Tag: Frustration of Contract

If an injury or illness has resulted in there being no reasonable likelihood that you will be able to return to work within the foreseeable future, you may be entitled to compensation.

The recent Ontario Superior Court of Justice decision, Hoekstra v. Rehability Occupational Therapy Inc., 2019 ONSC 562, sets out new guidelines on frustration of contract in the workplace. This potentially entitles employees to compensation if they have been injured or are suffering from an illness making it unfeasible to return to work.

Frustration of contract

What is frustration of contract? Frustration occurs where due to an unanticipated, intervening event beyond the control of the parties, a contractual obligation, if performed, would be radically different in character from what was initially agreed upon (see Amalgamated Investment and Property Co Ltd v John Walker & Sons Ltd [1977] 1 WLR 164 Eng. Ct. A.). Normally, frustration relieves both parties of any obligations they have under the contract.

Frustration under the Employment Standards Act (“ESA”)

Frustration operates somewhat differently in the context of employment law. Under section 2 of regulation 288/01 of the ESA, where a contract of employment is frustrated due to illness or injury, the employer remains obligated to pay the employee’s minimum termination pay and severance pay as of the date of frustration.

In Hoekstra, cited above, the plaintiff had not performed any employment duties for four years due to a severe illness that forced him to go on medical leave. As a result, an employment dispute ensued, stemming from the employer’s refusal to pay further medical benefits. The medical condition eventually shifted from being merely temporary to being a permanent disability, and thereby rendered him incapable of engaging in required work at his employment.

The court held that frustration of an employment contract occurs where “there is no reasonable likelihood of the employee being able to return to work within a reasonable time” (at para 28, citing Fraser v. UBS, 2011 ONSC 5448 at para 32). The employee was entitled to termination pay based on the period from the first day of his employment, to the date the frustrating event occurred (i.e., the date the illness was indicated as being more-or-less permanent by a doctor). The court also ordered the employer to pay the employee statutory severance pay.

Importantly, the court held that both employees and employers can claim frustration of contract.  This principle is also highlighted in the decision of Estate of Cristian Drimba v Dick Engineering Inc., 2015 ONSC 2843, where an employee took the position that his employment contract had been frustrated and the court agreed and awarded termination pay and severance pay pursuant to the ESA.  Either way, the employee may be entitled to compensation under s. 2 of regulation 288/01 of the ESA if the test for frustration is met, and the frustration is the result of injury or illness.

If you would like more information about these new developments, or would like legal advice as to frustration of contract, please contact experienced employment lawyer Marty Rabinovitch of Devry Smith Frank LLP at 416-446-5826 or marty.rabinovitch@devrylaw.ca

“This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.”