If you are an employer in the service industry, and your largest client introduces a new rule or policy that imposes new requirements on your employees, and if one of your employees refuses to comply with that new rule or policy, has the employee’s contract of employment been “frustrated” or must the employer allege that it has “cause” for termination?
In Croke v. VuPoint System Ltd, 2024 ONCA 354 (CanLII), the Court of Appeal for Ontario upheld a decision in which it was found that an employee’s refusal to comply with his employer’s client’s rule requiring proof of vaccination against Covid-19 was a frustration of contract.
This is case about Covid-19 vaccination, which is not about Covid-19.
Facts
The Court of Appeal’s decision follows an earlier decision of Justice Andra Pollak of the Superior Court of Justice, dated February 21, 2023, with reasons at 2023 ONSC 1234, in which Justice Pollak found that the appellant employee’s employment had been frustrated.
The appellant, Mr. Croke, was employed by the respondent, VuPoint Systems Ltd., as a technician. VuPoint is in the business of installing residential satellite TV and “smart home” internet services.
VuPoint’s main customers are Bell Canada and Bell ExpressVu, which provide more than 99% of VuPoint’s income. All of the Mr. Croke’s work was for Bell and it was undisputed that there was no other work VuPoint could provide to him.
In 2021, Bell implemented a mandatory Covid-19 vaccination policy, following which VuPoint adopted its own vaccination policy.
Mr. Croke refused to comply with the VuPoint Policy by disclosing his vaccination status, which was deemed to mean that he was unvaccinated. Consequently, pursuant to the Bell Policy, he was not eligible to continue working as a technician providing services for Bell customers. VuPoint terminated the appellant’s employment and he brought a wrongful dismissal action.
On a summary judgment motion, Justice Pollak dismissed the action, finding that Mr. Croke’s employment contract was frustrated by the implementation of the Bell Policy.
Mr. Croke appealed that finding, arguing that the motion judge should not have applied the doctrine of frustration and, in the alternative, that the application of frustration in this case was incorrect.
Arguments on Appeal
The appellant argued that the frustration in this case stems from his voluntary decision not to comply with the Policy, and therefore the third criterion of the legal test for frustration- ie that the supervening event “has not been caused by the parties”- is not satisfied.
In support of his argument, the appellant relied on the decision of the Court of Appeal in Fram Elgin Mills 90 Inc. v. Romandale Farms Limited, 2021 ONCA 201, where the court held that, “a contract is not frustrated if the supervening event results from a voluntary act of one of the parties.”
According to the appellant, applying that principle, an employee’s voluntary conduct should be dealt with through the law of just cause.
VuPoint countered by arguing that, while the appellant is correct that a contract is not frustrated if the supervening event results from one of the voluntary acts of the parties, that is not what transpired in this case. The respondent argued that the implementation of the policy by Bell was the supervening event that frustrated the contract, not the conduct of the appellant.
Decision of the Court of Appeal for Ontario
Justice Lorne Sossin provided the following reasons on behalf of the Court of Appeal for upholding Justice Pollak’s decision:
[21] The test for frustration in contract law is well settled. As the Supreme Court of Canada stated in Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58, at para. 53, “[f]rustration 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.’”
[22] A party alleging frustration must therefore establish that there was a “supervening event” that: (i) radically altered the contractual obligations; (ii) was not foreseeable and for which the contract does not contemplate; and (iii) has not been caused by the parties.
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[30] This is not a case where the conduct of the appellant in fact frustrated the employment contract. Rather, I accept, as did the motion judge, that the Bell Policy was the supervening event which frustrated the contract.
[31] The letter informing VuPoint of the Bell Policy, dated September 8, 2021, stated: “Bell requires that all personnel who work at or visit any Bell location or interact in-person with Bell customers be fully vaccinated by September 20, 2021.”
[32] The Bell letter regarding this Policy made no reference to the conduct of employees, nor was the conduct of individual employees relevant for the application of the Bell Policy. Under the Bell Policy, it did not matter whether a person conducting field service work for Bell chose not to get vaccinated, could not obtain vaccinations in their region or could not get vaccinated due to medical or religious factors. The effect of the Bell Policy, from VuPoint’s position, was akin to that of a new regulatory requirement: absent vaccination, VuPoint’s employees were ineligible to work on Bell projects, which was nearly all of VuPoint’s work.
