Frustration of Contract in Five Questions

It’s a term that gets a lot off buzz. But what does it actually mean? This week’s blog is here to set the record straight.

What is Frustration of Contract?

Frustation of Contract Information - Employment Lawyer NiagaraFrustration of contract is the legal termination of a contract because of unforeseen circumstances that:

  • make the contract and its objectives virtually impossible to execute;
  • make the performance of the contractual obligations illegal; or
  • render the contract fundamentally different from its original intended character.

What Causes A Contract To Be Frustrated?

Frustration of contract usually arises from unforeseen events or circumstances such as:

  • an accident;
  • changes in the law; or
  • illness of either contractual party.

For an employer to end an employment arrangement due to frustration of contract, the circumstances must have been unforeseeable and occurred through no fault of either party to the contract. Furthermore, the burden of proof to demonstrate that a contract has been frustrated rests with the employer.

Illness of either employer or employee is the most common way in which a contract becomes frustrated. Frustrating a contract depends on the nature and expected length of illness as well as the prospect of recovery. Frustration of contract only applies to situations involving a permanent disability. Temporary disabilities must be accommodated to the point of undue hardship (in accordance with human rights laws) or employees must be terminated according to normal Employment Standards Act (ESA) requirements.

What Happens When A Contract Has Been Frustrated?

When a contract has been frustrated it can be terminated without liability to either party. This means that neither party is entitled to damages. However, the employer is still obligated to pay the employee their minimum entitlements under the ESA (such as termination and severance pay).

How Do Courts Decide If A Contact Has Been Frustrated?

Frustration of contract is largely addressed on a case-by-case basis. This is because the consequences of a frustrated contract are quite harsh to employees. Courts will also look to see if there is any reasonable chance the employee will be able to return to work in the foreseeable future.

How Long Must An Employee Be Off Work For A Contract To Be Considered Frustrated?

There is no set time period that an employee must be off from work for their contract to be considered frustrated. Two years is a time period often tossed around because this is usually when disability insurance is cut off. However, being cut off from disability is not the same as medical evidence that an employee will not be able to return to work.

Courts will take into consideration how long an employee has been with a company as well as their position in it. Generally speaking, the more essential they are to the operations, the quicker the frustration can occur. For example, a cashier at a large supermarket could be off for five years before his contract is considered frustrated whereas an associate executive director of a shoe brand might only be off a year and a half before her contract becomes frustrated.

Frustration of Contract Experts - KCY at LAW

Frustration of Contract Experts

If you have been have been off work due to unforeseen circumstances, KCY at LAW have the expertise to represent your interests. Call us at (905) 639-0999 or fill out our consultation request form here.

Release of claims

What is a release of claims?

Upon termination, many employees are asked to sign what is called a full and final release to formally end the employment relationship. Included in this release will often be a release of claims.

A release of claims is a written record of an employee’s agreement to relinquish their right to make any future claims against their employer for grievances (such as discrimination) they may have related to their time of employment.

A signed release may be used by an employer as a defence for any future claims an employee may attempt to bring against them following the end of the employment relationship. Should a former employee breach the terms of their release, they may be required to repay their settlement funds minus their minimum entitlements

What does a release of claims cover?

A release of claims will cover any claim an employee might otherwise bring under the Employment Standards Act, the Pay Equity Act or the Ontario Human Rights Code. However, recent decisions regarding claims regarding sexual harassment in the workplace have demonstrated that employers may still find themselves on the hook for employees’ grievances even if they have signed a full and final release.

Why would a terminated employee want to sign a release of claims?

Given the limitations signing a release puts on a terminated employee, why would anyone want to sign one? Do terminated employees have to sign a release of claims?

Regardless of whether or not a terminated employee agrees to a release, they are entitled to their minimum statutory entitlements under the Employment Standards Act (ESA) as well as common law.

While a terminated employee is under no obligation to sign a release of claims, it is often in their interest to do so. Signing a release of claims is often necessary in order to receive a settlement package.

A release of claims must offer fair consideration

When presenting a terminated employee with a release of claims to sign, an employer must give their former employee fair consideration for doing so. This means they must offer the terminated employee more than their statutory ESA and common law entitlements in exchange for signing the release.

