Is An Employee Entitled to Statutory Termination Compensation If An Employee Becomes Ill and Unable to Return to Work?
Yes, An Employee May Assert Frustration of Contract Arising From Poor Health of the Employee and Thereby Be Entitled to Statutory Termination Rights.
A Helpful Guide For How to Determine and Understand When a Frustration of Employment Arises Due to Employee Illness
The frustration of contract, meaning the impossibility of a genuine employment relationship, is typically a position taken by an employer when an employee is suffering from a long-term illness with absence and the prognosis indicates that the employee is unlikely to return to work. When an employer takes the position that the employment relationship is frustrated, and thus the employer is terminating the relationship, the employer statutorily required to provide termination pay per the Employment Standards Act, 2000, S.O. 2000, Chapter 41 prescribed mandates where such mandates remain applicable due to an employment relationship being frustrated rather than breached. However, there are circumstances where the employer fails to take the position that the employment relationship is frustrated and instead leaves the employee in limbo and without the statutorily required termination pay. Accordingly, such results in the question whether the employee may take the position that the employment relationship is frustrated and thereby trigger the statutory termination pay.
While unusual, it was decided in the case of Hoekstra v. Rehability Occupational Therapy Inc., 2019 ONSC 562 that the employee may assert frustration of contract and thereby bring the employment to an end and thereby trigger the statutory obligations under the Employment Standards Act, 2000 legislation. In Hoekstra, it was stated that frustration is a legally applied principle that arises from a contextual approach as to whether illness rises to the level of causing frustration of the employment contract whereas it was specifically said:
 Frustration of contract occurs as a matter of law. Once circumstances exist that have the effect of frustrating the terms of a contract, the contract is deemed terminated. In my view, neither party to the contract must take any steps to effect that result. This is particularly so in the case of frustration due to illness or injury which is presumptively beyond the control of both the employee and the employer.
 A contract of employment is frustrated when “there is no reasonable likelihood of the employee being able to return to work within a reasonable time.” The fact that a party to the employment contract takes the position that the contract has been frustrated, whether in support or defence of a claim, does not have the effect of deeming a contract frustrated.
 A contextual analysis must be undertaken to determine whether the contract of employment between the plaintiff and the defendant has been frustrated. As was noted in Edmonton (City) v. ATU, Local 569 at para. 148:
A contextual analysis means that determining “permanent” or “non-permanent” is not a mere accounting exercise in order to determine whether the length of an illness surpasses a particular numerical threshold. It is interesting to note that in the common law employment world, the Ontario Court of Justice found in Fraser v. UBS Global Asset Management, 2011 ONSC 5448 (CanLII) (Ont. S. C.J) that a three-and-a-half-year absence was sufficiently permanent to frustrate a contract, whereas a five-year absence was found to be temporary in Naccarato v. Costco Wholesale Canada Ltd., 2010 ONSC 2651 (Ont. S.C.J.).
 In this case, the plaintiff had not performed any of his employment duties subsequent to October 2012. As noted in Edmonton (City of), simply because the plaintiff has been on prolonged medical leave does not, in itself, amount to frustration of the employment contract. Here, there is evidence that the plaintiff’s medical condition (disability) had morphed from being temporary to being a permanent condition rendering him incapable of performing his employment duties.
 On October 19, 2016, the plaintiff was assessed by his family physician who formed the opinion that no longer was the plaintiff’s return to work simply unlikely rather Dr. Paradis was of the definitive view that the plaintiff would not be returning to work due to his medical condition. As of October 19, 2016 there was no reasonable likelihood of the plaintiff being able to return to work within a reasonable time.
 I am satisfied on a balance of probabilities that the employment contract between the plaintiff and the defendant was frustrated on October 19, 2016.
Interestingly, in an apparent attempt to avoid declaring the employment relationship frustrated, and thereby avoiding termination pay requirements, among other things, the employer argued that the taking of a frustration position is available only to an employer; however, the court disagreed and decided that an employee may rightfully advance the position that an employment relationship is frustrated by the illness of the employee and thereby trigger the resultant termination pay requirements.
It is much more common that an employer will declare a frustration of employment as a means to terminating the employment relationship with a chronically ill employee with a prognosis indicating an unlikelihood to ever return to work; however, an employee may also, in the right circumstances, equally take such a position and do so even where the employer appears hesitant and is perhaps avoiding the termination of relationship as a means to avoid paying the requisite termination pay.