[33] By analogy, consider the situation that would arise if an employee who is required to drive a truck suddenly had to obtain a new class of driver’s license due to a change in the licensing scheme, or if a technician working in law enforcement settings had to obtain a new form of security clearance in the wake of national security threats. As a result of these changes, the truck driver or law enforcement officer would no longer be eligible to continue the work for which they were hired unless they obtained the new licence or clearance.
[34] Whether an employee affected by such a supervening event can or will seek once again to become qualified (or, in this case, vaccinated), is not relevant to a threshold determination of whether the doctrine of frustration is applicable, although, as discussed below, it may be relevant to the other branches of the legal test. This is because it is not the employee’s choice or conduct that renders them unable to work but, rather, the introduction of the new requirement that they do not satisfy. In other words, it is the new requirement that is the supervening event. The analysis therefore proceeds to determine whether that requirement was foreseeable or contemplated in the contract, and whether it radically alters the contractual obligations.
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[40] Once the Bell Policy is recognized as the supervening event, the applicability of the doctrine of frustration turns on (i) whether, in light of Bell’s Policy, performance of the employment contract had become something radically different than what the parties had contracted for, given that the appellant was no longer qualified to undertake the work for which he was hired, and (ii) whether that change was foreseeable when the contract was formed. I turn to these questions below.
[41] As for the first ground of appeal, based on the analysis above, I would conclude frustration was available to the motion judge, irrespective of the appellant’s conduct.
[42] Having concluded that the supervening event was Bell’s implementation of a mandatory vaccination condition on all subcontractors in order for those subcontractors to be eligible to perform installation services for Bell, the motion judge first found that, “Mr. Croke’s complete inability to perform the duties of his position for the foreseeable future [constituted] a radical change that struck at the root of the employment contract.”
[43] Second, the motion judge found that the Bell Policy was unforeseen and not contemplated by either party when they entered into the appellant’s employment contract in 2014 …
[50] The motion judge accepted VuPoint’s argument that in 2014 neither the appellant nor the respondent could have foreseen that there would be “an unprecedented global pandemic” that would cause Bell to implement a new requirement that its installers become vaccinated to prevent the transmission of a new and previously unknown disease. I agree that the onset of the COVID-19 pandemic, and the extraordinary response from Bell, was an exceptional event that the parties could not reasonably have anticipated years earlier.
[51] For these reasons, I would reject the appellant’s argument with respect to the foreseeability of the Bell Policy and whether it was contemplated by the parties.
[52] The appellant next argues that the supervening event actually was not the Bell Policy but rather VuPoint’s choice to respond to the Bell Policy by terminating his employment. The Bell Policy required those performing work for Bell to be vaccinated, but it did not require the appellant to be terminated. The appellant argues that this situation is analogous to that where an employee is banned from a worksite by a third party. Where the employer’s response is a dismissal, it should be subject to a just cause analysis.
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[54] The appellant’s argument is that, in effect, his termination was framed as frustration of contract after the fact but, in reality, was a termination for just cause. Further, according to the appellant, if the motion judge’s reasoning in this case is affirmed, employers would be able to use frustration as an alternative ground for any termination for cause related to ongoing misconduct, such as absences, tardiness, or negligence.
[55] The respondent submits that the implementation of the Bell Policy was outside of VuPoint’s control, and therefore, the alternative steps VuPoint could have taken have no bearing on the frustration analysis. The motion judge only had to consider if there was a “radical change” to the contractual obligation.
[56] I would reject the appellant’s argument.
[57] It is important to reiterate that frustration and just cause dismissals are fundamentally distinct. While the record reveals that, at an earlier point in the dispute, VuPoint viewed just cause dismissal and frustration of contract as parallel grounds for the termination of the appellant, by the time the summary judgment motion reached the motion judge, VuPoint’s only basis for the termination was frustration of contract.
[58] Frustration of contract is a “no fault” termination of the contract. Where frustration is established, it has the effect of discharging the agreement, thereby releasing the parties from any further obligation to perform: John D. McCamus, The Law of Contracts, 3rd ed. (Toronto: Irwin Books, 2020), at p. 656. It follows that remedies applicable to misconduct, such as progressive discipline, suspension or warnings, have no application in the context of frustration.
