A recent decision of the Supreme Court of British Columbia serves as an important reminder that employers cannot simply rely on the doctrine of frustration of contract whenever an employee is unable to return to work due to illness or disability. In Hedrick v. Toews, 2026 BCSC 1250, the Court found that an employer who contributed to an employee’s inability to return to work could not rely on frustration of contract to avoid liability for wrongful dismissal.

For both employers and employees in Ontario, the decision offers valuable guidance on workplace safety obligations, disability-related terminations, and the narrow circumstances in which frustration of contract will apply.

What Happened?

The employee worked as an insurance producer for more than seven years. During her employment, she was repeatedly stalked and harassed by a representative of one of the employer’s major clients. She repeatedly brought her concerns to management, explaining that the stalking had escalated and was seriously affecting her mental health.

Although the employer initially expressed concern, the Court found that meaningful steps were not taken to address the situation. As the employee’s mental health deteriorated, she was eventually diagnosed with PTSD and major depressive disorder, went on disability leave, and was later informed that she could not safely return to work with her employer.

The employer terminated her employment, arguing that the employment contract had been frustrated because she could no longer perform her job.

The Court Rejected the Employer’s Defence

The Court acknowledged that frustration of contract is available in limited circumstances where an unforeseen event makes it impossible for the employment relationship to continue. However, one essential requirement is that the supervening event must not have been caused by either party.

After reviewing the evidence, the Court concluded that the employer’s own conduct contributed to the employee’s inability to return to work. Among other findings, the Court held that management failed to take reasonable steps to protect the employee’s health and safety despite being aware of the ongoing stalking and its impact on her wellbeing.

Because the employer contributed to the circumstances leading to the employee’s disability, it could not rely on frustration of contract as a defence. The dismissal was therefore wrongful.

Damages Awarded

The Court awarded the employee nine months’ pay in lieu of reasonable notice, calculated using the average of her earnings over the previous three years due to the commission-based nature of her compensation.

The Court declined to award aggravated or punitive damages, finding that although the employer’s conduct was insensitive and inadequate, it did not rise to the level of malicious or high-handed conduct required for those additional remedies.

Why This Case Matters for Ontario Employers

Although this decision was issued in British Columbia, the legal principles surrounding frustration of contract are broadly consistent across Canada, including Ontario.

The case reinforces several important lessons:

  • Frustration of contract remains a very narrow defence to wrongful dismissal.
  • Employers should not assume that a long-term disability automatically ends the employment relationship.
  • Where an employer’s own actions contribute to an employee’s inability to work, the frustration defence may not be available.
  • Employers should carefully consider their obligations to maintain a safe workplace, accommodate employees where required, and seek legal advice before terminating employment based on medical incapacity.

How Pelsmakher Law Can Help

Whether you are an employer considering whether a contract has been frustrated or an employee who has been dismissed while on disability leave, obtaining legal advice early can make a significant difference.

At Pelsmakher Law, we regularly advise employees who believe they have been wrongfully dismissed. We also regularly work with employers on workplace policies, disability management, accommodation obligations, and lawful terminations.

This article is intended for general information only and does not constitute legal advice. Every employment situation is unique, and legal advice should be obtained based on the specific facts of your case.