When an employee is absent from work for an extended period due to disability, employers may question whether the employment contract has become frustrated. In Hill v 1359768 Ontario Inc. (B&B Towing) [Hill], the Ontario Court of Appeal (the “ONCA”) confirmed that frustration requires clear evidence that the employee cannot return to performing the essential duties of the position within a reasonable time and cannot be accommodated without undue hardship.

The ONCA also clarified that workplace tools and equipment, such as company vehicles and cellphones, do not automatically become compensable employment benefits merely because an employee is permitted incidental personal use. The decision provides useful guidance for employers managing disability-related absences and claims for workplace benefits following termination.

Background

The employee worked as a road boss for approximately 17 years. In summer 2020, he went on long-term disability following surgery. His physician indicated that he required modified duties, including no heavy lifting, and suggested a trial return to work with appropriate accommodation.

In September 2021, while the employee remained off work, he met with the employer to discuss his return. He was advised that the road boss position had been eliminated for financial reasons and that he would return as a tow truck driver at a lower rate of pay. The employer offered to maintain his road boss rate for eight weeks before reducing it to the tow truck driver rate.

In February 2022, the employee advised that he considered the proposed demotion and reduction in pay to be constructive dismissal. The employer responded that it considered his email confirmation of his resignation.

The employer argued that the employment contract had been frustrated because the employee’s disability prevented him from performing the road boss duties. The trial judge rejected this argument, finding that the employee had been constructively dismissed. The employee was awarded 22 months of common law reasonable notice, including damages for fringe benefits such as the use of a company tow truck and cellphone.

The employer appealed, arguing that the trial judge had failed to properly assess whether the employee could perform the essential duties of the road boss role and whether those duties could reasonably be accommodated.

The Decision

The ONCA confirmed that frustration will only be established where there is no reasonable likelihood that the employee can return to work within a reasonable period. While an employment contract may be frustrated where an employee cannot perform the essential duties of their position due to a serious or prolonged disability, employers remain subject to the duty to accommodate to the point of undue hardship. Temporary illness or an inability to perform minor aspects of a position will not, on its own, establish frustration.

The ONCA agreed that the employer had not established frustration. The evidence did not demonstrate that the employee was permanently unable to perform the essential duties of the road boss position or that accommodation would cause undue hardship.

The ONCA identified three factors supporting its conclusion:

• The duties could be accommodated: The employer failed to establish that the duties of the road boss position were incapable of accommodation and were not duties that the employee was permanently unable to perform.
• Undue hardship was not established: The employer had previously accommodated the employee’s limitations when he temporarily returned to work in 2022 and did not establish that further accommodation would result in undue hardship. Its argument about the financial impact of accommodation was also weakened by its offer to continue paying the employee at the higher road boss rate for an additional eight weeks.
• The limitations were temporary: The medical evidence did not establish that the employee was permanently incapable of performing the essential duties of the position.

Post-termination evidence was also considered, including the employee’s continued receipt of disability benefits and acceptance of a less physically demanding position. However, the ONCA found that this evidence did not establish that he could not have returned to the road boss position within a reasonable period.

The ONCA did, however, agree with the employer regarding the company vehicle and cellphone. It removed the amounts awarded for those benefits, reducing the damages award by $125,640.

The ONCA confirmed that a wrongfully dismissed employee may recover the pecuniary value of employment fringe benefits that would have been received during the reasonable notice period. However, the employee bears the onus of proving both entitlement to the benefit and its value. Fringe benefits will be compensable where the employee establishes that it provided a personal benefit as part of their contractual compensation, rather than simply functioning as a tool of the trade.

In Hill, the tow truck was a specialized work vehicle that the employee was required to use in performing his duties. His limited personal use, such as commuting, did not transform it into a personal employment benefit.

The ONCA reached the same conclusion regarding the cellphone. Although the employee asserted that the phone formed part of his compensation, the evidence showed that it was provided for business purposes and did not establish that his personal use constituted an employment benefit. The ONCA emphasized that personal use of a company asset does not automatically make it a compensable benefit.

Takeaways for Employers

1. Long-term absences do not always equal frustration: Employers considering frustration due to disability should assess whether the employee is reasonably likely to return to work, identify the essential duties of the position and properly consider potential accommodations.

2. Document accommodation efforts: Prior accommodation may undermine a later claim that accommodation is not possible or would cause undue hardship. Employers should document work-related restrictions, essential duties, accommodation options and the basis for any undue hardship assessment.

3. Distinguish employment benefits from workplace tools: Personal use of a company asset or fringe benefit does not necessarily make it a compensable benefit. Employers should clearly document the business purpose of company vehicles, phones and other equipment, while recognizing that personal use may be compensable where it forms part of the employee’s compensation.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.