A recent case heard by the Ontario Superior Court found that an employer is not obligated to continue to employ an employee on long term disability (LTD) who is not likely to return to work in a reasonable time.

The Issue

At issue was whether evidence of disability and receipt of LTD payments could frustrate an employment contract, such that an employer could then terminate the employment of the disabled employee receiving benefits.

What Happened?

The case involved an employee at a large hardware store who was dismissed on the assumption he was no longer capable of returning to work.

At trial, the employee argued that if he was asked to return to work, he would have, despite having been away from work for about one year and receiving LTD benefits.

The employer, convinced the employee’s disability was legitimate, and relying on the fact that the employee was receiving LTD payments, argued there was no reasonable likelihood of the employee returning to work in a reasonable timeframe.

Frustration of Contract

Frustration of contract is the legal termination of a contract. It forgives non-performance. Except in cases where the contract terms override this implied legal provision, frustration automatically discharges the contract.

In general terms, frustration occurs due to unforeseen circumstances that (1) prevent achieving the objectives of the contract, (2) cause illegal actions, or (3) render execution of the contract impossible. Such unforeseen circumstances can include an accident, a change in law, a fire, a sickness, or third-party interference.

Frustration of Employment Contract

In an employment context, where something occurs (such as an employee illness or disability) that prevents an employee from performing the essentials of his or her job, the contract may be deemed frustrated since this was unforeseen when the contract was signed. Where that is the case, the employee can be terminated and no severance will be owing.

As the court noted in this matter, the leading case on frustration of contract in an employment setting provides that:

Frustration of an employee’s contract is always established with reference to the time of dismissal. In pleading frustration, an employer is entitled to rely on post-termination evidence not in its possession at the time of dismissal so long as it relates to the nature and extent of an employee’s disability at the time of dismissal. The “evidence subsequently disclosed” should shed light on the nature and extent of the employee’s disability at the time of an employee’s dismissal. An employer is not entitled to rely on evidence that relates to the post-termination nature and extent of an employee’s disability if that evidence is not relevant to the dismissal date. To allow an employer to succeed in pleading frustration on the basis of such evidence would be neither fair nor reasonable.

The Evidence of Frustration

Based on the above decision, the court noted that it must determine, based on the evidence before it, whether at the time of the employee’s termination of employment there was no reasonable likelihood that he would be able to return to work within a reasonable period of time.

In the case at hand,  frustration was pleaded due to the unforeseen circumstances of disability preventing the employer from being reasonably likely to return to work within a reasonable time frame.

The evidence presented indicated that, at the time of the hearing, the employee was still being paid LTD benefits but that he did not ever take the position that he continues to be totally disabled or unable to do any work.

The court went on to say that:

…the post-termination evidence does “shed light on the nature and extent of the employee’s disability at the time of an employee’s dismissal.”  This evidence contradicts the [employee’s] assertion that had [the employer] or [the LTD provider] asked for further medical evidence at the time of his termination of employment, he would have provided it and he would have been able to return to work.

The court further added that:

When I examine the evidence in its totality I find that [the employer] was not entitled to conclude on the basis of the December 2014 letter from [the LTD provider] that it had determined that the [employee] was “permanently” disabled. There is no reference to “permanent” disability in that correspondence. However, I find that there was enough evidence at the time of the termination of employment on the basis of the decision of [the LTD provider] that [the employee] was sufficiently disabled to qualify for his LTD benefits; as well as the continued representations of [the employee]  that his medical condition has not improved and he was totally disabled from performing the duties of any occupation, and [the employee’s] continued receipt of LTD benefits, to reasonably conclude that there “was no reasonable likelihood” that [the employee] would be able to return to work within a reasonable period of time.

The Decision

The court concluded, based on the totality of the evidence before it, that it had been reasonable for the employer to conclude, at the time that it terminated the employee, that there was no likelihood that he would be able to return to work within a reasonable period of time.

The court stressed that it was important, however, for employers to be cautious of all statutory requirements before terminating employment. The judge did not elaborate specifically on the length of time that would constitute a reasonable time frame, but in the case at hand, a post-termination notice was completed over one year after the termination in which the employee had confirmed his condition had not improved. The employee’s wrongful dismissal claim was dismissed.

Significance

The issue of employees’ and employers’ obligations in relation to disability, LTD, accommodation, and return is complex and highly fact-dependent. Such matters are best reviewed by an employment lawyer with experience in employment law.

The decision to apply for LTD may not involve as much employment security as a disabled employee might feel warranted. Receiving LTD may, itself, provide evidence of the existence of a long-term disability that may allow an employer to conclude an employer will not be able to return to work in a reasonable time, thus freeing it to terminate the employment agreement.

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, wrongful dismissal, and disability management. 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.