In Ontario, frustration of contract occurs when unforeseen events—such as a serious illness, injury, or disaster—make it impossible for an employee to continue working. When frustration of contract Ontario applies, the employment relationship ends because neither the employee nor the employer could have anticipated or controlled the situation. In these cases, typical rules for notice or severance might not apply.
Let’s explore how frustration of contract in Ontario works, when it applies, and what both employees and employers need to understand about it.
If you’re unsure how frustration of contract Ontario applies to your situation, contact our team at Resolute Legal for personalized advice.
What is frustration of contract Ontario?
Frustration of contract happens when an employment relationship ends due to circumstances beyond the control of either party, making it impossible for the employee to return to work within a reasonable time. As a result, performing the contract becomes impossible.
In most cases, when a contract is frustrated, the employer is not obligated to provide the employee with common-law notice. This situation typically arises when an employee suffers a serious injury, illness, or disability, making them unable to perform their duties. While frustration of contract ends the employment, Ontario law still requires employers to pay minimum statutory entitlements for termination and severance pay under Regulation 288/01 of the Employment Standards Act, 2000.
Need help understanding your severance entitlements? Schedule a free consultation with our employment law team today.
Frustration of contract can also occur after natural disasters, such as floods or fires, if the business is unable to continue operating. For example, if a fire destroys a business entirely with no chance of resuming operations, the employee’s contract may be frustrated, as there is no longer a business to return to. Because these risks were unforeseen at the start of the employment relationship, neither the employer nor employee typically owes notice or compensation unless otherwise specified in the employment contract.
Examples of Frustration of Contract Ontario
Frustration of contract occurs when unforeseen events make it impossible for the employee to fulfill their duties. These events must be beyond the control of both the employer and employee, and they often render the continuation of the employment contract impossible. Here are some common examples of frustration of contract in Ontario:
1. Long-term disability with no prospect of return
An employee who suffers a severe injury or illness and has been on long-term disability (LTD) leave for an extended period may experience frustration of contract if there is no realistic chance of them returning to work. For example, if a worker is permanently incapacitated and their condition prevents them from performing their job duties within a reasonable timeframe, the employment contract may be considered frustrated.
2. Workplace destruction due to disaster
Natural disasters or unforeseen accidents can lead to frustration of contract if they destroy the business’s ability to operate. A fire, flood, or other catastrophic event that permanently closes a workplace can frustrate the contract because the employee no longer has a workplace to return to. If the business cannot rebuild or relocate, the employment contract may end without the need for notice or severance, except for the statutory minimum.
3. Severe medical condition with uncertain recovery
In cases where an employee develops a serious medical condition that prevents them from working and there is uncertainty about their recovery, the employer may claim frustration of contract. For instance, if an employee has been out of work for years due to an illness and medical experts believe they are unlikely to recover sufficiently to resume their job, the contract could be frustrated.
4. Unexpected legislative changes impacting employment
Occasionally, legislative changes or government orders, such as those during a pandemic, may result in frustration of contract. For example, if a government order prohibits a particular type of business from operating indefinitely, and there is no reasonable alternative to keep the business going, contracts with employees may be frustrated.
These examples illustrate how the frustration of a contract applies in various situations where unexpected events fundamentally change the ability to continue the employment relationship. If you believe your contract has been frustrated, or you’re unsure if frustration applies to your situation, it’s best to consult with an employment lawyer for guidance.
Potential exceptions to frustration of contract in Ontario
There are instances where frustration of contract may not apply. For example, if an employee is on an approved long-term disability (LTD) claim, some courts have ruled that frustration of contract cannot be triggered by the employee’s inability to work while receiving LTD benefits. This is because long-term disability benefits are often seen as an anticipated risk covered by the employment contract. However, this area of law continues to evolve, so seeking legal advice is essential. Many employees on long term disability do get terminated due to frustration of contract. See, Termination While on Long-Term Disability Canada Guide to learn more.
If frustration does apply, the employment ends immediately, and employees are not entitled to working notice or severance pay, except for limited severance under employment standards legislation. When frustration does not apply, employees are entitled to the same notice or severance as anyone else on sick leave. Importantly, the burden of proving frustration lies with the employer, which can be difficult in some cases—leading many employers to offer severance to end employment instead.
Who can assert frustration of contract?
