The doctrine of frustration of contract is one which many employers struggle with when it comes to determining whether or not they are justified in ending an employment relationship. We have previously written about frustration of contract in a blog post in relation to what triggers it, who may claim it, and what payments an employee may be entitled to. Typically, frustration arises when an employee will be incapable of working for the employer, even with accommodations, for the foreseeable future. Many employers with employees on long term disability (“LTD”) leave wonder at what point they are entitled to sever the employment relationship and provide an employee with his or her statutory termination entitlements under the Employment Standards Act, 2000 (the “ESA”). A recent decision from the Ontario Divisional Court further clarifies the factors employers should consider before asserting frustration of contract.
Katz et al v Clarke [Katz] dealt with an employee who had been away from work for five years due to disability, initially due to depression and subsequently a leg injury. After the employee had received five years of LTD benefits, the insurance benefits provider concluded that based on the medical information it possessed, the employee was unable to perform the essential duties of his position and there was no reasonable expectation that he would be capable of performing them in the foreseeable future. Based on that information, the employer concluded that the employee’s contract had been frustrated and advised the employee that he would receive his statutory termination entitlements under the ESA.
In response, the employee contacted his employer through counsel to indicate that he was working hard to rehabilitate himself and return to work. On two occasions, the employer requested updated medical information with an estimated return to work date and prognosis for recovery, however the employee never produced such documentation. Once the employment relationship ended, the employee brought a claim for discrimination on the basis of disability and a wrongful dismissal claim for compensation in lieu of notice.
The Court found that an employee’s assertion that he or she wishes to return to work, without any evidence about an ability to return including any disability-related needs to be able to do so, is not sufficient to trigger the employer’s duty to accommodate. In order to trigger the employer’s duty to accommodate, the Court noted that the employee would have had to “communicate the ability, not just the desire, to return to work.” Based on the medical information the employer had received up to the declaration of frustration of contract, there was no evidence to support that the employee had a realistic prospect of returning to work within a reasonable time. The Court held that it is impossible to accommodate an employee who is unable to work, and therefore the employer’s duty to accommodate ended when the employee could no longer perform the essential duties of his role for the foreseeable future.
Before claiming frustration of contract for an employee who has been on a long-term medical leave, employers should continually request updated medical information about the employee’s prognosis for recovery. While there is no precise period of absence due to disability that is required for frustration to occur, employers should ensure that the employee’s medical condition supports the frustration position.
If an employee claims that they are able to work despite that medical information the employer has received suggests otherwise, the employer should, prior to declaring frustration and ending the employment relationship, request updated medical information to confirm whether there is any prospect of the employee’s return to work and to pre-empt possible discrimination claims for failing to accommodate disability-related needs. If updated medical information supports an eventual return to work with or without accommodations, employers should reconsider the frustration of contract position. However, if an employee is not able to support his or her assertion about his or her ability to return to work with medical evidence, the employer is entitled to treat the contract as frustrated and provide the employee with his or her statutory termination entitlements under the ESA without facing liability for failing to accommodate the employee’s disability.
This blog is provided as an information service and summary of workplace legal issues.
This information is not intended as legal advice.