A. INTRODUCTION
Employers, including charities and not-for-profits,
may be faced with the challenges of dealing with employees
who suffer from long-term disabilities. These disabilities
may unfortunately prevent the employee from returning to
work for significant and unknown periods of time. Focusing
on two recent Ontario Superior Court decisions, this Bulletin
reviews the law regarding the termination of employees suffering
from long-term disabilities, and will provide some guidance
to employers as to the matters that need to be considered
in deciding whether to terminate disabled employees.
B. THE DOCTRINE OF "FRUSTRATION" OF CONTRACTS
For an employer
to justly terminate a long-term disabled employee, the employment
contract must be found to have been ‘frustrated’. The doctrine
of frustration of a contract was summarized by Binnie J.
in the Supreme Court of Canada decision in Naylor Group
Inc. v. Ellis-Don Construction Ltd.,
where he stated:
“Frustration occurs when a situation
has arisen for which the parties made no provision in the
contract and performance of the contract becomes a thing
radically different from that which was undertaken by the
contract.”
This
doctrine of frustration is relevant to employment contracts
in cases where an employee is unable to work because of
a disabling illness, whether it be physical or mental. The
question employers must carefully consider in these situations
is whether or not the employee’s incapacity appears likely
to continue for such a period that further performance of
the employee’s obligations in the future would either be
impossible, or would be a thing radically different from
that undertaken by him and agreed to be accepted by the
employer under the agreed terms of the employment. Each
situation needs to be decided on its own facts and circumstances,
taking into consideration factors such as: the terms of
the contract, how long the employment was likely to last
in the absence of the illness, the nature of the employment,
the nature of the illness or injury, and the prospects of
recovery.
Case
law has suggested that the longer an illness persists, the
more likely that frustration of a contract will be found.
Smith J.A. in Wightman Estate v. 2774046 Canada Inc.
stated that if an employee’s sickness persists for an extended
period of time, then it is more likely that the employment
relationship has been destroyed. However, as discussed below,
employers face the risk of wrongful dismissal claims even
when an employee has been unable to work for several years.
C. RECENT DECISIONS
1.
Duong v. Linamar Corp.
An employer recently successfully defended
a wrongful dismissal action in the decision of Duong
v. Linamar Corp.
In this decision, an employee, who was employed as a machine
operator, suffered from a severe back problem and was unable
to work for over four years. The long term disability benefits
that the employee was receiving for 24 months were eventually
terminated as a result of the employee’s refusal to participate
in a mandatory rehabilitation program. Eventually, the employee
was terminated due to frustration of contract. The employee
commenced an action against the employer for wrongful dismissal,
breach of fiduciary duty and breach of contract.
Newbould J. ruled that the contract
of employment was frustrated. The fact that the employer
provided the employee with long term disability coverage
did not mean the employer was required to employ the person
indefinitely. Nothing within the employee’s contract indicated
that the contractual relationship would continue in spite
of a permanent disability. The termination of the plaintiff’s
employment was justified by reason of frustration of contract,
based on the fact that there was no foreseeable date that
he would be able to return to work.
2.
Naccarato v. Costco Wholesale
Canada Ltd.
In another recent decision,
an employee was similarly terminated on the basis of frustration
of contract, as a result of his long and continuing absence
from employment due to disability. The plaintiff was employed
with Costco Wholesale Canada Ltd., and became absent from
work for approximately five years as a result of depression.
The plaintiff received short and long-term disability benefits
in accordance with the group insurance policy. After the
employee’s contract was terminated on the basis of frustration,
the plaintiff brought an action for wrongful dismissal.
However, unlike the Duong decision, the employer
was found liable to the former employee for wrongful dismissal.
The court in this case took a somewhat
different approach to the doctrine of frustration of contract.
Justice A. Pollak preferred the approach taken in the earlier
decision of Skopitz v. Intercorp. Excelle Foods Inc.
In that case, Justice Sachs discussed the doctrine of frustration
in the context of an employment contract. He opined that
a contract can only be considered frustrated when the illness
or incapacity is of such a nature or likely to continue
for such a period of time that either the employee would
never be able to perform the duties contemplated by the
original employment contract, or that it would be
unreasonable for the employer to wait any longer for the
employee to recover. There must be regard had to the
relationship of the term of the incapacity or absence from
work to the duration of the contract, and to the nature
of the services to be performed. Essentially, this approach
requires evidence provided by the employer that either the
employee will not be returning, or that the employer will
suffer disruption or hardship if the employment contract
is maintained.
As a result of this interpretation,
the employer was unable to successfully rely on frustration.
Since there was no evidence of any hardship or disruption
to the employer in maintaining the plaintiff as a long-term
disabled employee, the judge held that the employment contract
had not been frustrated. Another element that contributed
to this finding was the fact that the employer did not provide
the court with the necessary medical evidence to support
a finding that the plaintiff would be unable to work in
the reasonably foreseeable future. Also, the presence of
long-term disability benefits suggested that a much longer
period was anticipated before it could be said that the
frustration of contract had even occurred.
D. HUMAN RIGHTS CODE CONSIDERATIONS
In dealing with disabled
employees, it is also important that employers be aware
of their obligations pursuant to the Ontario Human Rights
Code.
Under section 5(1) of the Code, employers cannot discriminate
against employees on the basis of disability, and, under
s. 17(2), they must accommodate disabled employees to the
point of ‘undue hardship’. Therefore, to comply with the
Code, termination should only be considered once reasonable
attempts to accommodate the employee to a return to work
have failed.
E. EMPLOYMENT STANDARDS ACT, 2000 CONSIDERATIONS
It is also important to note that as
a result of amendments to Regulation 288/01 of the Ontario
Employment Standards Act, 2000
(the “ESA”), provincially regulated employers in Ontario
that terminate an employee on the basis of frustration of
a contract due to illness or injury must pay statutory termination
and, if applicable, severance pay. The amount of these payments
are based on years of service, as set out in the ESA.
F. SUMMARY
The Naccarato decision raises
concerns for employers who are deciding the future of long-term
disabled employees in their organization. Before an employer
takes action to terminate an employee, they should take
precautions to ensure that they have relevant evidence from
a medical doctor confirming that the employee will not be
returning to work anytime in the foreseeable future. Therefore,
it may be necessary to have an independent medical examination
done before any decision is made. The Naccarato decision
highlights the risk that employers face in terminating disabled
employees. Dealing with disabled employees can be both challenging
and frustrating. This is a situation where employers need
to be very careful to reduce the risks of both civil claims
and human rights complaints.