[59] That said, as I have already discussed, the possibility or likelihood that an employee might be able to rectify the disruption to an employment contract caused by a supervening event is relevant to the analysis of whether the supervening event results in “a radical change to the fundamental obligations of the contract.” Similarly, determining how information about a disruption should be conveyed to an employee in the context of a particular supervening event, or how an employee should inform an employer of an intent to rectify their ineligibility to continue employment, if possible, also would relate to a determination of whether there has been a radical change. In the case at bar, however, these questions do not arise, as the appellant clearly was aware of the Bell Policy, refused to comply, knew that termination could result (as discussed below) and never signalled any intent to become vaccinated.
[60] For the reasons set out above, the motion judge correctly identified the Bell Policy as the supervening event and concluded that the Policy was not foreseeable and radically altered the contractual obligations of the parties. There was no evidence in the motion record that VuPoint had any control over Bell’s decision to implement the Policy. The termination of the appellant’s employment was simply the inevitable result of this finding and of VuPoint’s corresponding entitlement to treat the contract as at an end.
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[69] … to reiterate the point made above, frustration results in the immediate discharge of the obligations in the contract. There is no fixed legal requirement that an employee must necessarily be given advance notice that the employment relationship has been frustrated. There is similarly no invariable requirement that an employee must be given an opportunity to rectify their non-eligibility to work before terminating that employee based on frustration of contract. That said, as set out above, depending on the particular circumstances, an employer who chooses not to do these things may be unable to establish that the supervening event radically altered the fundamental obligations of the contract.
[70] The case of Cowie v. Great Blue Heron Charity Casino, 2011 ONSC 6357 (Div. Ct.) is instructive in this regard. The trial judge in Cowie found that Mr. Cowie’s contract of employment had not been frustrated as a result of his not having a required licence. Instead, she found that Mr. Cowie had been wrongfully dismissed. She awarded him damages on this basis, and also held that suspension would have been a more appropriate response to the supervening event than termination, as it would have provided him with an opportunity to rectify the situation (which included obtaining a pardon for a prior criminal infraction as a precondition for obtaining the license). The Divisional Court disagreed, finding that the frustration caused by Mr. Cowie not possessing a license required to perform his work resulted in the immediate termination of the contract. The court added that “[t]he focus is not on when, if ever, the provision of those services will once again be legal” but rather on “whether the performance of the contract [has become] a thing radically different from that which was undertaken by the contract”: paras. 32 and 34. The Divisional Court emphasized that in that case, based on what was known to the parties at the time of termination, it was uncertain whether Mr. Cowie would ever be able to obtain a licence or, if he could, how long this would take (see para. 33). The Divisional Court concluded, at para. 34:
To continue to bind [the employer] to an employment contract, when the employee by law is prohibited from performing any services under the contract for what appears to be a lengthy and open-ended period of time, is imposing something radically different from what the parties originally agreed to.[71] In my view, a similar analysis applies here. The focus of the analysis was on whether the appellant was eligible to continue to provide the services for which VuPoint had hired him, once the Bell Policy was in effect, and whether his ineligibility to provide those services due to his vaccination status constituted a thing radically different from that which was contemplated by the employment contract.
[72] I am satisfied that in the circumstances here, when VuPoint sent its termination letter on September 28, 2021, it was entitled to conclude that there had been a radical alteration of its employment contract with the appellant. VuPoint’s Policy, which it implemented on September 10, 2021, required employees to advise VuPoint of their “vaccination status”. There was no evidence that the appellant ever told VuPoint that he was either fully or partially vaccinated, despite the fact that he was aware of the Policy. In short, this was not a situation where VuPoint knew that the appellant’s inability to work on Bell installation projects because he could not or would not provide proof of vaccination would be only temporary and relatively brief, and that the employment relationship would accordingly not be radically altered. As I have already mentioned, VuPoint’s counsel acknowledged that the situation would have been different if the appellant had indicated that he wished to become vaccinated, but that he needed more time. However, there was no evidence that he ever made such a request.
