An Ontario court recently decided a case of an employee’s claim for frustration of contract as well as aggravated and punitive damages after a long medical leave.

What Happened?

The employee was 51 years of age and suffered from severe esophageal and stomach conditions. He had been employed by the employer as a medical social worker beginning in 2005 under a written contract of employment.

Due to his medical condition, the employee began a short-term medical leave of absence in December 2008. He returned to work in September 2009 and worked until May 2012. In October 2012, he again took a medical leave of absence intending to return to work on December 3, 2012, which was later extended to March 5, 2013.

However, the employee was unable to return to work on March 5, 2013, due to health complications, though he intended to return to work once he was medically cleared to do so. While on medical leave, he received group benefits. He maintained regular contact with the employer and continued to attend the employer’s social events.

After over 3 years on medical leave, the employer changed healthcare providers and the employee was no longer eligible for benefits, though he continued to receive benefits through his wife and through private insurance.

Around the same time, the employee’s doctor provided a statement to the private insurer that he did not believe the employee would be able to return to work, stating: “ongoing disability since 2008 unlikely to return to work now.”

In February 2017, the employee asked the employer why he was no longer eligible to receive group benefits directly and indicated he wanted to and intended to, return to work. In response, the employer told him that it had determined that the contract of employment had been frustrated and no amount was therefore payable to the employee. It told the employee that “an employer is not expected to keep someone on benefits indefinitely even when they are off on disability as legally there becomes a frustration of contract…”

The employee told the employer that he accepted that his employment was at an end due to his ongoing medical issues and he requested payment of his termination entitlements.

In June 2017, the employee commenced an action for damages for wrongful dismissal, violation of his human rights and punitive and aggravated damages. Even though the employer stated that the employee had frustrated the contract of employment, it told him it was willing to offer him his job back. The employee did not accept the offer of re-employment.

The employee contended that, at a minimum, he was entitled to receive termination and severance pay pursuant to the Employment Standards Act (the “ESA”) arising from the frustration of his employment contract.

At the time of the trial, the employer had not paid any termination amounts to the employee pursuant to the ESA or otherwise. At trial, the employer denied that the employee’s employment contract was frustrated and took the position there was insufficient medical evidence to support a finding of frustration or, alternatively, that frustration of contract required an act of the employer.

The Decision

The court explained that, under regulation 288/01 of the ESA, where a contract of employment is frustrated due to illness, the employer remains obligated to pay the employee’s minimum termination pay and severance pay as of the date of frustration.

With regard to the argument that frustration of contract requires an act of an employer, the court found that:

“Frustration of contract occurs as a matter of law. Once circumstances exist that have the effect of frustrating the terms of a contract, the contract is deemed terminated. In my view, neither party to the contract must take any steps to effect that result. This is particularly so in the case of frustration due to illness or injury which is presumptively beyond the control of both the employee and the employer.”

The court stated that a contract of employment is frustrated when “there is no reasonable likelihood of the employee being able to return to work within a reasonable time” and is not dependent on the actions of either party. In this case, the fact that the employee had been on prolonged medical leave did not, in itself, amount to frustration of the employment contract. Instead, the evidence showed that the employee’s medical condition (disability) had morphed from being temporary to being a permanent condition rendering him incapable of performing his employment duties.

As a result, the court found that the employment contract had been frustrated.

The employee was therefore entitled to termination pay pursuant to the provisions of the ESA for the period of employment commencing in September 2005 and ending in October 2016. Additionally, because the employer had an annual payroll of greater than $2.5 million and the employee had been employed for a period greater than five years, the employee was entitled to severance pay under the ESA

The court refused to award further damages, finding that there was no evidence that the conduct of the employer was so egregious and offensive so as to warrant an award of aggravated or punitive damages.

For Help

The Kitchener-Waterloo employment lawyers at Petker Campbell Postnikoff have many years of experience advising non-unionized employees and employers on a variety of workplace issues including termination and wrongful dismissal. Our team will walk you through the details of your dispute, advise you on your rights, responsibilities and obligations, and help you understand your options.  If your dispute cannot be settled through negotiation, we can represent you through mediation and the court process.

We represent clients throughout southern Ontario, including the communities of Cambridge, Guelph, Elmira, Brantford, Fergus, Elora and the surrounding area. Call 519-886-1204 or contact us online for a consultation.