What is Frustration of Contract in Ontario?

by | Sep 8, 2022 | Employment Law | 0 comments

Simply put, in contract law, the frustration of a contract happens when one or more parties to the contract are unable to fulfil their contractual obligations due to unforeseeable circumstances outside of their control. As employment is based on an employment contract, either written or otherwise, the same frustration of contract occurs as a matter of law (not simply because one party claims it has been) when circumstances beyond the employer and employee’s control make it impossible for the employment to continue. There is also a relatively high standard for proving that an employment contract has been frustrated.

These are important distinctions because the compensation owed to an employee changes based on whether an employment contract is ruled to have been frustrated or not and the reason(s) the contract was frustrated. Learn more about frustration of employment contracts in Ontario, examples of frustrated employment contracts and the importance of consulting a top employment law firm if you feel, as an employer or an employee, that the employment contract has been frustrated.

Disclaimer: The information in this guide and everywhere else on this website is for general information only and is not intended to provide legal advice of any kind. No lawyer-client relationship is created by accessing or otherwise using Ertl Lawyers’ website or by communicating with a lawyer or staff member. If you need legal advice, contact one of the leading employment & disability lawyers in Toronto at Ertl Lawyers. We’re more than happy to speak with you.

When is an Employment Contract Frustrated in Ontario

Many contracts, including employment contracts, contain clauses (known as “force majeure,”  “Act of God,” or “excusable delay”) that outline the rights, obligations and protections of the parties to a contract should unforeseeable circumstances cause the contract to be:

  • Impossible to carry out.
  • Illegal if performed.
  • Substantially changed by those unforeseen circumstances.

There are, however, many employment contracts that do not include such a clause, or the clause doesn’t cover the unique circumstances that make the employment contract no longer tenable.

Those circumstances could trigger a frustration of the contract and absolve the parties from their contractual obligations, including an employer’s obligation to provide notice of termination and/or termination/severance pay – except when an employment contract is frustrated due to a disability, in which case, the employee is still entitled to the minimum notice period or pay in lieu of notice as provided in the Employment Standards Act (more on disabilities and frustration of contract below).

Closeup shot of a person holding a contract

Examples – When Frustration of Contract can Happen in Employment

Possible examples of frustration of an employment contract can include:

One of the most common reasons employment contracts become frustrated in Ontario, however, is when an illness or injury makes it impossible for an employee to continue working for their current employer.

That being said, if you are an employer seeking to have an employment contract deemed as frustrated, or you are an employee who is told by your employer that your disability has frustrated the terms of your contract, consult an employment lawyer in Toronto before assuming that the contract is no longer valid or taking any actions based on that assumption.

As you will learn below, even in situations that seem obvious that a contract has been frustrated, courts still make case-by-case decisions, and there can be a high bar for proving that an employment contract has been frustrated because of a disability.

Frustration of Employment Contracts in Ontario Due to a Disability – What the Law Says

The starting point for analyzing whether an employee’s long-term disability has frustrated an employment contract is the Ontario Human Rights Code. There are two main considerations that come from the OHRC regarding disability and employment:

An employer’s duty to accommodate an employee’s disability doesn’t require them to “change working conditions in a fundamental way” but to “arrange the employee’s workplace or duties to enable the employee to do his or her work” if they are able to do so without enduring undue hardship, as the Supreme Court of Canada stated in the case of Hydro-Québec v. Syndicat des employé-e-s de techniques professionnelles et de bureau d’Hydro-Québec, section locale 2000 (paragraph 16.)

What those accommodations might mean in practice can depend on several specific factors, including the type of work or industry, recommendations made by the employee’s physician and the employer’s resources. Some examples of workplace accommodations include:

  • A modified work area.
  • Flexible hours.
  • A lighter workload.
  • Special equipment or software.
  • Providing the employee with a workstation at their home.
  • Retraining/providing a different role.

If an employer believes that an employee’s disability and absence from work has frustrated the employment contract, they will have to show that they made every reasonable effort to accommodate the employee’s disability.

That said, however, there is one key condition to the employer’s duty to accommodate and the threshold for deciding that an employment contract has been frustrated by an employee’s disability – the desire and ability of the employee to continue working.

A woman lying in a hospital bed

When Does a Disability Frustrate an Employment Contract?

There isn’t a “time limit” or threshold for a length of time for deciding that an employee’s disability leave has frustrated the employment contract. As the ruling justice stated in paragraph 148 of the decision in Edmonton (City) v. ATU, Local 569, a contextual analysis must be done to determine if a disability is “permanent” or “non-permanent.” The judge also cited two separate cases in that same paragraph and noted that in one, a three-and-a-half year leave was considered permanent, and in another, a five-year absence was ruled temporary.

In the first case referred to by the judge, Fraser v. UBS, a helpful description was given that an employment contract is frustrated when “there is no reasonable likelihood of the employee being able to return to work within a reasonable time” in paragraph 3. Again, a reasonable amount of time is not quantified. This means that it is determined on a case-by-case basis on whether or not the time that has passed in your particular circumstances is considered reasonable. This is why it is always suggested that you contact an employment lawyer if your employer is trying to end your employment relationship on the basis of frustration of contract.

It is also not up to a party to contract to decide that it has been frustrated – once the circumstances exist, a contract is legally frustrated. This point was affirmed in the case of Hoekstra v Rehability Occupational Therapy Inc. In it, the justice ruled that the employment contract became frustrated when the doctor of the employee on disability leave wrote in an assessment that the employee “will not return to work” and not when the employer felt (and ultimately changed their mind) that the employment contract had been frustrated.

Situations That Do Not Amount to Frustration of an Employment Contract

If a party to a contract wants to have that contract dissolved, they carry the burden of proving so in court.

The test is not whether it would be harsh or difficult to carry out the contract but whether it is impossible, impractical or illegal to do so or whether performing the contract under the new circumstances would be fundamentally different than when the parties originally agreed to it.

Situations that are self-induced, foreseeable or temporary are not grounds for a contract to be frustrated. Some common examples of situations mistakenly thought to frustrate an employment contract might include:

  • An employer voluntarily declaring bankruptcy.
  • A slowdown in the economy.
  • An employer shutting down their business with the intention of re-opening a new one.
  • An individual employer retiring (e.g., a doctor, accountant, mechanic, etc.)

The bottom line is that identifying when the circumstances exist where a contract becomes frustrated is not easy to determine. Always get legal help from an employment lawyer in Ottawa or anywhere else in Ontario for guidance on whether or not the doctrine of frustration of contract applies to your situation.

David Ertl Lawyer
About David Ertl
David Ertl, LL.B, has practiced employment and disability law for over 20 years. He is also a certified workplace investigator, former adjunct professor, and has written extensively in the areas of employment law, disability insurance, and tribunal practice and procedure.


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