Frustrated Contracts and Frustrated Employees

Feb 4, 2014

What is a frustrated contract? Employment contracts are “frustrated” when an unforeseeable event occurs which makes it impossible for one or both parties to a contract to fulfill its terms. The most common situation occurs when an employee is totally disabled following an illness or accident.

Termination and Severance Pay

Often employers believe that if an employee cannot work for an extended period of time because of illness, the employer can end the employment relationship without consequence. The employer believes that they have a frustrated contract on their hands. However, if there is a frustration of contract as a result of the employee’s illness or injury, the employer may be required to pay the employee termination and severance pay under the Employment Standard Act (“ESA”). Even if you will never return to work again because you are totally disabled, you should know that your employer may be required to pay you up to 34 weeks’ pay.

Wrongful Dismissal

Employers sometimes take the position that the employment contract is frustrated because the employee is receiving Long-Term Disability (“LTD”) benefits.  Many LTD policies will pay benefits for up to two years if an employee cannot complete the tasks of his/her own occupation.  However, after two years these policies often cut off benefits unless the employee cannot complete the tasks of any occupation. If you still qualify for LTD benefits after 2 years this does not mean that the employer can automatically consider your employment relationship over.  If the employer ends your employment at that time, you may be able to collect wrongful dismissal damages.

Human Rights

Some employers include clauses in employment contracts which state that the employee is deemed terminated if he or she cannot work because of illness for 90 days. This can be a violation of the Ontario Human Rights’ Code (“Code”). Even if you have been disabled for many months, or years, this does not mean that your employment is frustrated. Employers have a duty under the Code to accommodate employees with disabilities to the point of undue hardship. Only if you are incapable of performing the essential duties of your job, with accommodation, can the employer terminate your employment. You can bring a complaint against your employment under the Code.

For more information on termination pay and severance pay under the ESA, possible damages for wrongful dismissal or possible human rights damages, see our other blogs.

If you have suffered an illness or injury and are concerned that you may have a frustrated contract or you are worried about your employment status, contact us at [email protected] or 647-633-9894.

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.


Recent Posts

Short service, long notice

Employees with only a few years (or even months) of service tend to believe that they aren’t entitled to much notice or pay in lieu of notice upon termination. As we have written before, we have seen a trend of longer notice periods being awarded to employees in...

read more

Toronto Office

702 - 2 Bloor Street West,
Toronto, ON M4W 3E2

Barrie Office

277 - 92 Caplan Avenue,
Barrie, ON L4N 9J2

Collingwood Office

220 - 1 First Street
Collingwood, ON
L9Y 1A1



+1 (888) 640-1728


(866) 883-8445


[email protected]

Toronto Office

702 - 2 Bloor Street West, Toronto ON M4W 3E2

Barrie Office

277 - 92 Caplan Avenue, Barrie ON L4N 9J2

Collingwood Office

220 - 1 First Street, Collingwood, ON L9Y 1A1


Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our team.

You have Successfully Subscribed!