Since an employment agreement is essentially a contract between two parties, contractual principles can apply. One of these principles is a frustration of contract. A frustration of contract means that the contract is no longer valid as a circumstance has arisen that has not been addressed in the contract. If this circumstance makes the contract radically different than what was agreed to, there can be a frustration of contract. The circumstances must also be unforeseen by the parties and not be under the parties’ control. If a contract is frustrated, the parties are no longer required to perform the terms of the contract.
In this post, we will discuss the elements required to find that there has been a frustration of contract. Essentially, there needs to be a supervening event that caused the contract to change fundamentally outside of the control of either party. This post will also discuss the consequences that can arise when there has been a frustration of contract, especially in employment relationships. We will examine a case example, Croke v. VuPoint System Ltd., 2024 ONCA 354, in which the Court of Appeal upheld the trial judge’s decision that there was a frustration of contract based on a client’s vaccination policy that the employee did not follow. This post will provide important takeaways for both employers and employees seeking to understand their obligations when an employment agreement is frustrated.
What is a frustrated contract?
A frustrated contract occurs when a supervening event occurs, which makes it impossible to perform the terms of the contract. This event must be due to something outside of the parties’ control and must not have been foreseen by the parties or contemplated in the contract.
The case law has clarified the test for finding that there has been a frustration of contract. Frustration occurs when a circumstance arises and there is no existing provision in the contract to address this matter. As a result, performing the contract becomes radically different from what was originally set out.
To prove that there was a frustration of contract, the party claiming that the contract was frustrated must provide evidence that the supervening event:
- Radically altered the contractual obligations;
- Was not foreseeable and was not contemplated by the terms of the contract; and
- Was not caused by the parties.
It is important to note that the supervening event must not arise from a voluntary act by one of the parties. It must have been something outside of their control and there must be evidence to show this.
What are the consequences of a frustrated contract?
When a contract is frustrated, it essentially ends, and the parties are not obligated to continue performing as per the terms of the contract. This means that if a contract is frustrated and a party is no longer performing the terms of the contract, they are not breaching the contract, and the other party cannot sue them for breach of contract.
In employment agreements, the employer may claim that the employment contract is frustrated if the employee can no longer perform the contract terms due to an unforeseen event that is outside of their control. The employee would be unable to claim for wrongful dismissal, as the contract would have ended due to frustration. On the other hand, if the employee stopped performing their obligations under the contract after being frustrated by a supervening event, the employer cannot compel them to continue performing their duties as the contract has ended.
Frustrated Contract After Employee Refuses to Comply With Vaccination Policy
In the Croke case, the court found that the parties’ employment contract was frustrated, and neither party was obligated to continue performing the terms of the contract. The Court of Appeal later affirmed this decision by the trial court.
The employee was employed by a company, VuPoint, as a technician. His primary tasks involved installing residential satellite TV and smart home internet services. VuPoint’s main customers were Bell Canada and its related companies. Bell provided almost all of the income received by VuPoint. As a result, VuPoint would only be able to provide work from Bell, and there was no other work that could be provided to the employee.
During the pandemic in 2021, Bell implemented a mandatory vaccination policy. The technicians were required to be vaccinated due to their role, which required entering Bell customers’ homes to install TV and internet services. VuPoint also implemented its own vaccination policy afterward. The employee refused to comply with the VuPoint policy, including not disclosing his vaccination status. Refusing to disclose his vaccination status was deemed in the policy to mean that he was unvaccinated.
As a result of his refusal to comply, he also refused to follow the Bell policy by extension. He was no longer eligible to continue working as a technician to assist Bell. VuPoint then terminated the employee’s employment, and the employee filed a wrongful dismissal claim.
VuPoint announced the new policies and did not provide any alternatives to vaccination, like rapid testing. Bell also had the right to audit whether or not VuPoint employees were complying with their vaccination policy by seeking proof of vaccination. The Bell policy also stated that any failure to comply would be considered a material breach of the agreement between Bell and VuPoint. The VuPoint policy further stipulated that any employees without proof of vaccination would not be allowed to work for Bell customers and may not be assigned any jobs. These policies did not address termination of employment.
The employee refused to comply, and he was terminated with two weeks’ notice and was provided with a severance package. VuPoint claimed that the contract was frustrated due to the Bell policy outside VuPoint’s control. Without proof of vaccination, the employee could not perform his employment duties as set out in the contract. The employee also conceded that this was not a temporary measure and he did not plan to get vaccinated.
The court found that the Bell policy was a supervening event that frustrated the contract. The policy was outside either party’s control and was not considered foreseeable, as the parties had entered into the contract in 2014, long before the pandemic.
Due to the employment contract being frustrated, the employee’s wrongful dismissal claim was dismissed.
Contact Haynes Law Firm in Toronto for Advice on Employment Contracts
Employers and employees should carefully consider the terms of the employment contract, including any anticipated future changes. Our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with disputes concerning employment contracts. For employees, our goal is to ensure that they understand their rights and receive maximum compensation. Haynes Law Firm also assists employers in avoiding liabilities that may arise. We are dedicated to finding the best resolution for you.
To book a consultation, please contact us online, or by phone at 416-593-2731.