Month: February 2025

The Ontario Court of Appeal recently provided some clarity around the frustration of an employment contract and the consequences arising therefrom. In Croke v. VuPoint Systems Ltd., the Court of Appeal dealt with a case around a mandatory vaccination policy. The employer was contracted to provide services for Bell Canada and Bell ExpressVu, who provided 99% of their customer base. Bell introduced a new policy requiring mandatory vaccination against COVID-19 for personnel working at or visiting Bell locations or otherwise interacting with Bell customers in-person. VuPoint had to introduce a similar policy to ensure it could continue providing services to Ball. There were no alternatives to vaccination, and non-compliant employees of VuPoint were prohibited from doing work with Bell and were told they may not receive the assignment of jobs. 

The employee was informed of the requirement to get vaccinated, and began applying for new jobs which did not require vaccination. He was later given two weeks’ notice of his termination, during which period he informed his employer that he would not comply with the requirement and believed it to be discriminatory. After providing this summary of facts, the Court of Appeal went on to determine the employment contract was in fact frustrated.

Frustration of Contract

The Ontario Court of Appeal set out the test for frustration of contract as developed by the Supreme Court. Specifically, frustration occurs when “a situation has arisen for which the parties made no provision in the contract and performance of the contract becomes ‘a thing radically different from that which was undertaken by the contract’”. To establish frustration, a party needs to show there was a “supervening event” that a) radically altered the contractual obligations, and b) was unforeseeable and not contemplated in the contract, and c) was not caused by the parties. 

The employee argued that the frustration was caused by his own voluntary decision not to comply with the vaccination policy. However, the Court of Appeal held that the contract was frustrated through Bell’s vaccination policy as the intervening event, which prevented any non-vaccinated worker from working on Bell locations or interacting in-person with Bell customers. The Court of Appeal likened this new policy to a new regulatory requirement: “absent vaccination, VuPoint employees were ineligible to work on Bell Projects”. The Court also indicated frustration was not self-induced simply because VuPoint was open to allow the employee to continue working for them if he changed his mind and got vaccinated. The Court mused that if the policy were a merely temporary or emergency measure, or if the employee intended to become vaccinated but could not do so in time, the fundamental obligations in the employment agreement may not have been radically altered.  

Nevertheless, the Court of Appeal agreed with the lower court that there was no default in the employment agreement between the employee and employer. Instead, Bell’s vaccination policy was the supervening event, and the analysis then turns towards if performance of the employment contract became radically different than what the parties contracted for, and whether the change was foreseeable. 

Regarding whether the Bell policy radically changed the terms of employment, the Court of Appeal again agreed with the lower Court. Due to the Bell Policy, the employee was completely unable to perform his duties for VuPoint for the foreseeable future. Further, this was unforeseen and not contemplated by either party when they entered into the contract. The Court indicated that the focus of the foreseeability question is when the contract is signed and must be considered from that timeframe. In this case, the contract was entered in 2014, and neither party at that time could have foreseen a global pandemic which would cause Bell to implement its vaccination policy. 

Termination of Employment

The Court of Appeal went on to consider the employee’s argument that he had actually been terminated for just cause rather than because the employment contract was frustrated. The employee insisted that other, non-disciplinary, or lesser disciplinary actions should have been taken by VuPoint instead of termination. The Court determined that VuPoint’s only basis for termination was frustration of contract, and such terminations are no-fault terminations releasing the parties from any further obligations to perform. In other words, an employee would not be entitled to damages for wrongful dismissal. In keeping with this determination, the Court reiterated that when an employment contract is frustrated, there is no fixed legal requirement that an employee be given advance notice that the employment relationship has been frustrated. Additionally, there is no requirement that an employee must be provided with an opportunity to rectify their non-eligibility to work before they can be terminated via frustration of contract. However, an employer that does not do these things, depending on the situation, may be unable to establish the supervening event that radically altered the fundamental obligations of the contract. Given the employee’s failure to indicate that he needed more time to become vaccinated, the Court found that the termination of his employment was appropriate for frustration of contract.

In Timmins v. Artisan Cells, the Ontario Superior Court briefly considered an argument that the employment contract breached Ontario’s Employment Standards Act. The employment contract stipulated that any dispute or claim related to any dispute under the contract could only be resolved under the exclusive jurisdiction of the courts of Ontario. It was argued that this clause ousted the ability of the employee to file a complaint with the Ministry of Labour under s. 96(1) of the ESA, hence breached the legislation. This argument was presented as a novel breach of the ESA, and further, that any employment contracts which breach the ESA are void. Additionally, it was argued that the termination provisions also breached the ESA. Despite the arguments presented at trial, the Court determined that it was not in a position to resolve the issue because the employer had not appeared at court and hence could not present any opposing account of the situation. Further, the Court determined that the matter could be fully determined by addressing other issues. Consequently, the Court decided to shelf the proposed novel breach for lack of full argument by both parties.

Repudiation of the Employment Contract

Given the Court’s decision that the novel breach of the Employment Standards Act would be better addressed with full argument, the Court turned to consider the argument of repudiation of the employment contract. To establish repudiation of a contract, the Court indicated there must be an investigation into the nature of the contract, the attendant circumstances, and the motives which prompted the breach. In this case, the contract specified that the employee was entitled to the greater of either a) minimum notice under the ESA or b) 3 months’ notice or pay in lieu thereof. Ultimately, the employee was not provided with the amount of notice as specified in the contract. Instead, he only received notice for one week and was told he would not receive anything more unless he signed a broad full and final release, which included a release for any other claim, and non-disclosure and non-disparagement clauses. There was no explanation given by the employer as to why the employee did not receive his contractual entitlements to notice. The Court found it was clear the only motivation for withholding the remaining notice payments was to secure the release. Consequently, the Court determined that by failing to comply with the terms of the termination provisions, the employer repudiated the employment contract.

Given the employment contract was repudiated, the employee was entitled to common law notice of dismissal, which in this case proved to be significantly more expansive than his contractual entitlements. The Court conducted a full analysis of entitlement to notice at common law, assessing the employee as being 44 years old, having been employed for three-and-a-half years, at a Vice President position, and earning over $475,000 per year. The Court determined that the employee was entitled to a 9-month notice period.

Citing the Supreme Court, the Judge indicated that the employee was entitled to all amounts that he would have earned during the notice period, including salary, benefits, and bonuses. In this case, there was a clause in the bonus agreement which stated that an employee needed to be actively employed” to receive the bonus. However, the Court determined this clause was sufficiently ambiguous, and did not properly exclude the bonus from the notice period. Consequently, the employee was entitled to receive his bonus.

Common Employer Doctrine

Another element to this case was that the employee sought to have two entities classified as common employers, hence both would be liable for the damages owed to him. The Court noted that the significant factor is effective control over the employee, though this must be weighed with other factors like the written employment contract. Control over matters like payment of wages and other compensation, method of work, and ability to hire and fire, can all be important elements of showing that degree of control is necessary. Ultimately, the question is an objective one, whereby the parties acted in such a way that they intended to be parties to the employment contract. 

In the present case, the employer had two entities, ADL and ACL, but ACL was created after the employee was formally employed. Nevertheless, the corporate entities acted in concert, orders were given to the employee by both entities without distinction, and the employee was treated as though he worked for both entities. Even on his termination letter, despite being hired by ADL, he was terminated by ACL. Consequently, the court found that the common employer doctrine had been satisfied, and that both ADL and ACL were jointly responsible for damages to the employee.