Jan 8

Can I be fired when I’m on disability leave? Clarifying the Concept of Frustration of Contract, Toronto Employment Lawyer

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Human Rights laws protect an employee from being terminated due to a disability. We often hear concerns from employees on a disability leave regarding whether they can and will be terminated from their job. The answer depends on the specific fact scenario, as well as the legislations and recent case laws.

What is Frustration of Contract?

Under the Ontario Human Rights Code, the employee may not be terminated even partly due to a disability without the employer’s duty to accommodate the disability being engaged. However, an extended medical leave of absence may be reason for an employer to claim that the employment contract can be terminated as it is ‘frustrated’. Frustration of contract is a principle in which the employment agreement, through no fault of either party, has been effectively cancelled as the circumstances make it impossible to continue with the agreement. When this occurs, parties to a contract have been released from their obligations in the agreement.

With respect to a disability leave, according to the Supreme Court of Canada[1], an employer may claim that the employee’s inability to work due to a disability releases them from the duty to accommodate when the employee “is no longer able to fulfill the basic obligations associated with the employment relationship for the foreseeable future”. The release of both parties’ obligations to the contract (namely the duty to accommodate for the employer and the duty to perform work for the employee) can then lead to frustration of contract.

An employee is still entitled to some payment if the employment contract has been frustrated. Under the Ontario Employment Standards Act (the ESA), when terminated due to a frustration of contract, the employee is entitled to the minimum notice period, as opposed to the more generous ‘common law notice’.

The more difficult task is to determine when the employer no longer needs to accommodate the employee’s disability and can appropriate claim the contract has been frustrated.

The Relevant Case Law

The Ontario Superior Court cases of Roskaft v. Rona Inc., 2018 and Naccarato v. Costco, 2010 shed light on what qualifies as frustration of contract when a long-term disability (LTD) leave of absence is involved. A look at the two decisions can provide a guideline for employers for determining whether an employment contract has been frustrated.

In the older decision of Naccarato, the employer cited frustration of contract as a reason to terminate the employee who has been on LTD leave for five years from his clerical position. Throughout the decision, Justice Pollak reiterated that the employer, and not the employee, has the burden of proof to establish that there was frustration of contract. This meant that because the employee’s doctor gave no clear response when asked when he believed the employee will return to work, the employer was obligated to ask further questions to the doctor or to ask for more medical documents. These are documents and information that the employer could have sought out to establish that the employee would not be able to return to work in the reasonably foreseeable future.

Furthermore, the Court held that factors, such as the lack of disruption to the employer’s business as a result of the employee’s absence and the availability of LTD benefits, may extend the reasonable duration of the leave before the employer can cite frustration of contract. The evidence, including the employer’s failure to probe further into the medical condition, the lower-level (or ‘non-essential’) position of the employee resulting in very little disruption to the employer’s business, and the availability of LTD benefits, led Justice Pollak to find that there was no frustration of contract. The employee was therefore entitled to common law notice.

Eight years later, in Roskaft, Justice Pollak further clarified the test for frustration of contract. Although the burden to establish frustration of contract remains on the employer, the Court must consider the totality of the evidence to determine if this burden was met. Like in Naccarato, the employee in Roskaft had been on LTD leave from a ‘non-essential’ clerical position and was let go from employment with the employer arguing frustration of contract. The employer in Roskaft relied on the following information and documents to support its frustration of contract allegation: 1) a letter from the LTD insurer almost a year prior to the employee’s termination, which advised the employer that the employee could not return to work; 2) a Return to Work Form completed by the employee also almost a year prior to his termination, which stated that he was unable to work and that his return to work was “not applicable’; and 3) the absence of any other document that stated that he was no longer totally disabled from working.

In Roskaft, the employee alleged that the employer failed to sufficiently probe into his condition by asking for more medical documents and that he would have been able to demonstrate that his condition was improving at the time of his termination had the employer fulfilled this obligation. However, Justice Pollak held that the employee’s argument that his condition would have improved at the time of termination is contradicted by the evidence at the time of the motion hearing – that being that the employee continued to be on LTD benefits and had never taken the position that he was no longer totally disabled. Justice Pollak found that the given evidence indicates that there was no reasonable likelihood that the employee would have been able to return to work within a reasonable period of time. Justice Pollak further noted that post-termination evidence cannot be relied on by the employer to establish frustration of contract unless it clarifies the nature and extent of the employee’s disability at the time of his or her dismissal. In this case, the employee’s condition at the time of the motion hearing meets this exception

The Roskaft decision illustrates a circumstance in which an employer has sufficiently inquired into the employee’s condition to fulfill its obligation of establishing frustration of contract. Although at the time of termination, the employer relied on medical information that were almost a year old to allege frustration of contract, the remaining evidence indicated that the employee would not have been able to return to work in the reasonably foreseeable future. This evidence were specifically the employee’s continued receipt of LTD benefits and the failure of the employee to demonstrate that he is able to work by the date of the motion hearing. In effect, the definitive position at the time of the motion hearing that the employee was unable to return to work released the employer from needing to further clarify the status of the employee’s health.

In contrast, in Naccarato, none of the medical documents, including from the employee’s doctor, gave a clear answer as to the employee’s ability to return to work. The absence of a solid opinion from the employee’s physician triggered the employer’s obligation to further probe into the employee’s condition. Whether the employer fulfilled this obligation dictated the opposite outcome of the two cases. It seems that the failure by the employee in Roskaft to demonstrate any hope into his ability to return to work was detrimental to his claim.

The Duty to Accommodate

It would have been interesting to see if the outcome in Roskaft may have been different had the employee continued to pursue his claim for human rights discrimination on the basis of his disability. Had the employee in Roskaft not abandoned his claim for Human Rights damages, he may have been able to argue that instead of terminating him due to frustration of contract, the employer could have accommodated him by allowing a longer medical absence or at least, it could have inquired into whether it can make accommodations to facilitate the employee’s return to work. As mentioned above, frustration of contract due to a disability leave may exist if the duty to accommodate has ended. Thus, In Roskaft, the employee may have been able to argue that frustration of contract could not have been established if the employer failed in its existing duty to accommodate him or inquire into the need for an accommodation.

These are just some strategic directions that we explore in Monkhouse Law in a wrongful dismissal case. At Monkhouse Law, we are experienced in handling various wrongful dismissal matters, including those that involve frustration of contract and termination while on disability leave. If you are an employee or an employer dealing with similar circumstances as the above cases, it is important to ensure that the rights and obligations of all parties are being met. Call Monkhouse Law today for a free 30-minute consultation!

[1] Hydro-Québec v. Syndicat des employé-e-s de techniques professionnelles et de bureau d’Hydro-Québec, section locale 2000 (SCFP-FTQ), [2008] 2 SCR 561, 2008 SCC 43 (CanLII), http://canlii.ca/t/1zhnr

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