Employment contracts can be frustrating, but they can also be frustrated.  The former is a simple fact of life, while the latter is a key principle of contract law.

“Frustration” occurs where an unanticipated event destroys the heart of the contract to the point where it can no longer be fulfilled. When a contract becomes frustrated, the parties are relieved of any obligation they were contractually bound to perform.  The legal concept, while simple in theory, has been difficult for employers to apply, particularly in the case of absences due to the critical illness or injury of an employee.

In the recent case of The Estate of Christian Drimba v Dick Engineering Inc., 2015 ONSC 2843 (“Drimba”), an Ontario court examined the concept of frustration in the case of the terminal illness of an employee who subsequently passed away.  The case provides guidance to employers about the factors a court or tribunal may look at when making such a determination.

Facts of the Case

Mr. Drimba worked for an engineering design firm for seven years until he was diagnosed with terminal cancer. He took a leave of absence and passed away three months later.

The issue in this case was whether the estate of Mr. Drimba was entitled to termination and severance pay under the Employment Standards Act, 2000 (the “ESA”).  Under the ESA, an employee is entitled to both termination pay and severance pay, if she or he otherwise qualifies, where the contract of employment is frustrated due to an illness or injury, but not if the contract comes to end as a result of the death of the employee.

Without determining a precise time that the contract of employment became frustrated, the Court found that the employment contract was frustrated by Mr. Drimba’s illness and not by his death, which entitled the estate of Mr. Drimba’s to both termination pay and severance pay under the ESA.  More specifically, the Court found that the point where the contract could no longer be fulfilled occurred some time between the time that Mr. Drimba was diagnosed with terminal cancer and the time that the employer realized that Mr. Drimba had terminal cancer. The employer ought reasonably have known at the time that Mr. Drimba was diagnosed (or as soon as they were informed of his diagnosis) that he would not be returning to work.  This was the point at which the contract of employment became impossible to perform.

Takeaways for Employers

According to the Court in this case, the point at which a contract becomes frustrated in the case of critical illness can be determined by considering a variety factors, including the severity of the employee’s illness, the likeliness that the employee may never return to work, and whether the employer knows that the illness is so severe that the employee will not return to work.

Based on these factors, it not a certainty that an employer in Ontario (employee terminations due to frustration of contract do not create statutory minimum entitlements in every province) will need to provide termination and severance pay in every case where an employee suffers a critical illness and is unable to work.  In the Drimba case, the Court relied on the employer’s knowledge of Mr. Drimba’s critical illness (and well known mortality rate of his cancer) in finding that the contract of employment was frustrated by the illness and not his death.  The situation may well have been different if the employer was unaware of the illness or, if aware, the illness in question was not commonly known to be as severe and the employee died unexpectedly. This may have shifted the point in time when the frustration of contract is deemed to occur such that termination pay and severance pay would not be owed under the ESA.

Given the decision in the Drimba case, a prudent employer will consider the totality of the circumstances in making a determination regarding whether a contract has become frustrated. There may be good reasons for an employer to take the position that a contract of employment has become frustrated at the point an employee is diagnosed with a critical illness.