Frustration of Contract in Ontario Employment Law

When an Employment Contract Legally Comes to an End

Frustration of contract is a legal doctrine that applies in limited circumstances under Ontario employment law. It is not a routine basis for ending employment. Rather, frustration is a legal conclusion reached where an unforeseen event, through no fault of either party, makes continued performance of the employment contract impossible.

Because a finding of frustration brings an employment relationship to an end without common law notice, courts approach the doctrine carefully and assess it on a case-by-case basis.

What Is Frustration of Contract?

A contract is frustrated when an unexpected event fundamentally alters the nature of the agreement so that it can no longer be performed. In employment relationships, frustration means that neither party is terminating the contract and neither party is resigning. The contract simply comes to an end by operation of law.

When frustration is established, the employee is generally not entitled to common law reasonable notice or damages because there has been no dismissal.

Situations Where Frustration May Arise

Frustration may arise where the workplace is destroyed by fire or flood, where legal changes make the work unlawful, where an employee loses a required professional designation, or where incarceration makes performance impossible. Courts have rejected frustration arguments where the alleged impossibility arises from foreseeable events such as economic downturns, strikes, lockouts, or business inconvenience.

Even in extraordinary circumstances, frustration is not automatic. The onus always rests on the employer to prove that performance of the employment contract has become impossible.

The Additional Duty to Accommodate Where Disability Is Involved

Where frustration of contract is alleged on the basis of disability, an additional and critical legal burden arises. The employer must demonstrate that it has accommodated the employee to the point of undue hardship under the Ontario Human Rights Code.

This requires a genuine, individualized accommodation process supported by current medical information. Accommodation may include modified duties, reduced or flexible hours, temporary reassignment, rehabilitation leave, or gradual return-to-work arrangements. Frustration will not be established where the employment relationship could have continued through reasonable accommodation.

Disability or prolonged absence does not automatically frustrate the employment contract. Courts focus on prognosis, not duration. Disability-based frustration is treated as exceptional, and courts will closely scrutinize any termination that occurs without clear evidence that accommodation was exhausted and that continued performance truly became impossible.

An employee may be absent for a lengthy period and still not meet the test for frustration if medical evidence shows a reasonable likelihood of return. Conversely, a shorter absence may support frustration if the evidence establishes that the employee will not be able to return to meaningful work in the foreseeable future. Findings of frustration based on disability are rare and highly fact-specific.

The Employer Bears the Burden of Proof

Where frustration is alleged, the burden rests entirely on the employer. It is not the employee’s obligation to prove recovery or provide certainty about return dates. The employer must establish, through objective and reliable evidence, that continued performance of the employment contract has become impossible.

What This Means for Employers

For employers, frustration of contract should be treated as a last resort. It may take years to establish that an employment contract has been frustrated, particularly where disability is involved. Decisions should be grounded in clear medical prognosis, thorough accommodation efforts, and legal advice.

Using frustration as an after-the-fact justification for termination carries significant legal risk and is frequently unsuccessful.

What This Means for Employees

For employees, being on medical leave, receiving disability benefits, or struggling with addiction does not automatically end employment. If an employer claims frustration of contract, the key questions are whether a return to work has truly become impossible and whether accommodation obligations were met.

Where frustration is asserted prematurely or without proper evidence, employees may have claims for wrongful dismissal and statutory or human rights remedies.

Closing Thoughts

Frustration of contract is not a convenient mechanism for ending employment. It is a narrow doctrine applied only where the foundation of the employment relationship has genuinely collapsed and, where disability is involved, only after accommodation to the point of undue hardship.

Both employers and employees benefit from understanding how strictly courts apply this doctrine. Early legal advice can help clarify rights, manage risk, and prevent unnecessary disputes.