A lengthy disability leave does not automatically frustrate an employment contract, and employer-provided property does not automatically constitute a compensable employment benefit. In Hill v 1359768 Ontario Inc (B&B Towing) [Hill], the Ontario Court of Appeal (“ONCA”) reinforced the importance of assessing an employee’s ability to perform the essential duties of their position with accommodation before relying on frustration. The ONCA also clarified that employer-provided property must confer a genuine personal benefit to attract damages during the reasonable notice period.

Background

The Employee worked for a towing company for approximately 17 years, most recently as its “road boss”. His responsibilities included managing 15 to 27 tow-truck drivers, arranging vehicle maintenance and repairs, handling complaints, hiring and terminating employees, and performing administrative and managerial duties. Physical towing-related work accounted for approximately 10% of his role.

In May 2020, the Employee went on long-term disability (“LTD”) leave following emergency surgery. Throughout 2021, his physicians indicated that he could attempt a gradual return to work with accommodation, including restrictions on lifting, overhead work and working at heights. His physician continued to recommend a trial return to work with accommodation in December 2021.

While the Employee was absent, the Employer’s principals assumed his road-boss responsibilities. In September 2021, the Employer advised him that the road-boss position had been eliminated for financial reasons and that he would instead return as a tow-truck driver, initially retaining his road-boss compensation for eight weeks before a reduction.

The Employee returned in January 2022 but reinjured his back the following month while operating the tow truck’s winching apparatus. He maintained that the change in position and compensation amounted to constructive dismissal. The Employer treated his communication as a resignation, and the Employee subsequently commenced an action.

The ONCA Decision

The ONCA dismissed the employer’s appeal on frustration but allowed its appeal in part on damages. It upheld the finding that the employment contract had not been frustrated but reduced the employee’s damages by $125,640 for the loss of use of the company tow truck and cellphone.

The Employment Contract Was Not Frustrated

The ONCA confirmed that an employment contract is frustrated by disability only where the employee’s illness or injury is sufficiently serious and enduring that there is no reasonable likelihood they can perform the essential duties of their position within a reasonable time. While the employer must also accommodate the employee to the point of undue hardship, an employer is not required to remove duties that are significant in terms of time and responsibility.

The ONCA upheld the trial judge’s finding that the employee could have continued working as road boss with accommodation. The essential duties were largely managerial and administrative. Physical towing-related duties represented only a small portion of the employee’s role; therefore, Accommodation remained a realistic possibility: The Employer had accommodated the Employee’s restrictions previously and failed to establish that further accommodation would cause undue hardship. Additionally, the medical evidence did not establish permanent incapacity: The Employee’s physicians continued to recommend a trial return to work with accommodation.

The Employer’s financial-hardship argument was also undermined by its own position that the Employee’s compensation as a tow-truck driver would have been essentially equivalent to his road-boss compensation.

The ONCA therefore found no basis to interfere with the trial judge’s conclusion that the employment contract had not been frustrated.

The Tow Truck and Cellphone Were Work Tools, Not Compensable Benefits

The employer succeeded, however, in challenging the damages awarded for the tow truck and cellphone. The ONCA confirmed that a wrongfully dismissed employee may recover the value of compensation and benefits they would have received during the notice period; however, they must establish both their entitlement to the benefit and its value. Employer-provided property is compensable only where it confers a personal benefit as part of the employee’s compensation, rather than serving principally as a work tool.

The ONCA found that the specialized tow truck was plainly a work tool. The Employee’s incidental use of the tow truck for commuting and occasional errands did not transform it into a compensable employment benefit. Similarly, the cellphone was not established as a compensable benefit, as there was insufficient evidence that it provided the Employee with a personal benefit.

The ONCA accordingly reduced the damages award by $125,640.

Employer Takeaways

Ultimately, Hill is a reminder that employers must take an evidence-based approach to disability-related employment decisions. As best practice, employers should also keep in mind the following takeaways:

• Do not assume a lengthy disability absence frustrates the employment contract. Before employers rely on and assert frustration, they should assess the employee’s medical restrictions, the expected duration of those restrictions, the essential duties of the position, and the likelihood of a return to work within a reasonable time with accommodation.
• Identify the actual essential duties of the position. Employers should identify what the employee actually needs to do to perform the core functions of their role. An employer may struggle to establish frustration where an employee can perform the central responsibilities and any remaining duties can reasonably be accommodated.
• Substantiate any claim of undue hardship. Employers should avoid making general assertions of financial difficulty to establish undue hardship. Employers should not speculate and instead, should maintain evidence demonstrating why a proposed accommodation is not reasonably feasible and would cause undue hardship.
• Distinguish employment benefits from work tools. Employers should establish whether company property provides a genuine personal benefit as part of the employee’s compensation or primarily enables the employee to perform their work. Company vehicles, cellphones and other employer-provided property are not automatically compensable during the reasonable notice period unless they confer a personal benefit as 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.