Frustration of an Employment Contract and Employee’s Rights in Ontario

Frustration of an Employment Contract and Employee’s Rights in Ontario


Welcome everyone, this is Amer Mushtaq from
You Counsel. Today we’ll talk about Frustration of an Employment
Contract and how does the Frustration of a Contract affect an employee’s Rights on Termination
or on the Frustration of Contract in Ontario. Frustration of Contract is a specific legal
term, we’ll explain what it means and then we’ll explain the impact of the Frustration
of a Contract on employees. Before we begin, we’ll provide you with
our usual disclaimer, that this course is not legal advice so, if you have any specific
questions you must contact a lawyer paralegal. So, what is the Frustration of a Contract? Frustration of a Contract is dependent upon
the occurrence of an unforeseeable event, that’s the first item that you want to remember. It has to be an unforeseeable event, and then
the result of that unforeseeable event is that one or both parties are no longer able
to perform the fundamental terms of their contract. One party or both cannot perform their fundamental
duties that were required from that contract and I’ll explain that a little bit more in
an example. And by virtue of that, if a contract is “Frustrated”
then both parties are relieved to perform that contract, and then they are relieved
of any liability. So, they’re not liable to each other for the
breach of the employment contract. That’s why it’s called the Frustration of
a Contract because the contract can no longer be performed without the fault of either party. So, let’s go back to this idea of the fundamental
terms of the contract cannot be performed. So, I’ll give you an example to explain that. Let’s say an employee was employed with a
company and his job or her job was to drive a forklift in the warehouse of that company
… that was the basic duty of that employee. An employee ends up in an accident and the
result of that accident is … let’s say, that the employee becomes paraplegic or gets
the kind of injuries that he’s no longer able to drive a forklift for the rest of his or
her life. So, in that situation because the fundamental
job was to drive a forklift, the employee can no longer do that, the employer can claim
that the employment contract is Frustrated, and the employee is not entitled to any common
law termination rights of any kind or cannot sue the employer for any damages that relate
to termination. So, that is a scenario in which the employment
contract may be considered to be Frustrated. So, the employment I want to mention that
all of the items that I mention about with respect to Frustration of any contract whether
it’s commercial or otherwise they apply to employment contract equally. What you want to remember is that if there
is a dispute, about whether a specific employment contract is Frustrated, the burden of proof
is on the employer. This is a bit of a technical thing but important
one. So, Burden of Proof means that it is an employer’s
job to prove to the court, to prove to the judge, that the employment contract is indeed
frustrated. It is not an employee’s burden to disprove
that there was no Frustration, it’s a technical thing, but an important one when you are a
trial and dealing with this issue. Okay, so what are the consequences if an employment
contract is Frustrated? I have mentioned some number one, is that
the employee will no longer be entitled to any common law rights of termination, which
is an important one, because if you have heard my previous lectures you know that if an employee
is dismissed from employment without cause he or she may be entitled to Common Law Notice,
which is a significant amount of money or which is significant amount of Length of Notice
that allows an employee to get back on his or her feet and look for another employment. So, Common Law Right on Terminations are no
longer available and also employee is not entitled to any other damages that may flow
from the termination of contract under common law. What the Frustration of Contract does not
change is an employee’s statutory terminations and severance pay, and this is important because
these rights remain in tact. And under Employment Standards Act in Ontario,
the legislation specifically provides that if an employee, employee’s employment contract
is Frustrated because of injury or illness the employee is still entitled to termination
and severance pay. So, the two items that are depleted are the
Common Law Rights on Terminations and any other Common Law damages relating to termination
but what remain intact is statutory Rights on Terminations. Let me give you some examples of when an employment
contract is Frustrated so, you can understand the application of this concept and some of
the common ways that it happens. One common example is obviously death, if
an employee passes away his or her employment contract is frustrated and so, he or she or
his estate or her estate is no longer entitled to Common Law Notice of Termination. Disability is probably the most common situation
in which an employer can claim that an employee’s employment contract is Frustrated. It could happen by virtue of a statute, if
government passes a legislation which because of the application of that legislation that
statute one or both parties are no longer able to perform their contracts then the employment
contract can be Frustrated. There could be some catastrophic events there
and foreseeable some pandemic that may occur and that may render one or both parties unable
to perform the fundamental terms of the contract and that may happen and then make the employment
contract Frustrated. But the most common example and the most common
occurrence of the Frustration of an employment contract is relating to disability and I’m
going to talk about this in a bit more detail so, you can understand the concept. Some of the examples in which an employment
contract is not Frustrated is loss of profits. The employer cannot come to the employee and
say, you know the company was expecting $20 million in profit and we did not make any
profit or we were we suffered a loss and therefore, we believe that the employment contract is
Frustrated, that’s not an unforeseeable event and so, it does not render an employment contract
Frustrated. Other economic challenges are also not a reason
for an employer to claim that an employment contract is Frustrated. Another part that you want to be clear about,
is that when a court finds that an employment contract is Frustrated, it must be such that
the fundamental terms cannot be performed at all. So, if for some reason. it makes it difficult for one party or the
other party or both parties to perform the fundamental terms of the contract, but they
are still able to do so, or it becomes more onerous to perform those duties, that does
not mean that the contract is frustrated. So, let’s go back to our example of the forklift
driver, if in that situation, let’s say the driver was not completely incapacitated to
drive, but let’s say because of the accident he or she got an ankle sprain and it’s causing
a bit more difficulty. It takes her longer to drive that forklift
and do the task that could have been done ordinarily in a shorter amount of time, then
