Ending employment relationships is never easy, but some situations arise where neither the employer nor the employee is truly at fault for the end of the employment relationship. In British Columbia, “frustration of contract” is a legal doctrine that can bring an employment relationship to an end when unforeseen events make continued employment impossible or fundamentally different from what was originally envisaged by the parties. Understanding what frustration means, and often more importantly what it doesn’t, can help both employers and employees navigate this complex area of employment law.

What Is Frustration of Contract?

Frustration of contract occurs when an unexpected event beyond the control of either party renders the performance of the employment contract impossible or radically different from what the parties originally agreed to. Unlike a typical dismissal, frustration is not about misconduct or poor performance. It is about circumstances that no one could have reasonably anticipated or prevented, interfering with the employment relationship.

For example, frustration can arise if:

• An employee becomes permanently disabled and is unable to work;
• A necessary work permit or license is revoked for reasons unrelated to fault; or
• A catastrophic event destroys the workplace, making the job impossible to perform.

Frustration is sometimes referred to as an “automatic” termination because it does not require one party to terminate the contract. Instead, the contract effectively ends by operation of law.

Disability and Illness: The Most Common Cause

Significant illness or long-term disability are the most frequent reasons frustration arises in employment relationships. However, this does not mean that every illness or disability results in frustration of the employment relationship. Just because an employee is away from work for an extended period does not mean the contract is necessarily frustrated.

Employers in B.C. have a duty to accommodate employees with disabilities under the British Columbia Human Rights Code to the point of undue hardship. That means the employer must consider whether modified duties, alternative work arrangements, or medical leave can allow the employee to return before concluding that frustration has occurred.

The courts have emphasized that frustration should be assessed carefully, taking into account:

• Medical evidence regarding the prognosis and likelihood of return to work in the foreseeable future;
• The duration of the absence from work;
• Whether the employee has exhausted statutory leaves or is in receipt of disability benefits; and
• The size and resources of the employer, including the ability to accommodate the absence.

A decision to end employment based on frustration without sufficient medical evidence can expose an employer to a wrongful dismissal or human rights complaint.

What Happens When a Contract Is Frustrated?

When frustration is established, the employment relationship ends, and neither party is liable for failing to perform the contract further. Importantly:

• Notice or severance under common law is not owed. Because frustration is the fault of neither party, there is no requirement by the employer to provide reasonable notice or pay in lieu.
• However, employers still have to comply with statutory minimums under the B.C. Employment Standards Act (ESA). Specifically, if an employee’s absence is due to illness or injury, the ESA requires payment of statutory termination pay, unless the contract is “impossible to perform due to an unforeseeable event or circumstance.” This can be a contentious issue.
• Any contractual provisions that apply on termination due to frustration (such as disability insurance entitlements or pension payouts) will continue to apply.

Best Practices for Employers

If you are an employer considering ending employment due to frustration, here are some best practices:

1. Gather clear medical evidence from the employee confirming the employee’s prognosis for a return to work in the foreseeable future;
2. Document all accommodation efforts to show that you explored modified duties or other options to accommodate the employee back to work;
3. Consult legal counsel before taking any steps. Frustration is a complex area with significant legal risks and nuance;
4. Provide a clear letter to the employee explaining the basis for concluding the contract is frustrated; and
5. Consider paying statutory termination pay under the Employment Standards Act unless an exception applies.

Considerations for Employees

If your employer claims that the employment relationship is terminated due to frustration, you should:

• Request a copy of the medical or other evidence relied upon by the employer;
• Confirm whether you are receiving all entitlements under the Employment Standards Act and any applicable policies;
• Consider whether the employer complied with its duty to accommodate your disability; and
• Seek legal advice promptly, especially if you believe you could have returned to work with accommodation.

Experienced Employment Lawyers

Frustration of contract can be a legitimate and necessary means to end an employment relationship when circumstances make continued employment impossible. However, because of the overlap with human rights protections and the duty to accommodate, it is critical that both employers and employees understand their rights and obligations.

If you are an employer or employee with an issue regarding a potential frustration of an employment contract, contact the experienced employment lawyers at Taylor & Blair LLP to schedule a consultation.