Frustration of an Employment Contract: Is it always better to burn out than fade away?

Frustration of an Employment Contract: Is it always better to burn out than fade away?

Greg Dobney
Posted November 11, 2015 Category: Individuals/Families

In general terms, a contract becomes frustrated when it is no longer capable of being performed. Once a contract is frustrated, the parties are relieved from further performance of obligations under the agreement.

Frustration of an employment contract is generally difficult to establish. To succeed, there needs to be no reasonable expectation that the employee in question will recover to the extent that s/he will be able to return to work (with or without accommodations). Often, this requires a prolonged absence from the workplace (generally two years or longer) coupled with medical evidence that the employee will not likely be able to perform the essential duties of his/her employment in the foreseeable future.

While frustration of contract is typically raised by employers to formally end the employment relationship with employees who have been away from work for lengthy periods and who are unlikely to return, in a recent 2015 Ontario Superior Court decision, the doctrine was applied to benefit an employee’s estate after his death.

Mr. Drimba had been employed with Dick Engineering for seventeen years when he was diagnosed with terminal cancer. He took a leave of absence from work on June 7, 2013. Dick Engineering was in the midst of completing a sale of its assets to another company, KSH-DEI, and it urged Mr. Drimba to apply for group insurance benefits (including long term disability and critical illness benefits). It also confirmed to Mr. Drimba that his employment with Dick Engineering would continue until he was well enough to return to work and, when he was well enough, Dick Engineering would arrange for him to have an interview KSH-DEI. Sadly, Mr. Drimba’s condition worsened and he died on September 17, 2013.

What began as a lawsuit against Dick Engineering as a claim by Mr. Drimba’s estate for wrongful dismissal arising from the asset sale, for which the judge determined there was no dismissal, shifted focus to the question of whether Mr. Drimba was entitled to termination and severance entitlements under the Employment Standards Act, 2000. Regulations under the ESA provide that an employee whose contract of employment becomes impossible to perform or has been frustrated is not entitled to termination or severance pay under the ESA.   However, there is an exemption where the impossibility or frustration is the result of disability or illness.

Mr. Drimba’s estate argued that Mr. Drimba’s employment contract was frustrated by his terminal cancer, prior to his death. Dick Engineering argued that the employment relationship continued until it was frustrated by Mr. Drimba’s death. Despite the fact that Mr. Drimba was only off work for just over three months, the court found in favour of Mr. Drimba’s estate. Without pinpointing the exact date of frustration, the court concluded that the contract was frustrated by illness or disability prior to Mr. Drimba’s death and that his estate was therefore entitled to the applicable termination and severance entitlements under the ESA.

While it is unlikely that this decision will meaningfully impact the way in which frustration of contract is determined, it is an unusual application of the doctrine and suggests that, contrary to the popular song lyric, it is sometimes better to fade away than burn out.

Greg Dobney
Posted November 11, 2015 Category: Individuals/Families

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