Court Clarifies Termination of Employment Contract Due to Frustration

Written by on August 4, 2020 in Employment Law Blog, Focus on Canadian Cases

Last year, the Ontario Divisional Court clarified an employers’ duty to accommodate employees where there is frustration of contract.

In a welcome decision for employers, the court confirmed in Katz et al. v. Clarke, that an employer’s duty to accommodate ends when the employee is no longer able to fulfil the basic obligations associated with the employment relationship for the foreseeable future.

The Facts

Eugene Clarke was an employee of Katz Group Canada Ltd., which operates Pharma Plus and Rexall drug stores in Ontario. Clarke worked as a store manager.

After five years on disability, Clarke’s long-term disability provider informed Katz that based on the available medical evidence, Clarke was totally disabled and that there was no reasonable prospect of his returning to work in any capacity in the foreseeable future. Katz wrote to Clarke informing him that based on the information available to them, his employment was frustrated and that they were accordingly terminating his employment.

Clarke’s lawyer had written Katz, stating that his client was “working very hard to get well so that he can return to his former employment and perform the essential duties of his position.”

Katz had also reached out to Clarke on two separate occasions asking him to provide updated medical information outlining his prognosis for recovery and an estimated date for his return to work. Katz did not receive a response and was not provided with the requested information.

Consequently, Katz terminated Clarke’s employment on the basis of the frustration of his contract of employment, and provided him with his statutory entitlements in accordance with the Ontario Employment Standards Act, 2000.

The Case

Clarke sued Katz, seeking a declaration that he was dismissed as a result of his disability in breach of section 5(1) of the Ontario Human Rights Code. He sought damages under section 46.1 of the Code for lost wages from January 1, 2014 until the date of judgment and the amount of $25,000 for injury to dignity, feelings, and self-respect. Clarke also requested a declaration that he was wrongfully dismissed and, in the alternative to the damages sought under the Human Rights Code, damages in the amount of $75,000 as compensation in lieu of reasonable notice. Clarke also sought moral damages in the amount of $25,000 on the basis of alleged bad faith conduct by Katz in the manner of his dismissal.

Katz moved for summary judgment which was dismissed, the motion judge determining that there was a genuine issue for trial.

A panel of the Divisional Court allowed Katz’s appeal from that decision.

The court concluded that the doctrine of frustration of contract applied to the circumstances of this case because Clarke’s disability rendered performance of his employment contract impossible “such that the obligations of the parties are discharged without penalty”.

The court further held that Katz’s termination of Clarke’s employment on the basis of frustration of contract did not breach its duty to accommodate, explaining that the duty to accommodate an employee is only triggered when an employee provides evidence of his ability to return to work. The court determined that Katz’s duty to accommodate ended when Clarke was no longer able to fulfil the basic obligations associated with the employment relationship for the foreseeable future, noting that it is “inherently impossible” to accommodate an employee who is unable to work.

The Takeaway

This case confirms the decision in Hoekstra v. Rehability Occupational Therapy Inc. that in a long-term disability situation, an employment contract may be terminated for frustration when the employee’s permanent disability renders performance of the employment contract impossible. An employee’s stated desire to return to work, however admirable, is not sufficient to rebut medical evidence that an actual return to work is impossible and that the contract of employment has become legally frustrated.

Employers must note, however, that in the event that medical evidence supports the employee’s ability to return to work, the employee may not be terminated due to frustration, and the employer’s duty to accommodate is triggered.

Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues. If you have any questions, please contact us or call us at 905-477-7011. Sign up for our newsletter to receive up-to-date Employment Law information, including new legislation and Court decisions impacting your workplace.

Please note that this article is for informational purposes only and does not constitute legal advice.

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