The Doctrine of Frustration in the Employment Context

Written on behalf of Peter McSherry

An employer may justify the termination of an employee’s employment “for cause”, meaning that the termination was warranted by the employee’s behaviour such that the departing employee is entitled to only the minimum of statutory termination and severance benefits. Reasons that justify immediate termination of employment include violation of company policy and procedure, any occurrence of violence or harassment in the workplace, and lying to the employer about material matters. However, the doctrine of frustration dictates that an employer may sever its employment relationship with an employee when, through the fault of none of the parties, the original employment contract cannot be honoured.

This blog will explore the circumstances in which frustration may occur in the employment context.

Employer Introduces Vaccination Policy

The case of Croke v VuPoint System Ltd. involved the plaintiff employee (the “employee”), who was employed by the defendant employer (“VuPoint”) as a technician. VuPoint is a company that provides residential satellite tv and internet installation services, with its primary customers being Bell Canada and Bell ExpressVu (“Bell”), which together provide VuPoint with more than 99% of its income. As such, all of the work the employee performed for VuPoint, was actually work performed for Bell.

In September of 2021, Bell introduced a mandatory COVID-19 vaccination policy that dictated that “all personnel who work at or visit any Bell location or interact in-person with Bell customers be fully vaccinated by September 20, 2021”. The Bell policy contained no alternative to vaccination (such as rapid testing) and “provided that failure to comply would constitute a material breach of the agreement between Bell and VuPoint”.

Once it became aware of Policy, VuPoint introduced its own, under which all installers were required to be vaccinated against COVID-19 and to provide proof of such vaccination to VuPoint. The VuPoint policy acknowledged that any non-compliant individuals would be prohibited from working for certain customers, including Bell, and thus would run the risk of not receiving any job assignments at all. However, neither the Bell nor the VuPoint policy addressed termination of employment as a result of the vaccination policy.

Employee Claims Termination Was Discriminatory

The employee was made aware of the need to become vaccinated; however, as he did not intend to receive such vaccination, he began seeking alternative employment as early as September 12^th, when he applied for a new job that did not require vaccination.

On September 28, 2021, VuPoint advised the employee that his failure to accept vaccination would result in the termination of his employment effective October 12, 2021, due to breach of company policy. He was paid severance of two weeks’ notice. On October 9, 2021, during the notice period, the employee sent a letter to VuPoint in which he advised that he considered his termination to be discriminatory.

In March of 2022, the employee was able to secure alternative employment, albeit with lower pay than that he enjoyed at VuPoint.

Vaccination Policy Gives Rise to Lawsuit

The employee commenced a claim against VuPoint for wrongful termination. VuPoint defended the claim on grounds of frustration, arguing that the “employment contract was frustrated as a result of the Bell Policy, over which VuPoint had no control. The Bell Policy required the appellant to be vaccinated, and without proof of vaccination, he lacked the necessary qualification to perform his duties and was ineligible to work for the foreseeable future”.

The motion judge agreed with VuPoint and dismissed the action on grounds that the introduction of Bell’s policy constituted an unforeseen event that frustrated the existing employment contract between the employee and VuPoint, such that VuPoint had been justified in terminating the employment agreement.

The employee appealed this decision to the Ontario Court of Appeal.

The Doctrine of Frustration: What it is and When Does it Apply?

The doctrine of frustration amounts to a “no fault” determination of responsibility with respect to termination of employment. As stated by the court in this case, “frustration occurs when a situation has arisen for which the parties made no provision in the contract and performance of the contract becomes ‘a thing radically different from that which was undertaken by the contract.’” The party who alleges that the contract has been frustrated must demonstrate:

1. that a ‘supervening event’ occurred and that such event:
   1. radically altered the contractual obligations between the parties
   2. was unforeseeable and was not contemplated by the contract, and
   3. was not caused by any of the parties to the matter.

Importantly, the Ontario Court of Appeal has previously determined that “a contract is not frustrated if the supervening event results from a voluntary act of one of the parties”. In other words, frustration of a contract happens when something unpredictable occurs that makes carrying out the terms of the contract as originally written, impossible, through no fault of either party.

When the doctrine of frustration is applicable, this means that the contract cannot be carried out as originally intended and the parties will part ways amicably upon payment of only the minimum entitlements due to any party upon completion of their contract. Damages for reasonable notice are unavailable in such cases, because the termination is considered no-fault (i.e., the employee did not do anything wrong to warrant their termination, and the employer did not do anything wrong in terminating employment – simply, the circumstances dictated that the contract could no longer be honoured, through no fault of either party).

Employee Argues Doctrine of Frustration Not Applicable to His Circumstances

In this case, the employee asserted that the doctrine of frustration was inapplicable to his circumstances because it was his voluntary decision not to comply with the VuPoint policy that led to the termination of his employment. As his decision was willingly made, the employee contended that the doctrine of frustration was thus inapplicable. However, the Court of Appeal disagreed, noting that “this is not a case where the conduct of the appellant in fact frustrated the employment contract. Rather… the Bell Policy was the supervening event which frustrated the contract”. Significantly, the letter from Bell that announced the new policy “made no reference to the conduct of employees, nor was the conduct of individual employees relevant for the application of the Bell Policy…The effect of the Bell Policy … was akin to that of a new regulatory requirement: absent vaccination, VuPoint’s employees were ineligible to work on Bell projects, which was nearly all of VuPoint’s work.”

If the policy enacted by Bell had constituted temporary or emergency measures meant to be of short duration, or if the employee had provided evidence that he intended to become vaccinated but simply had been unable to do so before the deadline imposed under the policy, then the doctrine of frustration may not have been applicable. However, in these circumstances, where the policy was intended to be permanent and did, in fact, radically alter the Bell Policy so as to now require a vaccination that was not previously required. The employee admitted that he never had any intention of becoming vaccinated against COVID-19, thus, the doctrine of frustration was clearly applicable.

Court of Appeal Find Doctrine of Frustration Applicable

The Court of Appeal was satisfied that the supervening event, being the introduction of the Bell Policy, constituted a radical change to the terms of employment that was unforeseen and had not been contemplated by either party at the time the contract was entered into. The event itself, being the COVID-19 pandemic, was certainly outside of either party’s control.

As such, the termination of the employee’s employment “was simply the inevitable result of [these findings] and of VuPoint’s corresponding entitlement to treat the contract as at an end”. Ultimately, the appeal was dismissed and the decision of the motions judge (that the employment contract had been frustrated), was permitted to stand.

Contact Guelph Employment Lawyer Peter McSherry for Advice of Employment Contract Disputes

If you believe you have been subjected to wrongful or constructive dismissal, or you have questions about the terms of your employment contract, it is important to seek trusted legal advice regarding your rights and obligations. The employment law team at Peter A. McSherry Employment Lawyer is here to guide you through complex workplace matters and provide skilled representation in all facets of employment law. Contact us today online or by telephone at 519-821-5465 to schedule a confidential consultation with a member of our team.