Frustration of contract is a legal doctrine that applies when unforeseen circumstances make it impossible for either party to perform the contract. In employment, this typically arises when a disability becomes permanent and makes return to work or continuing the employment relationship genuinely impossible.
Key features include:
- External circumstances: the situation arises through no fault of either party (not misconduct or poor performance)
- Impossibility, not hardship: it is not that the employer finds it inconvenient; it’s that performance has become impossible
- No reasonable likelihood of change: based on current evidence, there is no realistic prospect of the employee returning to work in a foreseeable timeframe
When a court finds frustration, the employment relationship ends. However, this does not mean the employee walks away empty-handed. Minimum statutory entitlements under Ontario’s Employment Standards Act, 2000 still apply.
The following two cases from Ontario provide a helpful analysis and perspective on frustration of contract.
Frank Naccarato worked at Costco for 12 years before taking disability leave for depression in 2002. After four years absent, Costco received a letter from his doctor saying he couldn’t predict when Naccarato would return to work. Based on this letter and the long absence, Costco terminated him, citing frustration.
The court disagreed. It felt Costco failed to complete a thorough investigation into Frank’s disability status and fitness to return to work. The doctor’s statement was ambiguous, and It didn’t conclusively prove permanent disability. The court awarded Naccarato 10 months of reasonable notice of dismissal (far more than the statutory minimum), finding the contract had not been frustrated.
Takeaway: Length of absence alone is not enough. Employers must obtain clear medical evidence about prognosis, not just guesswork.
Roskaft worked at RONA for over 10 years before a medical leave in 2012. Two years later, his disability insurer wrote to RONA saying he was “totally disabled” and could not return to work. Roskaft himself wrote “N/A” (not applicable) when asked his return-to-work date. Based on this evidence, RONA terminated him after three years absent.
The court found this was frustration of the employment relationship. Unlike Naccarato, RONA had clear evidence: the insurer’s explicit determination, plus Roskaft’s own statement. The termination was valid.
Takeaway: Solid, specific medical evidence, such as from an insurer or treating physician matters. So does what the employee themselves says about their prospects.
Best practices and implications for employers:
- You can terminate on grounds of frustration, but you must prove it clearly. Take steps to secure specific medical evidence about whether return to work is realistic, not just concerns about the length of an absence.
- Request regular updates from the employee or their doctor addressing whether return to work is realistic. Ask specific questions: “Can the employee work? If not, is this permanent?”
- Keep copies of all medical letters, disability insurance determinations, and communications with the employee about their status.
- If medical information is unclear, ask for clarification. Don’t just assume time passing means the contract is frustrated.
Even if frustration of contact is found, you must pay the Employment Standards minimum termination payments: notice or pay in lieu of notice of termination, and severance pay (if applicable), and benefits continuation (if applicable), along with other entitlements.
Best practices and implications for employees:
- Being on disability leave doesn’t automatically mean you’ll be fired. Your employer must prove there’s genuinely no reasonable chance you’ll return to work—and this is a high bar.
- Don’t go silent. Provide regular updates on your status. If there’s any possibility you might return (to any role, even modified work), say so.
- Obtain a detailed assessment from your doctor addressing your prognosis. Clear evidence about whether recovery is possible protects you legally.
- Review what disability insurance you’re receiving and for how long. Understand your rights
- If your employer suggests termination on grounds of frustration, don’t accept it without advice. The difference between statutory minimums and common law notice (which could be months or years longer) is substantial.
Frequently Asked Questions
If I’ve been on disability leave for two years, can my employer terminate me?
Not automatically. Frustration is not about time; it’s about medical reality. Your employer must prove there’s no reasonable likelihood you’ll return to work. If there’s any real possibility of recovery or modified work, the contract is not frustrated. Consult a lawyer if your employer suggests termination.
What happens if my employer wrongly claims frustration and fires me?
If a court finds frustration was not actually established, you’re entitled to common law reasonable notice for wrongful dismissal, which is typically much longer and more generous than statutory minimums. In recent years, courts have awarded 24-28 months of reasonable notice of termination, and most recently up to 33 months of total compensation. This is why employers must gather clear evidence before terminating on grounds of frustration.
My disability insurer says I’m totally disabled. Does that end my job?
An insurer’s determination is important evidence, but it doesn’t automatically frustrate your contract. The court will also look at whether your condition is truly permanent and whether there’s any realistic path to return. A determination at one point in time is not the same as proof of permanent disability.
What am I entitled to if frustration is established
In most cases, you receive statutory minimums under the Ontario Employment Standards Act, 2000: notice or pay in lieu of notice of termination, and severance pay (if applicable), and benefits continuation (if applicable), along with other entitlements.
Disability, frustration of contract, and wrongful dismissal questions sit at the intersection of employment law, disability accommodation, and medical evidence. These issues affect both employees and employers, and the stakes are high, the difference between statutory minimums and common law entitlements can mean thousands of dollars.
For employers, understanding the legal framework and gathering appropriate evidence protects you and avoids costly litigation. For employees facing termination on grounds of frustration, prompt legal advice can significantly improve your position.
Pelsmakher Law advises both employers and employees on disability accommodation, frustration disputes, wrongful dismissal claims, and managing employment relationships where disability is involved.
Contact Pelsmakher Law for a confidential consultation on disability, frustration of contract, or employment terminations involving disability. Please visit our blog and insights page for more guidance on Ontario employment law
