We don’t know when they are coming back. Can we terminate them for frustration of contract?”

Frustration of contract occurs when the contract (the employment relationship in this case), whether in writing or implied, becomes impossible to uphold. For example, when the employee is unable to perform their job or the employer is unable to offer work, for reasons beyond the control of either party.

This article will focus on frustration of contract due to illness or injury, because that is the most common for us.

Be aware however, that there are other reasons to claim frustration that are handled differently than described here.

Frustration of contract does not occur after a certain amount of time. Meaning, you cannot simply say ‘my employee has been off work for 2 years; therefore, it is time to claim frustration.’ Rather, frustration of contract is a function of the employee’s prognosis - when a doctor claims there is no reasonable expectation that the employee will be able to return to work in the reasonably foreseeable future.

Any time an employee is off work for more than 5 consecutive days, you as the employer should ask to have their doctor complete a Physician’s Statement which provides details on the prognosis, any potential restrictions or limitations, and the expected return to work date. Follow up forms should be completed by the doctor in intervals that are appropriate to the length of the leave. All forms should specifically ask the question: What is the likelihood of this employee returning to work in the reasonably foreseeable future?

As long as the doctor says there is a likelihood of the employee returning to work, you are required to accommodate this leave – whether it lasts for 2 months or 5+ years. Keep in mind that eligibility for Long Term Disability benefits is not the same as a medical leave requiring accommodation. In other words, just because an employee is denied LTD benefits doesn’t mean that you no longer have to accommodate the leave and can claim frustration of contract.

When and if the doctor says there is no expectation of the employee returning to work in the reasonably foreseeable future, then you can start thinking about frustration of contract.

When claiming frustration of contract due to illness or injury, you still need to provide the employee with the statutory notice of termination, or pay in lieu of the notice period, according to the Employment Standards Act. You do not have to pay common law termination amounts in this case. 

So, what can you do to protect yourself and your business?

1. Have an Absenteeism policy that requires employees to provide regular medical updates. Ensure your employees are aware of this policy and requirement.
2. Follow-up with the employee’s doctor regularly. Be sure you are receiving clear information – if you have questions about the information, reach out to the doctor to get clear answers.
3. Ensure that you are regularly asking the doctor about the employee’s prognosis and the expectation of a return to work in the reasonable future.