Simply offering a terminated employee their minimum notice entitlements does not count as consideration. Consideration is something of value to the employee, such as the continuation of benefits, a reference letter, or a lump sum payment.

What to do before signing a release of claims

If you have been recently terminated from your job, you are likely feeling quite stressed. At this time, the prospect of a settlement package to top off your statutory notice entitlements will likely will feel very tempting – especially if you are not parting on the best of terms. However, you will likely have to sign a release of claims in order to get it. So what should you do?

First of all, do not immediately sign the release.

Once given a release, you must also be given reasonable time to review it. Demanding a terminated employee sign a release on the spot should raise immediate suspicion.

A release can be negotiable. Therefore, you should seek legal advice before signing one. An employment lawyer can properly assess the release’s offer and limitations. They can explain it to you in plain language and let you know if any claims that you would be signing away could ultimately bring you more money or benefits than the settlement package you are signing.

The employment law team at KCY at LAW can review your release and release of claims and help you decide on the best course of action.

Call us at 905-639-0999 or click here to book your consultation.

Fixed Term Contracts that are Permanent in Nature

While most employees are in permanent positions, the past decade has seen a growing number of employers using fixed-term contracts to cover their worker needs.

A fixed term contract can be a practical way to cover a leave of absence or hire someone with specialized knowledge to lead a specific project. When used correctly, fixed term contracts can reduce an employer’s labour costs as well as severance obligations. Because the contract is of a fixed duration, the employee essentially knows the date their employment will be terminated at the time they sign the contract and additional notice is therefore unnecessary.

While fixed-term contracts may seem like a great way to cut costs by avoiding severance obligations, they can also lead to unexpected liability if not implemented appropriately.

Employers repeatedly offering workers fixed term contracts instead of permanent positions is becoming a growing problem and the courts have taken notice.

A number of rulings have established that if an employer gives an employee one fixed-term contract after another, the contract may be deemed permanent and the employee therefore entitled to all the notice and all the other entitlements that comes with a permanent position.

Cecol v. Ontario Gymnastic Federation

The case of Ceccol v. Ontario Gymnastic Federation was a precedent-setting case that made clear that courts would consider the true nature of an employment relationship when examining cases involving successive fixed-term contracts.

Ceccol worked continuously for the Ontario Gymnastics Federation for 15 years. The last 10 years of this employment relationship had been in the form of successive one-year contracts. Then, in May of 1997, Ceccol was given notice that her employment would end on June 30th and was offered three months’ salary if she signed a release.

Ceccol declined and sued for wrongful dismissal. At trial, the judge ruled in her favour, deciding that she had a reasonable expectation to be treated as a permanent employee despite having only a fixed-term contract. Ceccol’s employer appealed but the Court of Appeal held that Ceccol had been a permanent employee and as such was entitled to common law notice for her 15 years of service.

Thanks to the precedent set by Ceccol, courts are now generally weary of employers trying to evade common law obligations by using fixed-term contracts.

Takeaway for Employers

Employers should note that repeatedly offering an employee fixed-term contracts will not necessarily exempt you from providing statutory and common law notice should you decide to terminate this employee.

If an employee is given consecutive fixed-term contracts by the same employer over a number of years, Ontario courts are likely to rule in the employee’s favour regarding their entitlement to severance pay in the event of termination.

The overall character of the employment will be the main factor in determining whether or not a fixed-term contract is actually permanent in nature.

When the experienced reality of an employment relationship is akin to that of indefinite duration, then successive fixed-term contracts can be taken as a permanent contract. There is no hard and fast rule for the number of years a contract must last or be renewed to be considered a permanent contract. Each case will be assessed on its own terms.

Fixed term contracts can be good for some, limited, situations. But most often, a well-crafted, enforceable termination clause can do the job to minimize your severance obligations without putting you at risk.

KCY at LAW Can Help

Hiring a respected employment lawyer is the best way to ensure your employment contracts are legally enforceable while still minimizing your obligations when terminating an employee.

Call us at 905-639-0999 or click here to book your consultation.