Don’t Quit When Going on Sick Leave: Frustration of Contract

Typically, an employment relationship ends in one of two ways, either by termination or resignation. There is, however, a third, less intuitive way that employment may end: frustration of contract.

This most often happens when the employee is too sick to keep working. Many employees choose to retire and/or quit when they are no longer physically able to work. This is a very large mistake because the vast majority of employees should actually claim frustration instead of quitting and claim their statutory notice and severance pay. This amount would often be over 6 months notice for any employee of 18 or more years of seniority and 2.5 months for a 5 year employee.

In very basic terms, an employment contract is frustrated when neither the employee nor the employer take any steps to sever the employment relationship, but when circumstances are such that the employee is no longer able to perform their duties. For example, if an employee becomes seriously ill and cannot be accommodated with different duties, then the employment relationship is frustrated. Generally one of the two parties must take a step to ‘trigger’ or to label what has happened as being frustration of contract.

At common law, when an employment contract is frustrated, both parties to the contract are relieved from performance of the contract, and neither party will have any liability to the other for any damages flowing from the frustration of contract. In short, if an employment contract is frustrated, the employer owes no termination pay to the employee at common law.

Regulation 288/01 to the Employment Standards Act, 2000, [“ESA”] however, provides some protection to employees who are unable to work as a result of frustration of contract provided the frustration is the result of an injury or illness. In such circumstances, the employer is obligated to pay the employee his or her minimum entitlements under the ESA including notice pay and severance pay.

In Estate of Cristian Drimba v Dick Engineering Inc, 2015 ONSC 2843 [“Drimba”], for example, the Court applied Regulation 288/01. In that case, Mr. Drimba was diagnosed with terminal cancer in June of 2013 and started a leave of absence from his employment on June 7, 2013. Mr. Drimba hoped he could return to work if he recovered from his illness and his employer supported him in this regard. Unfortunately, however, Mr. Drimba passed away on September 17, 2013.

Mr. Drimba’s estate claimed termination pay and severance pay in accordance with the ESA from Mr. Drimba’s former employer on the argument that the employment contract had been frustrated when Mr. Drimba was diagnosed with terminal cancer.

The Defendant argued that the employer continued the employment relationship during Mr. Drimba’s illness and that Mr. Drimba’s death was the event that severed the employment relationship. An employee who dies while still able to work does not get any severance pay or notice, while an employee who gets too sick to ever work again receives both. Accordingly, the Defendant argued that Mr. Drimba’s estate had no claim to any payments under the ESA.

The Court however, awarded Mr. Drimba’s estate termination pay and severance pay on the basis that the Plaintiff’s employment was in fact frustrated before his death. The Court’s reasoning is best summarized at paras 25 and 26:

[25]       In my view, it must have been apparent that, as a result of the severity of Mr. Drimba’s illness, it was highly unlikely that he would ever return to his employment, notwithstanding the generosity of his employer to keep his position open for him in the event that he recovered.  This was likely a false hope after he was diagnosed with terminal cancer, and it ultimately proved to be the case.

[26]       While it is obviously not possible to pinpoint the precise date at which Mr. Drimba’s contract of employment became frustrated, it was undoubtedly at some point between June 7, 2013, and September 17, 2013, his date of death

The decision in Drimba stands as a reminder that where illness or injury prevents a worker from performing his or her duties at work and it becomes apparent the worker has no realistic prospect of returning to his or her employment, the employer must provide payments under the ESA to the worker for termination pay and severance pay.

If either an injury or an illness is preventing you from working, you may be entitled to termination pay and severance pay from your employer. Call Monkhouse Law today to discuss your options.

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