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Ed Canning - Frustrated Contract

QUESTION: I have a ten-year employee who has been off for almost three years as a result of a car accident after work hours. The disability insurer is still paying her because it deems her to be totally disabled. Can I end the relationship now or will that get me in trouble?

ANSWER: First, you should never rely on information provided by the disability insurer. Start by sending a letter to your employee asking her doctor for a letter that indicates whether she is able to return to work, any prognosis for a possible return and any accommodation that might facilitate a return.
Unless the doctor says that recovery is not on the horizon sufficient for her to return, you can take the position that the employment relationship, the contract, has been frustrated.
A frustration of contract occurs when something happens that is not the fault of either party that makes it impossible for the relationship to continue. The factory burning down as a result of a lightning strike might be an example.

If it is fairly clear that there is no likelihood of the employee returning to work in the foreseeable future in any position you have available, you can proceed. You will need to pay the employee eight weeks’ termination pay and vacation pay on that amount at their regular rate. If your payroll is over $2.5 million per year you will also have to pay severance pay which is a week per year to a limit of 26 weeks (10 weeks). Finally, you should continue benefits for eight weeks from the date that you advised the employee you were taking the position that the contract was frustrated.

The good news is that the employee will not be able to make a claim for reasonable notice, a bigger severance package, at common law before the courts. While the Employment Standards Act requires these payments, the courts do not. Employers who are not spending much on the employee’s benefits package sometimes refrain from ending the relationship, deciding that it is cheaper to continue paying the benefit premium than pay out the lump sum termination and severance pay.

If your employee usually contributed to the cost of benefits when she was at work, you can require her to provide post-dated cheques to cover her portion while she is off sick.

As a result of the Employment Standards Act requiring termination and severance pay when an employment contract is frustrated because of illness, many employers have changed their benefits policy. In their policy handbooks they indicate that any employee off for more than a year  other than a maternity or parental leave, cannot have benefits continued. This allows employers to end the benefits coverage without being accused of having terminated the employee or violated their right to be free from discrimination on the basis of their disability. In these situations, the only upside for the employer in actually taking the position that the contract has been frustrated is that they do not have to hold a position open if the employee does eventually recover and return to work.
Ed Canning
Ed Canning
P: 905.572.5809