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An Ontario court found that an employer who terminated a disabled employee had the right to do so, based on frustration of contract. It found that because there was no reasonable likelihood that the employee would be able to return to work within a reasonable period of time, the contract of employment had been frustrated.

The Facts

The employee worked for the employer from 2002 until 2012, when he began a leave of absence for a medical condition. Under the terms of an insured employment benefit plan (the “plan”), the employee was provided with short-term disability (“STD”) and long-term disability (“LTD”) benefits.

The plan was administered on behalf of the employer by an insurance company which made all decisions and payments with respect to employee claims. The employer had no involvement in the insurance company’s decision process and could not legally challenge its decisions.

The insurance company approved the employee’s claim for STD benefits and then LTD benefits as a result of his disability and inability to work.

In 2014, the employee completed a return to work form which stated that he was unable to work and that his return to work date was “N/A”.  The form was stamped by his general practitioner.

In a letter from the insurance company dated December 5, 2014, the employer was advised that the employee could not return to work and that the insurance company had concluded that he was “permanently” totally disabled in relation to both his own occupation and any occupation.

In September of 2015, the employer reviewed the employee’s file and decided that on the basis of the letter, and in the absence of any other documentation to the contrary, the employee was “permanently” totally disabled from employment in any occupation and that it was unlikely that he would be able to return to work within a reasonable time.

As a result, on September 15, 2015, the employee was advised that he was terminated from employment for frustration of the contract. He was also told that he would continue to receive LTD benefits provided he remained totally disabled as defined in his insurance plan and that the employer would pay him his minimum entitlements pursuant to the Employment Standards Act.

Position of the Parties

The employee commenced a wrongful dismissal action, in which he denied that his 13 year employment contract was frustrated. He argued that the employer had not properly considered the possibility of his return to work. He submitted that, at the time of his termination from employment, it was not known if he would be returning back to work within a reasonable time-frame and the employer did not make any inquiries about his condition.

The employer brought a motion for summary judgment dismissing the employee’s action. It argued that at the time of his termination, the information provided by the employee and the insurance company led it to believe that he was permanently totally disabled and that there was no reasonable likelihood that he would be returning to work within a reasonable period of time.

The Issues

The court had to decide whether, at the time of the employee’s termination of employment, there was no reasonable likelihood that he would be able to return to work within a reasonable period of time and the contract of employment was frustrated.

The Decision

The court stated that the doctrine of frustration applied because the employee’s permanent disability made his performance of the employment contract impossible and the obligations of the parties were therefore discharged without penalty.

After reviewing the totality of the evidence, the court concluded that there was enough evidence at the time of the termination of employment that the employee was sufficiently disabled to qualify for his LTD benefits. As a result, the court found that it was reasonable for the employer to conclude at the time of termination of employment that there was no likelihood of the employee returning to work within a reasonable period of time.

The court therefore granted the employer’s motion and the employee’s claim was dismissed.

Get Advice

If you have questions about unfair practices in the workplace, wrongful dismissal, or any other employment matter, contact the Mississauga employment lawyers at Campbell Bader LLP. We regularly advise both employers and employees on a wide range of issues that arise at work. Contact us online or by phone at 905 828 2247 to schedule a consultation.