return to work, as they had not attempted to obtain any information from him in this regard. In fact, he argued that at the time of his dismissal he was actually starting to feel better. To dispute this, the employer attempted to rely on medical documentation that the Plaintiff had submitted to Sun Life following his termination, wherein he stated that his medical condition had not improved.

The Plaintiff argued that this evidence could not be relied on, as prior case law has made it clear that frustration of contract is established “with reference to the time of dismissal”. An employer is not entitled to rely on post-termination evidence of the employee’s disability unless it would “shed light on the nature and extent of the employee’s disability at the time of an employee’s dismissal.”

The Decision

The Court allowed the post-termination evidence to be considered, noting that it did “shed light on the nature and extent of the employee’s disability” at the time of his dismissal. In this regard, the medical documentation submitted by the Plaintiff post-termination directly contradicted his evidence that if either the employer or Sun Life had asked for further medical evidence at the time of dismissal, it would have demonstrated that he was capable of returning to work.

The Court went on to note that while the employer was not entitled to rely exclusively on the December 2014 letter from Sun Life to conclude that the Plaintiff was permanently disabled, there was enough evidence overall at the time of dismissal to justify the employer’s conclusion that the contract had been frustrated. This evidence included: Sun Life’s decision to allow the Plaintiff to continue receiving LTD benefits, the Plaintiff’s continued representations that his medical condition had not improved and he was “totally disabled from performing the duties of any occupation”, and his continued receipt of LTD benefits.

The employer’s determination that the employment contract had been frustrated was thus found to be reasonable, and the Plaintiff’s claim for wrongful dismissal was dismissed.   

Key Takeaways

The decision in Roskaft seems to suggest that an employer may be able to allege frustration of contract based on an insurer’s determination of an employee’s ongoing disability, coupled with the employee’s continued receipt of LTD benefits. However, employers should remember that there are no hard and fast rules for determining when a contract of employment has been frustrated, and no specific amount of time that the employer must wait. There will be cases in which it may be clear very early on in the employee’s leave that they will never be able to return to work (such as in cases of catastrophic injury). There will also be cases where the possibility that an employee will recover in the foreseeable future will remain reasonable for several years.  

Each case will be decided based upon its own particular facts and the medical information available. Employers are encouraged to seek legal advice before attempting to allege frustration of contract. Any employees who are in doubt about their rights while away on a leave of absence from the workplace should not hesitate to contact us to see how we may be of assistance.

Brittany Taylor

Since being called to the Ontario Bar in 2013, my practice has been dedicated to assisting both employers and employees to manage their workplaces. My approach to workplace issues is one that is pro-active and preventative. I take great satisfaction in assisting employees and employers to identify and deal with potential issues before they have an opportunity to evolve into serious headaches for both parties. I also take great pride in acting as a vigorous advocate on behalf of my clients, whether at the bargaining table or beyond to the trial stage.