that’s not a sufficient reason for an employer to claim that the contract is Frustrated. So, just because it has become difficult for
one party to perform the fundamental duties does not mean that the employment contract
is Frustrated. Let’s go now to disability, which is an
important part of this lecture. When an employee is disabled temporarily or
permanently how does that relate to the Frustration of an employment contract? So, the key concept that you want to take
away with respect to Frustration of Contract and Disability is that when the court is reviewing
whether a disability renders a contract Frustrated, then the court is looking at the permanence
of the disability and not its duration. So, that’s the key concept that you want to
carry with you. It’s the permanence of disability that makes
a contract Frustrated and not the length or the duration of that disability. So, some of the factors the court considers
the duration is obviously one of the factors that court does consider and I’ll explain
that in a bit more detail further … but the key thing is that the medical prognosis
or you know what are the doctors in court will review the evidence the medical evidence
and what does that evidence suggest? What does that demonstrate? Is the disability of a nature that is permanent
… that the employee can never recover and then perform his or her fundamental duties? Then, in that situation even if it’s been
a week or 10 days that the employee was disabled, it could be argued that his or her employment
contract was frustrated. So, permanence of it, what are the prospects
of recovery, is there any chance reasonable chance, of an employee recovering from his
or her disability or illness and being able to perform the fundamental terms of the contract? Then in that situation, if there’s a scope
there’s a chance then the duration is not that much of a consideration, the court will
not find that the employment contract was Frustrated. Obviously the degree of incapacity, how severely
that disability that illness is affecting the employee’s ability to perform fundamental
duties that is a consideration, and the length of disability is also a factor. So going to the length of the duration of
disability, we have seen cases where an employee was disabled for two or three years but the
disability was not of a permanent nature and the court found that just because the employee
was not able to perform his her duties, for two to three years and was on long-term disability,
that does not and that did not mean that the employment contract was Frustrated and the
court rejected that argument. I do recall, I believe, there was one case
in which the employee was away from duties for about seven years and the employer contended
that this was a long enough period or for an employer to claim that the contract was
frustrated and the court rejected that argument and said that there was a prospect that the
employee will be reasonably able to recover and come back to work. And so, the employment contract is not considered
to be Frustrated. So, the key item that you want to remember,
as I mentioned, is that it’s the permanence of the disability the illness that is being
considered here, if there is a reasonable chance that the employee will be able to recover
and get back to work then it doesn’t matter whether it takes two years or three years,
the duration is not that significant. It is significant, but not to that extent
… it’s one of the factors. So, what do you want to remember the key thing
that you want to remember with respect to Frustration of Employment Contracts, is that
determination of whether an employment contract is Frustrated or not is very fact-specific. In every fact situation, you know, there will
be different circumstances, different nature of illness, different issues and so, it is
not easy to draw conclusions based on what happened in another case, the principles are
the same, but the facts may be different. And so, if you’re on clear about your own
circumstances whether your employment contract is Frustrated or not you will be better off
discussing that with an employment lawyer to make sure that you’re not making any assumptions
about the Frustration of your employment contract. If you’re an employee or if you’re an employer,
you want to make sure that you consult with an employment lawyer and understand whether
you as an employer, can claim Frustration of Contract. You also want to remember as I mentioned that
in Ontario, Employment Standards Act Rights of Termination and Severance pay remain intact,
even if an employer claims Frustration of Contract. And in this regard, let me give you an example
of a recent case I believe it was a 2015 case, where an employee was employed and he was
diagnosed with terminal cancer and because of that, he proceeded on disability and while
he was on disability he passed away. And the employer refused to pay any severance
or termination pay claiming that the death of that employee frustrated the employment
contract. And as we know, the death does make the employment
contract Frustrated, but the court disagreed with that. The estate of that employee sued the employer
for the Rights on Terminations and the court agreed with the estate on grounds that – and
this is how the court distinguished – what the court found was that when the employee
was disabled and he was diagnosed that he was now terminally ill, and so there was no
prospect of him ever returning to work because he was expected to pass away, the court found
that that specific time the employee’s Employment Contract was Frustrated at that time. And because it was Frustrated at the time
that allowed the application of Employment Standards Act which specifically says that
if the employee, if the employment contract is Frustrated because of illness or injury
in that case, the termination and severance rights remain intact not death. And so the death, that occurred after the
Frustration of Contract and therefore the employee was still entitled to terminations
and severance rights. So, that’s why, you know, you want to make
sure that you understand the specific circumstances of your case and then apply the principles
of Frustration of Contract accordingly. I also mentioned that it’s the employer’s
burden to prove that the employment contract was Frustrated, which is a technical issue
but an important one at trial. And then what I want to mention is that Common
Law Rights on Termination as you know from previous lectures is an important right, and
so if an employer is improperly claiming Frustration of Contract you would likely challenge that
because your Rights on Termination, Common Law Rights on Termination, could be significant
and so it is important to dispute the Frustration of Contract if you can. This is our contact information please feel
free to provide your comments and if you any questions we’d love to hear from you, and
thanks for watching.

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About the Author: Oren Garnes

1 Comment

  1. What if the illness was in part or in whole caused by his/hers working environment? soldiers, 1st responders and coal miners with miner's lung come to mind? Please comment.

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