Canada: Katz Et Al. v. Clarke: Ontario Divisional Court Upholds Termination Of Employee Due To Frustration Of Contract

The Ontario Divisional Court recently upheld an employer's decision to terminate an employee for frustration of contract, affirming that it is "inherently impossible" to accommodate an employee who is unable to work.

Background

The employee, Mr. Clarke, was employed as a Front Store Manager at a pharmacy owned by the Katz Group ("Katz"). At the time of termination, Mr. Clarke had been employed for approximately 13 years. However, he had been off work on a leave of absence for over five years, since 2008, initially for depression and then later as a result of injuries to his knee and leg.

Mr. Clarke was approved for both short-term and, subsequently, long-term disability benefits through the employer's disability insurer, Great-West Life ("GWL").

In early 2013, GWL advised Katz that, based on the medical information available, Mr. Clarke was unable to perform the essential duties of his position and there was no reasonable expectation that he would be capable of performing them in the foreseeable future. As a result, Katz wrote to Mr. Clarke in July 2013 to advise him that his employment had been frustrated due to his prolonged absence from work, his inability to perform the essential duties of his position, and because there was no reasonable expectation that he would be able to return to his position in the foreseeable future. Accordingly, Katz advised Mr. Clarke that his employment would cease on December 31, 2013.

On September 24, 2013, Mr. Clarke's legal counsel wrote to Katz to indicate that Mr. Clarke had been "working very hard to get well so that he can return to his former employment and perform the essential duties of his position". In response, Katz gave Mr. Clarke the opportunity to provide updated medical information outlining his estimated return to work date and his prognoses for recovery. However, Mr. Clarke failed to provide such information despite being given a further opportunity to do so. Accordingly, on December 31, 2013, Mr. Katz's employment was terminated due to frustration of contract.

Decision of the Motion Judge

Mr. Clarke commenced an action against Katz claiming wrongful dismissal and damages under the Ontario Human Rights Code (the "Code"). Katz moved for summary judgment to have the claim dismissed. The motion judge dismissed the motion for summary judgment, finding that there was a genuine triable issue. In doing so, the motion judge noted that Katz was aware of Mr. Clarke's desire to return to full employment and it was arguable that Katz's failure to spend time and effort to explore with Mr. Clarke how his desire to return to work could be accommodated resulted in a "rush to judgment" that breached the Code.

Katz appealed the decision to the Ontario Divisional Court.

Decision of the Ontario Divisional Court

The Ontario Divisional Court overturned the decision of the motion judge, holding that an employer's duty to accommodate is only triggered when an employee informs an employer not only of their wish to return to work, but also provides evidence of their ability to return to work. In this case, Mr. Clarke had communicated to Katz his desire to return to work, but he never produced documentation that demonstrated he actually had the ability to return to work.

The Court also confirmed that an employer's duty to accommodate ends where the employee is no longer able to fulfill the basic obligations associated with the employment relationship. In this particular case, the evidence was undisputed that Mr. Clarke was unable to fulfil the basic obligations associated with the employment relationship for the foreseeable future. As a result, the employer's duty to accommodate had ended. Accordingly, the Court dismissed the action, holding that Katz was justified in treating Mr. Clarke's employment as having been frustrated.

Conclusions

This decision is a welcome one for employers. Not only does the Court reinforce that an employer's duty to accommodate is not without limits, the Court reminds employers that termination due to frustration of contract is an option available in the appropriate circumstances. If an employee is no longer able to fulfill the basic obligations associated with their position for the foreseeable future, the duty to accommodate ends.

Although frustration of contract remains open to employers in appropriate circumstances, this decision highlights that the standard of establishing frustration of contract due to disability remains high; in this particular case, the employer was only successful in establishing frustration after the employee had been absent from work for more than five years. Nevertheless, it is clear that frustration of contract can be successfully established in the right circumstances.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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