Frustration of Contract Canada Guide: What to Do, Frustration Rules & More

Imagine this: you’ve worked hard for years, but an unexpected event like a severe illness or workplace disaster makes it impossible for you to return to your job. Suddenly, you’re facing the uncertainty of losing your employment through no fault of your own. What happens next? This is where the concept of frustration of contract in Canada comes in—a legal doctrine designed to handle these extraordinary situations fairly.

This guide is specifically for employees navigating frustration of contract in Canada. We’ll break down what it means when it applies and the steps you can take to protect your rights and move forward. Whether you’re dealing with a long-term disability or a situation where your workplace is no longer operational, this guide offers practical advice to help you understand your options. If you need personalized help, our team at Resolute Legal is just a call away. You can reach us at (888) 480-9050 or schedule a free consultation below.

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Table of Contents

What is frustration of contract in Canada?

Frustration of contract occurs when an unforeseen event beyond the control of both the employer and the employee makes it impossible to continue the employment relationship. This legal doctrine recognizes that sometimes, despite the best intentions, life throws a curveball that fundamentally alters the employment agreement.

Doctrine of frustration: Why does It matter?

The doctrine of frustration ensures fairness in cases where neither party is at fault for the breakdown of the contract. It’s designed to balance the interests of employers and employees in extraordinary situations.

A brief history of frustration of contract in Canada

The concept of frustration of contract originated in English common law and has been integrated into Canadian legal systems. It was developed to address situations where strict enforcement of a contract would lead to unfair outcomes due to unforeseen events. Over time, it has become a cornerstone of employment law in Canada, especially in cases involving long-term disability or natural disasters.

When is a contract considered frustrated?

A contract is frustrated when:

An unforeseen event occurs.
The event is beyond the control of both parties.
The event makes it impossible to fulfill the contract or drastically changes its nature.

Examples of frustration of contract

The following are examples of frustration of contract in Canada.

Example 1: long-term disability

An employee sustains a life-altering injury and cannot return to work. After an extended period of collecting long-term disability benefits, medical evidence shows there is no reasonable prospect of recovery. In this case, the contract may be frustrated.
If you are navigating termination while on long-term disability, it’s crucial to understand your rights. Learn more by visiting Termination while on long-term disability Canada.

Example 2: Workplace destruction

A flood destroys a business premises, making it impossible to continue operations. If rebuilding is not feasible, contracts with employees may be frustrated.

Example 3: Legislative changes

During the COVID-19 pandemic, certain industries were permanently shut down by government orders. If no alternative work arrangements were possible, employee contracts may have been frustrated.

What events can cause frustration of contract?

Death or Incapacity of a Party: If an employee becomes permanently incapacitated or dies, the contract is frustrated.
Natural Disasters or “Acts of God”: Events like floods, earthquakes, or fires can make it impossible to continue operations.
Legislative or Regulatory Changes: New laws or government orders that prevent business operations can lead to frustration.
Destruction of the Subject Matter: If the tools, equipment, or location essential to the job are destroyed and cannot be replaced, the contract may be frustrated.
War or Civil Unrest: Armed conflicts or riots that disrupt operations can result in frustration.

What happens after a contract is frustrated?

When a contract is frustrated, the employment relationship ends immediately. Employers are generally not required to provide common-law notice or severance pay, but they must fulfill statutory obligations under employment standards legislation.

Frustration of contract and severance pay Canada

In most cases, employees terminated due to frustration are entitled to statutory severance and termination pay. For example, in Ontario, the Employment Standards Act, 2000, requires employers to pay minimum entitlements under Regulation 288/01. However, common-law notice or severance is not typically required.

See Frustration of Contract Ontario for more information.

Next steps: Termination due to frustration of contract

If you’ve been terminated due to frustration of contract, here’s what you should do:

Understand Your Entitlements: Verify that you’ve received all statutory termination and severance payments.
Consult an Employment Lawyer: Speak with a lawyer to confirm whether frustration of contract applies and if additional compensation is owed.
Gather Evidence: Collect medical records, employment agreements, and correspondence to support your case.
Seek Legal Advice Early: Contact our team at Resolute Legal for a free consultation to understand your rights and options.

Final thoughts: frustration of contract in Canada

Frustration of contract is a complex legal concept designed to address extraordinary circumstances. For employees, it’s important to understand your rights and take steps to ensure you’re treated fairly during this process. Consulting with an employment lawyer is the best way to protect your interests.

If you have questions or need guidance, contact Resolute Legal at (888) 480-9050 or schedule a free consultation. Our team specializes in employment law and can help you understand your rights and obligations.