May Employer Alert: Frustration and Employee Termination Entitlements

Ontario Court of Appeal Confirms Sometimes Frustration with an Employee Means They Have No Termination Entitlements

When an employee is dismissed, they are normally entitled to a substantial payout. Most employers are aware that there is an exception to termination entitlements where there is just cause and willful misconduct. However, this is not the only time when an employee can be dismissed without any termination entitlements. Where the employer can establish frustration, then the employee may have limited or no termination entitlements.

So what is frustration? Simply put, it’s when the employment relationship has become frustrated or impossible. Frustration occurs when the employment contract cannot be performed. There are normally three circumstances where frustration exists:

  1. the employee is unable to perform the fundamental duties of their position for the foreseeable future because of illness, injury, or disability;
  2. the employee has died; OR
  3. an unforeseeable event or circumstance beyond the employer’s control has made the contract of employment impossible (e.g. an earthquake has destroyed the workplace).

When an employer can establish frustration, then an employee will normally have no termination entitlements. However, some exceptions exist. For example, in Ontario, if frustration occurs as a result of illness or disability, then the employee will still be entitled to their minimum statutory termination entitlements. Any further entitlements though are extinguished. As such, where an employer can establish frustration on the basis of disability, the termination obligations can be reduced from 24+ months to potentially only 8 weeks’ compensation. Where an employer can establish frustration on other grounds, the termination obligations can potentially be reduced from 24+ months to nothing.

Recently, the Ontario Court of Appeal upheld a decision that an employee’s failure to comply with a vaccination requirement amounted to frustration. In the matter of Croke v. VuPoint Systems Ltd., the employer’s main client had a vaccination policy. Pursuant to the client’s policy, the employer asked its employees if they were vaccinated. One employee refused to disclose if he was vaccinated. When the employer told him that he would be dismissed if he did not comply, the employee confirmed he would not disclose if he was vaccinated. The employee did not raise any protected human rights grounds. In response to the employee’s refusal to comply, the employee was dismissed. The employee then commenced litigation seeking his termination entitlements. A motion judge dismissed the action on the basis that non-compliance with the client’s policy constituted frustration of the employment contract. On appeal, the Ontario Court of Appeal upheld the motion judge’s decision. As such, it was confirmed that the employee had no termination entitlements.

The decision of VuPoint Systems confirms that in certain circumstances, if you are feeling frustrated as an employer, you may be able to end the employment relationship without triggering any termination entitlements. However, employers should be careful before leaping to the conclusion there is frustration. Establishing frustration can be complicated and even where frustration exists the employee may still have entitlements. For example, if the employee in VuPoint Systems had advised he was not vaccinated further to a disability, then he would have been entitled to accommodation under the applicable human rights legislation. Employers should also be careful not to accidentally overlook frustration, by treating the termination of the employment relationship as a normal termination, with a full payout.

For strategic advice on addressing situations where you could claim frustration of the employment relationship, please contact our firm.