The Ontario Court of Appeal has affirmed that an employee’s illness or disability will frustrate an employment contract only in circumstances where the condition is sufficiently enduring to prevent the employee from performing the essential duties of the employment within a reasonable time. Temporary limitations that can reasonably be accommodated will generally not frustrate the contract.
In Hill v 1359768 Ontario Inc. (B&B Towing), 2026 ONCA 577 (CanLii), the Ontario Court of Appeal reviewed a trial court decision involving a towing services company that was found to have constructively dismissed the employee by demoting him from the managerial position of road boss to a tow truck driver. The Court of Appeal did not find frustration of the employment contract in this case and affirmed the legal test to determine when this can occur.
Legal Test:
“The question is whether the employer has proven that the employee’s sickness, injury or disability is so enduring as to defeat the object of the employment contract because the employee is unable to discharge the essential duties under the contract.”
Factors that inform that analysis whether the employment contract has been frustrated due to illness include:
- Terms of the contract
- Length of time the employee is likely to remain sick
- Nature of the employment
- Nature of the illness
- Availability of sick leave and pay
- Period of past employment
- How long employer should reasonably be expected to await the employee’s return
The key principles of frustration in employment contracts are the following:
Governing principles of frustration in employment contracts
Depending on the nature, seriousness and duration of an employee’s disability, an employment contract may be frustrated by the disability of an employee to perform the essential duties of the position. SEE Lemesani v Lowerys Inc., 2017 ONSC 1808 (CanLII), affirmed Lemesani v. Lowerys Inc., 2018 ONCA 270 (CanLII).
“Frustration of contract occurs when a permanently disabled employee cannot return to work because the disability makes it impossible for the employee to perform the contract. In such circumstances, the onus is on the employer to prove that the contract was frustrated. If there is no reasonable likelihood at the time of termination that the employee will be able to return to work within a reasonable period of time, then frustration of contract applies.” See: Nason v. Thunder Bay Orthopaedic Inc., 2015 ONSC 8097, cited in Lemesani v Lowerys Inc., 2017 ONSC 1808 (CanLII).
A contract is frustrated where, without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. –Nagpal v IBM Canada Ltd., 2021 ONCA 274
The disruption must not be simply inconvenient, transitory or temporary. –Aldergrove Duty Free Shop Ltd. v MacCallum, 2024 BCCA 28
Frustration will be established only when, at the time of frustration, there is no reasonable likelihood of the employee being able to return to work within a reasonable time. –Fraser v UBS, 2011 ONSC 5448
The employer is under a duty to accommodate the employee’s disability up to the point of undue hardship. –Lemesani v Lowerys Inc., 2017 ONSC 1808, affirmed 2018 ONCA 270
However, an employer is not required to amend the job description or delete a component that is significant in terms of time and responsibility. –De Palma v Canadian Federation of Independent Business, 2019 ONSC 7602
Hill v B&B Towing: Result
The Ontario Court of Appeal ultimately decided in Hill v 1359768 Ontario Inc. (B&B Towing) that the trial court applied the legal test and analysis correctly when the trial judge found that:
- The employee was off work for 19 months, a relatively short period in comparison to other cases
- No evidence that the business could not tolerate the employee’s absence
- The employer assumed the employee’s responsibilities
- Employer did not ask employee’s doctor whether he would be likely to return to work in the foreseeable future
- Doctors considered a trial return to work
- Employee returned to work and would have continued to work if the position had remained available
- The physical nature of the job of road boss were either minor or could be accommodated
- Reasonable accommodation was possible without undue financial hardship
- Physical limitations were temporary at date of termination of employment
The Court of Appeal found no reversible error in the trial court’s determination that there was no frustration of the employment contract in this case, though allowed the appeal in part on other damages grounds.
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