Commentary
As a preliminary comment, I have a bit of a love/hate relationship with the manner in which Justice Sossin wrote these reasons for decision. On the one hand, they are highly approachable, easy to understand and well-written – they are a service to the public. On the other hand, as a blogger, and someone who has a vested interest in trying to add value by distilling and translating what the court has said, it might be appreciated if His Honour would leave a little “meat on the bone” for such an exercise. I believe it was the great philosopher Helen Lovejoy who once asked, “Won't somebody please think of the children!”
Second, as much as this case mentions Covid, it is not exactly a case about Covid. It’s a case about a change in policy by one’s largest client, and it just so happens that such policy is about Covid.
Finally, while I believe the court gets the decision right in this case, I pause on these words from paragraph 32 of the Court of Appeal’s decision, “The effect of the Bell Policy, from VuPoint’s position, was akin to that of a new regulatory requirement.” While those words are undeniably correct, and while that finding is imperative to the court’s finding that a frustration of contract had occurred, I am somewhat concerned by the lack of consideration given to whether unquestioning adherence to that policy was appropriate.
Let’s take the question to the extreme. Suppose that instead of requiring installers to be vaccinated against Covid, Bell told VuPoint that its installers had to be men, or white, or heterosexual, or all of the foregoing. Would VuPoint be justified in terminating all non-conforming employees on the basis that it’s largest client has suddenly decided to thumb its nose at human rights law and, gosh, that wasn’t something we saw coming, so I guess there’s nothing we can do? Would employees whose employment was terminated on such basis have no remedy?
If one applied only the three-part test confirmed by the court in paragraph 22 of its reasons for decision, ie “a party alleging frustration must establish that there was a “supervening event” that: (i) radically altered the contractual obligations; (ii) was not foreseeable and for which the contract does not contemplate; and (iii) has not been caused by the parties”, then the employer would certainly have an argument.
And, while I am not suggesting that Bell would introduce such policies, it is not wholly unreasonable to predict that some client out there may make similar demands of its service provider. What then?
Will employers be permitted to terminate their employee’s employment for reasons that would overwise clearly contravene human rights legislation if the precipitating event was an unanticipated client direction or request?
On the one hand, and to use the court’s words, frustration of contract is a “no fault” termination of the contract. It’s not the employer’s fault that its client has suddenly introduced such policies. Of course, it’s not the employee’s fault either.
In such cases, where the employer’s defence to a wrongful dismissal claim is essentially, “my hands were tied”, will courts allow the dismissed employee to take a claim against her former employer’s client for interference with contractual relations? Perhaps.
Takeaways for Employers
What the VuPoint case demonstrates is that where your hands become tied as a result of an unforeseen change in either government policy or regulation, or one’s client imposes new requirements that make continued employment of an employee impossible, it may be possible to terminate an employee’s employment without being required to provide a severance payment. (If that was a business decision the business wanted to take.)
However, as the legal concept of frustration can itself be frustrating, the practical advice is to solicit legal advice before taking such a decision. Getting the decision wrong can be costly in terms of not only the amount due to the employee, but the costs of litigation.
Takeaways for Employees
An interesting takeaway for employees comes not so much from the court’s decision, but from my thought experiment above. If one has her employment terminated, and the employer advances the position that termination was required because of a change in client requirements, then the employee may wish to consider taking a claim against not only her former employer, but also the client whose actions precipitated the termination. As an example, in this case, Mr Croke, once he learned of VuPoint’s defence of frustration, might have sought to add Bell as a defendant, claiming that it had unlawfully interfered with his contractual relationship withVuPoint.
Before taking any action following a termination of one’s employment, one is always well-advised to solicit experienced legal advice.
Contact Me
Sean Bawden is Experience. At Work.
I am an experienced employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP, which is based in Ottawa. I have appeared in courtrooms all across Ontario from Stratford in the west, to L’Orignal in the east, to Thunder Bay in the north.
For 2.5 years I was in-house legal counsel providing employment law advice to one of Canada’s largest corporations and appeared in labour courts and tribunals literally the world over.
I have also taught as a part-time professor at Algonquin College teaching Employment Law. I have previously also taught Trial Advocacy for Paralegals and Small Claims Court Practice.
I can be reached by email at sbawden@kellysantini.com or by phone at 613.238.6321 x233.
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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.
Excellent review and agree with take-away...must still do the right thing~!
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