Typically, it’s the employer who asserts frustration of contract, especially when an employee has been on extended medical leave with little hope of returning. For employers, asserting frustration can be financially advantageous, as statutory termination and severance payments are often less than common-law notice requirements.
That said, the courts have ruled that either party may assert frustration when the legal conditions are met. In the case of Hoekstra v. Rehability Occupational Therapy Inc., the Ontario Superior Court of Justice decided that frustration of contract occurs automatically by law when circumstances arise that frustrate the contract, without requiring either the employer or employee to formally trigger it. This ruling emphasized that employees, too, can assert frustration and claim statutory payments.
Final thoughts: Frustration of contract Ontario
Frustration of contract is a unique concept that balances the interests of both employers and employees when unforeseen circumstances disrupt the employment relationship. For employers, it provides a way to end employment without the significant costs associated with notice or severance. For employees, it ensures that they aren’t unfairly penalized when circumstances beyond their control make returning to work impossible. However, the doctrine’s complexities and evolving legal interpretations make it essential to consult with an employment lawyer to understand your rights and obligations in these situations.
Related reading:
- What is Wrongful Termination Canada?
- Termination With Cause Ontario
- Termination Without Cause Ontario
- What is Constructive Dismissal Ontario?
Terminated due to frustration of contract? Schedule a free consultation today
If you believe your employment contract has been frustrated, or you’re an employer navigating this legal doctrine, getting the right advice is crucial. Contact us at Resolute Legal for guidance on your rights and obligations. Our team specializes in employment law, and we’re here to help you through every step of the process. Click on the button below to schedule a free consultation.
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FAQs: frustration of contract Ontario
What happens to my benefits if my contract is frustrated?
If your employment contract is frustrated, the employer is not required to continue providing benefits like health insurance or pensions. However, you remain entitled to any minimum statutory severance or termination pay mandated by Ontario law, ensuring some compensation despite the end of your employment.
How do employers use the doctrine of frustration with employee is on long term disability?
Employers often rely on the doctrine of frustration to terminate employees who are on long-term disability and are unlikely to return to work. This can be particularly beneficial when the employee held a key position, or when they have exhausted all available leave or benefits.
However, when long-term disability benefits are part of the employment contract, frustration may not apply because the risk of disability was considered when the contract was made. Courts have taken differing positions on this, and as the law continues to evolve, employers must tread carefully when invoking frustration. Regardless, employers must comply with notice and severance obligations as required by Ontario’s employment standards laws.
To learn more about frustration of contract while on long term disability, see, Termination While on Long-Term Disability Canada Guide.
Can frustration of contract be applied retroactively?
No, frustration of contract is recognized when circumstances arise that make fulfilling the contract impossible and cannot be applied retroactively. The determination must be based on the facts and situation at the time of the event, assessing whether the contract’s obligations can still be met.
Can an employee claim frustration of contract?
Yes, employees can claim frustration of contract, although it is more commonly asserted by employers. If the employee’s circumstances meet the legal requirements for frustration of contract (such as long-term incapacity to work), they may assert frustration and be entitled to statutory severance or termination pay.
How is frustration of contract different from termination for cause?
Frustration of contract happens when unforeseen events, beyond anyone’s control, make fulfilling the work contract impossible. In contrast, termination for cause occurs when an employee breaches the contract or engages in misconduct, justifying dismissal without notice or severance. Both result in ending the employment relationship.
To learn more about types of terminations, check out our Ultimate Guide to Wrongful Termination Canada.
Is long-term disability a valid reason for frustration of contract?
In some cases, long-term disability can lead to frustration of contract, especially if the employee has no reasonable chance of returning to work. However, if long-term disability benefits were anticipated in the employment contract, frustration may not apply, and legal advice should be sought to clarify the situation.
How do employers prove frustration of contract?
The party claiming frustration bears the burden of proof. So, employers must demonstrate that the circumstances are beyond the control of both parties and that it is impossible for the employee to return to work in any reasonable timeframe.
This can involve medical documentation, disaster records, or evidence showing the employee is permanently incapacitated.
What should I do if I believe my employment was frustrated unfairly?
If you believe your contract was frustrated unfairly, it’s crucial to seek legal advice immediately. An employment lawyer can review your case, determine if frustration of contract applies, and help you claim any statutory payments you’re entitled to under Ontario law.