Ontario Court Finds No Frustration of Contract After Employee’s 33-Month Disability Leave

Written on behalf of Peter McSherry

The Ontario Divisional Court’s recent decision in Boucher v. Black & McDonald Ltd.  provides an excellent overview of a number of fundamentally important elements of employment law, including the effect of an employee’s long term absence, frustration of the employment contract, the interplay of disability payments and wrongful dismissal damages, as well as human rights damages for an employer’s failure to accommodate a disability.

This case was an appeal filed by the employer of two previous decisions of the Ontario Small Claims Court.

What Happened?

The employee (Ms. Boucher) was hired at Black & McDonald Ltd. (BML) in 2008. In June 2010, she went on maternity leave. While on leave, Ms. Boucher was assaulted and verbally and emotionally abused. She began to suffer from depression and anxiety and started to attend weekly psychotherapy.

Ms. Boucher was approved for Short-Term Disability (STD) as of June 2011. Following the expiration of her STD benefits, she was approved for Long Term Disability (LTD) benefits in October of that year. Several proposed return to work dates were postponed due to her ongoing medical issues.

Eventually, in September of 2013, Ms. Boucher advised BML that she would be able to return to work by November 11, 2013. However, on October 31, 2013, before Ms. Boucher could return to the workplace on the appointed November date, she was terminated due to “absence of several months” and alleged frustration of her employment contract.

It subsequently came to light that BML had hired a new employee to permanently fill Ms. Boucher’s job in March 2013, while discussions about return to work had been ongoing, and without notifying Ms. Boucher or the insurance company.

The Original Small Claims Decision

Employee’s Position: Wrongful Dismissal

Ms. Boucher filed a wrongful dismissal claim, stating that her employment had not been frustrated, that a clear return to work plan had been made, and that she would have been able to return to work had she not been terminated.  She further argued that BML should not benefit from the insurance company’s decision to pay out disability benefits, and additionally claimed that she had been terminated due to her disability and that BML had therefore also breached the Human Rights Code.

Employer’s Position at Trial: Employee was Not Going to Return

BML maintained that there had been a frustration of the employment contract, that there had been no reasonable prospect that Ms. Boucher would return to work, and that in her absence, her job “needed to be done”. Moreover, the employer claimed that any obligations they had to Ms. Boucher under the Human Rights Code ceased upon the frustration of her employment contract.

Small Claims Court Findings

The original trial judge rejected BML’s argument that the employment contract had been frustrated. Whether a contract had been frustrated depends on whether an employee’s illness was likely to continue for such a long duration that either a) the employee would never be able to return to work; or b) it would be unreasonable for the employer to wait any longer for the employee to be back.

In this instance, there had been absolutely no evidence indicating that Ms. Boucher would never be able return to work. On the contrary, the medical reports indicated that she would have been able to return, and that she would only require a graduated/gradual return for a short period of time.  The Judge also rejected the employer’s argument that there had been a clear and present need to fill Ms. Boucher’s position, noting:

In accordance with the disability contract and the Human Resources policies, she had to advise no later than October 19. 2013 whether she would return. In that she had already been on leave for approximately 33 months. Is it reasonable for the defendant to decide it could no longer wait for another 6 months?

The judge concluded that Ms. Boucher had been wrongfully dismissed, stating:

BML terminated her employment before the end of her leave period because she was not able to return at the moment that BML wanted her to return.

Ms. Boucher was awarded eight weeks’ of reasonable notice damages, with the judge additionally noting that BML should not have the benefit of deducting any amount that had been paid out as part of her STD or LTD.

Ms. Boucher was also awarded punitive damages for BML’s violation of their duty to act fairly, stemming from the fact that BML continued to work with Ms. Boucher and the insurer on a return to work plan, when they clearly had already hired someone else, and had no intention of bringing her back.

The Appeal

Human Rights Violation

In its appeal, BML argued that the original trial judge had incorrectly found that the termination had occurred because of Ms. Boucher’s disability without considering any undue hardship BML may have faced due to her absence from the workplace.

The Appeal judge rejected this argument. A decision to dismiss an employee, whether based in whole or only in part on the fact that the employee has a disability, is discriminatory and contrary to the Code.

Since Ms. Boucher was on disability leave, BML had a duty to accommodate her disability, and was well-aware of it. Despite this, after Ms. Boucher’s return to work plan was finalized, she was terminated as BML was unwilling to wait any longer for her return.  No evidence or documentation of any accommodation, proposed accommodation, or alternative solutions to termination had been presented at trial.

BML had failed in its duty to accommodate, and it is well established by caselaw that an employer’s failure to take appropriate steps to assess a disabled employee’s accommodation needs is a human rights violation.  Moreover, while BML attempted to argue that they had hired Ms. Boucher’s replacement “out of necessity”, it has been recognized that “business inconvenience” is not a defence to a failure to accommodate.

Frustration of Contract

The Appeal judge agreed with the original trial judge’s finding that the contract had not been frustrated.

Per well-established caselaw, a permanent disability will frustrate an employment contract. However a temporary sickness or disability will not. In order to establish frustration, the employer must present clear evidence that there is no reasonable likelihood that the employee will return to work in the foreseeable future. In this instance, there was a clear plan for Ms. Boucher’s return to work, and BML had been advised in early October that she would be coming back to work by November. Despite this, Ms. Boucher was terminated.

Disability Payment Deductions

BML also argued that in awarding Ms. Boucher eight weeks of wrongful dismissal damages, the Court had correctly deducted the four weeks’ of notice that had already been paid to her, but had not taken into account the seven weeks of disability payments that had been made to her due to a hernia surgery, which coincided with the notice period awarded by the Court.

The Supreme Court has established that benefits may be deducted from wrongful dismissal damages if:

1. The disability benefits were intended to be a substitute for a regular salary;
2. The simultaneous payment of disability benefits and damages for wrongful dismissal is inconsistent with the terms of the employment contract;
3. The disability benefits are not part of a private insurance plan which the employee has paid for.

In this case, Ms. Boucher’s employment contract did not provide for disability benefits to be deduced from a damages award. In addition, she had contributed to the insurance plan provided by a third party insurer, and BML had not. Therefore, the original trial judge had been correct in concluding that the LTD payments that Ms. Boucher had received should not have been deducted from her reasonable notice damages.

If you are an employee and have questions about wrongful dismissal, workplace human rights and disability insurance, or your rights in the workplace, contact Peter McSherry by phone at 519-821-5465 or by e-mail to schedule a consultation today. I can protect your rights, advocate for your best interests with employers, and ensure your case is handled properly and efficiently for a fair settlement.