Frustration of contracts is a legal doctrine used most commonly in the area of employment law. While employment lawyers are quite familiar with its meanings and intricacies, most of the people impacted by the doctrine, namely employers and employees are not nearly as clear. 

The COVID-19 pandemic has created complicated contractual relationships for many, raising many questions about frustration of contracts in Ontario. 

To help employers and employees properly navigate this legal landscape, we are answering some common questions about the doctrine of frustration and what it could mean for you.

What is Frustration of Contract?

Some contracts contain what is known as a force majeure clause, a provision protecting parties from events beyond their control. 

But what happens if your contract does not have a force majeure and one of the parties wants out of their obligations? This is where the doctrine of frustration may come into play. 

Frustration of contracts in Ontario may apply in cases where, without the fault of any particular party, an unforeseen event occurs. This includes one in which there have been no expressed or implied provisions in the contract, making the performance of the contract radically different from what was originally agreed to. 

In these circumstances, a party may be relieved from further contractual obligations. In terms of employment contracts, this means that the employment relationship can be severed without having to provide notice or severance pay. 

The only exception to this occurs in the instance of employee injury or illness. Under these circumstances, the frustration of contracts in Ontario requires the employer to pay out a minimum statutory termination pay and/or severance pay. 

When is a Contract Frustrated?

A contract is frustrated when, as mentioned above, an unforeseen event occurs that dramatically changes the parties’ ability to perform the terms of the contract. 

For example, if a retail store experiences a catastrophic fire and employees are unable to work, the contract may be frustrated. Or, if an employee develops a disability that renders them unable to work for the foreseeable future, the contract may be frustrated. 

Frustration of contract does not occur, however, if the termination of contractual performance would be unreasonably harsh, difficult, or onerous in the new set of circumstances. Instead, the continued contractual performance must be impossible, impractical, or substantively different than what both parties originally agreed to. 

The party looking to avoid further contractual performance or obligation is responsible for proving frustration. 

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Who Gets to Assert Frustration of Contract?

Most often it is an employer that asserts frustration of contract. 

Employers commonly use this doctrine when an employee is on medical leave for years at a time without any prospects of returning to work in the future. 

It can be financially beneficial to an employer to seek frustration of contract. The minimum statutory amounts paid to a frustrated employee can be cheaper than keeping them on, obviously, but also cheaper than the common-law notice requirements that may be payable to an employee after a without-cause termination. 

But having said all of that, the Ontario Superior Court of Justice, in Hoekstra v Rehability Occupational Therapy Inc., 2019 ONSC 562 (CanLII), determined that frustration of contract occurs as a matter of law, meaning that when circumstances arise that frustrate the terms of the contract, the contract is terminated. It does not require action on the part of the employer or the employee. 

Hoekstra v Rehability Occupational Therapy Inc. was an interesting case. The plaintiff was an employee that had been off work for four consecutive years due to a disability. The employee wanted his contract to be frustrated due to disability and sought his statutory entitlement to termination and severance pay under the Employment Standards Act

In this case, the employer took the stance that frustration of contract requires ‘an act of an employer’ so it can not be triggered by an employee’s assertion. 

This decision means that frustration of contract can be asserted by either employer or employee. 

COVID 19 – Has it Frustrated Your Contract?

Frustration of contract can be used in many different contexts. These contexts include ones in which there has been an intervening change in the law, rendering it illegal to perform the contract under its original terms. 

Emergency ordinances and attempts by the Ontario government to curb the spread of COVID-19 have left many confused and wondering if they can use the doctrine of frustration to terminate contractual performance. 

Whether or not you can use frustration in contracts depends on your situation. 

The doctrine itself depends on the facts. It can be applied to a wide range of contracts from the sale of goods & services, the sale or leasing of land, and employment contracts. The applications of the doctrine to these contracts will depend on the unique circumstances and facts of each case. 

When it comes to COVID-19, there are many factors that need to be considered. If an employer is experiencing a delay in the contractual performance, the duration of the delay as well as the terms of the contract will be used to assess whether or not a claim of frustration can be made. 

For example, if time is important in the performance of the contract, the longer the pandemic forces closures and delays, the more likely it is that the contract will become frustrated. 

frustration of contracts ontario

Does a Frustration of Contract Apply to You?

Understanding contractual obligations can become complicated when faced with unforeseen and unprecedented circumstances like illness, disability, or a catastrophic event like a fire or COVID-19. 

It is entirely possible that circumstances have rendered your contract frustrated. If you are party to a frustrated contract or think a contract might be frustrated, it is a good idea to speak to your lawyer. Together, you can determine if frustration applies and any next steps that are required.

For support in the area of labour and employment law, RBHF Professional Corporation has the experience required to effectively settle your workplace disputes or represent you in litigation. 

At RBHF, we understand that employment matters can be sensitive and emotionally draining. We work closely with our clients, delving deeply into the circumstances and helping them reach their desired outcomes. 

Don’t hesitate a moment longer! Contact us today to get the answers you need!