In a recent case, an arbitrator under the Canada Labour Code held that a 62-year old employee who had been off work for 21 years following a workplace injury could not be terminated for frustration of contract.  In fact, the arbitrator proclaimed that specific provisions of the Canada Labour Code (the “Code”) had removed an employer’s right to terminate for frustration when the prolonged absence was the result of a work-related illness or injury.  While dramatic, this decision, however, does not tell the entire story for this type of situation.

Traditionally, courts and arbitrators have accepted that when one party to a contract is unable to perform its obligations, through no fault of that party, the contract has become “frustrated”.  In the employment context, extended absences due to illness or injury that result in no foreseeable chance of returning to work permit an employer to terminate for “frustration”.

In Kingsway Transport, however, the arbitrator noted that specific provisions of the Canada Labour Code extinguished this right when the employee’s absence is due to a work-related illness or injury:

239.1(1)  Subject to subsection (4) and to the regulations made under this Division, no employer shall dismiss, suspend, lay off, demote or discipline an employee because of absence from work due to work-related illness or injury.

Notably, the employer in Kingsway Transport had communicated only sporadically with the employee during his 21-year absence.  In 2010, however, it demanded functional restrictions and a prognosis for a return to work.  When the employee provided his own self-assessment that he could not work, he was terminated.

The arbitrator ruled that this termination was a direct violation of Code s. 239.1, and ordered reinstatement (albeit not to active employment), along with benefits and pension contributions under the parties’ collective agreement.

Although this is only one decision and it is impossible to predict how widely it will be followed, Kingsway Transport serves as an important reminder of the need for employers to proactively communicate with employees on prolonged disability leaves. 

For example, had the employer in Kingsway Transport been patient, learned of the employee’s functional restrictions, and crafted a return-to-work plan based on modified duties, the aforementioned protection under s. 239.1 of the Code may have no longer been relevant.  Similarly, had the employer learned of non-work-related injuries or illnesses preventing the employee’s return to work, s. 239.1 of the Code may not have precluded the employer’s ability to terminate for frustration of contract.

At the end of the day, Kingsway Transport is an important reminder of the complex scheme of employment laws and regulations that employers operate in.  Whenever faced with situations involving disability and prolonged absences, termination should only occur after a careful examination of the employee’s rights and the employer’s corresponding obligations.