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More often than not, the employer asserts frustration of the employment contract when an employee is absent on a lengthy medical leave and there is little prospect of a return to work in the foreseeable future.  Employers often want to get these employees “off the books”, even though it means paying their legislated entitlements.  However, Ontario’s Employment Standards Act, 2000 (the “ESA”) provides little direction as to an employee’s right (or not) to assert frustration and demand termination/severance pay.  Luckily, the recent case of Hoekstra v. Rehability Occupational Therapy Inc. (2019 ONSC 562) provides helpful direction.  

Regulation 288/01 of the ESA provides that termination and severance entitlements are owed to employees whose frustration of employment is as a result of “an illness or injury suffered by the employee”.

In Hoekstra, the employee, a 51-year old medical social worker, suffered from severe esophageal and stomach conditions. He began employment in September of 2005 and throughout his employment had several medical leaves, the last of which ran from October 2012 to early 2017, when the employer first raised an argument that his employment was frustrated as a result of the illness, around the same time that it told the Plaintiff his benefit coverage was ceasing. Mr. Hoekstra’s own physician provided an opinion in January 2017 that Mr. Hoekstra had not shown improvement where gradual or full-time return to work was viable and  stated he “[w]ill not return to work”. The employee conceded that his employment had been frustrated and asked for his ESA payments. The employer failed to pay them and the employee commenced litigation. In the course of that litigation, the employer changed its position to assert that there was insufficient medical evidence to support a finding of a frustration of employment and also argued that it was only the employer that could unilaterally declare a frustration of employment contract as a result of illness or injury.

The court disagreed, stating,

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.

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.” [Fraser v. UBS Global Asset Management, 2011 ONSC 5448 (CanLII) at para. 3. 4]  The fact that a party to the employment contract takes the position that the contract has been frustrated, whether in support or defence of a claim, does not have the effect of deeming a contract frustrated.

Considering the length of the medical leave and the opinion of the employee’s physician, the Court concluded that employment was frustrated as of the date noted on the physician’s report and ordered the employer to make payment of Mr. Hoekstra’s ESA termination and severance entitlements and his costs in the amount of $15,000.

This case is helpful in shedding more light on the operation of the ESA as it applies to situations of frustration due to illness/injury. While employers may choose to keep the status quo in place and not advance a position of frustration, they may find themselves nonetheless liable to pay ESA entitlements if an employee asserts that frustration has occurred.

Read the full decision here:https://www.canlii.org/en/on/onsc/doc/2019/2019onsc562/2019onsc562.html?searchUrlHash=AAAAAQAsaG9la3N0cmEgcmVoYWJpbGl0eSBvY2N1cGF0aW9uYWwgdGhlcmFweSBpbmMAAAAAAQ&resultIndex=1#_ftn4

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