Court of Appeal for Ontario Confirms Frustration of Contract in Mandatory Vaccination Case

In Croke v. VuPoint System Ltd.2024 ONCA 354, the Court of Appeal for Ontario upheld a motion judge’s decision that an employment contract was frustrated as a result of an employee’s failure to comply with a mandatory vaccination requirement imposed by the employer’s client. 

Facts

VuPoint System Ltd. (“VuPoint”), a federally regulated employer, provides satellite television and smart home installation services on behalf of Bell. Bell provides more than 99% of VuPoint’s annual income. The appellant employee was employed by VuPoint as a technician and only did work for Bell. 

In 2021, Bell implemented a mandatory vaccination policy (“Bell Policy”) and informed VuPoint that technicians working on Bell projects needed to be vaccinated against COVID-19, and that failure to comply with the Bell Policy would constitute a material breach of the Supply Agreement between Bell and VuPoint. As a result, VuPoint implemented its own mandatory vaccination policy (“VuPoint Policy”), which required all of its non-compliant employees be “prohibited from performing work for certain customers (including Bell)” and “may not receive the assignment of any jobs”. 

The employee refused to comply with the VuPoint Policy. VuPoint gave two (2) weeks’ notice to the employee that his employment would be terminated as a result of his failure to comply with the VuPoint Policy. The employee brought an action for wrongful dismissal. VuPoint defended the action, arguing that the employee’s employment contract was frustrated as a result of the Bell Policy, over which VuPoint had no control. 

Decision of the Motion Judge 

On a motion for summary judgment, the motion judge accepted VuPoint’s frustration argument and dismissed the employee’s action for wrongful dismissal. Therefore, the employee was not entitled to any payments with respect to his termination beyond his minimum statutory entitlements under the Canada Labour Code, which VuPoint had already paid.

The motion judge found that the employee was aware of the Bell Policy, that he only provided services to Bell, and that, without proof of vaccination, he could not continue providing services to Bell. The motion judge found that the implementation of the Bell Policy was a supervening event, not contemplated by the parties, that neither VuPoint nor the employee could have foreseen when his employment contract was signed. The motion judge also found that the implementation of the Bell Policy meant that the employee lacked the necessary qualification to perform his employment duties, and that his 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 resulting in frustration of the contract. The motion judge further found there was no requirement for VuPoint to impose a lesser disciplinary measure, such as a suspension, until the employee complied, because he had clearly stated his intention not to become vaccinated. The employee’s intention made it clear to the motion judge that his inability to work was not temporary.

The employee appealed the motion judge’s decision to the Court of Appeal.

Decision of the Court of Appeal 

The Court of Appeal upheld the motion judge’s decision that the employee was not wrongfully dismissed because his employment contract had been frustrated.

The Court of Appeal made the following key observations with respect to the application of the doctrine of frustration to employment contracts:

  • The Court of Appeal reiterated that the test for frustration in contract law is well settled. 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. 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.
  • The Court of Appeal rejected the employee’s argument that the frustration in this case stemmed from his voluntary decision not to comply with the mandatory vaccination requirement, and therefore that the third criterion above had not been met. The Court of Appeal accepted, as did the motion judge, that the Bell Policy was the supervening event which frustrated the contract – not the employee’s choice or conduct. The Court of Appeal compared the effect of the Bell Policy to a new regulatory requirement: absent vaccination, VuPoint’s employees were ineligible to work on Bell projects, which was nearly all of VuPoint’s work. 
  • In assessing whether the supervening event resulted in a radical change to the fundamental obligations of the contract, the Court of Appeal stated that the possibility or likelihood that an employee could rectify the disruption to an employment contract caused by a supervening event is a relevant consideration. For instance, the Court opined that the employment contract may not have been “radically altered” by the Bell Policy if it was a temporary, emergency measure to be of short duration, or if there was evidence that the employee intended to become vaccinated but could not do so before the Bell Policy came into effect. However, that was clearly not the case here because: (i) the employee had not advised VuPoint that he intended to become vaccinated, despite his awareness that termination could result from non-compliance with the mandatory vaccination requirement; and (ii) VuPoint had no knowledge of the timeline of the Bell Policy and there was no evidence that the mandatory vaccination requirement would be a temporary or short-lived measure. 
  • The Court of Appeal also found that the 2021 Supply Agreement between Bell and VuPoint was not relevant to the analysis of foreseeability. Rather, the focal point of the foreseeability analysis was 2014, when the employment contract was signed. In 2014, neither the employee nor VuPoint 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. The Court of Appeal agreed 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.
  • The Court of Appeal also rejected the employee’s argument that the unforeseeable event was not the Bell Policy but rather VuPoint’s choice to respond to the Bell Policy by terminating his employment, as opposed to taking other  non-disciplinary action, such as suspension without pay. The Court of Appeal held that the motion judge correctly identified the Bell Policy as the supervening event and concluded that the Bell Policy was not foreseeable and radically altered the contractual obligations of the parties, and that there was no evidence that VuPoint had any control over Bell’s decision to implement the mandatory vaccination requirement. 
  • The Court of Appeal further rejected the employee’s argument that, in effect, his termination was framed as frustration of contract after the fact but, in reality, was a termination for just cause. The Court reiterated that frustration and just cause dismissals are fundamentally distinct. While the record revealed 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 employee, by the time the summary judgment motion reached the motion judge, VuPoint’s only basis for the termination was frustration of contract. The Court of Appeal stated that frustration of contract is a “no fault” termination of the contract, and where frustration is established, it has the effect of discharging the agreement, thereby releasing the parties from any further obligation to perform. It follows that remedies applicable to misconduct, such as progressive discipline, suspension or warnings, have no application in the context of frustration.
  • Lastly, the Court of Appeal rejected the employee’s argument that he did not receive an adequate warning that non-compliance would result in termination. The Court of Appeal reiterated that frustration results in the immediate discharge of the obligations in the contract, and 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, the Court of Appeal added that 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. 

In Our View

While the Court of Appeal for Ontario confirmed in this case that an employee’s refusal to comply with a COVID-19 mandatory vaccination requirement gave rise to a frustration of contract, it is important to remember that this case dealt with an employer claiming frustration of contract as a result of an employee’s failure to comply with a mandatory vaccination requirement imposed by the employer’s client. This decision therefore did not address whether an employment contract could be frustrated in situations where the mandatory vaccination policy that rendered an employee ineligible to work is controlled and implemented by the employer. 

When assessing the application of the doctrine of frustration to employment contracts, the Court of Appeal’s focus was on whether the performance of the contract had become radically different from what was contemplated by the employment contract. The Court of Appeal also reiterated that frustration results in the immediate discharge of the obligations in the contract, and there is no fixed legal requirement that an employee must necessarily be given advance notice that the employment relationship has been frustrated, and 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. 

However, the Court of Appeal clarified that when assessing whether the supervening event resulted in a radical change to the fundamental obligations of the contract, the possibility or likelihood that an employee could rectify the disruption to an employment contract caused by a supervening event is a relevant consideration, which may be affected by either the duration of the supervening event or the duration of the effect that event has on the specific employment relationship. Indeed, the Court of Appeal considered that if the Bell Policy would have been a temporary, emergency measure to be of short duration, or if the employee intended to become vaccinated but could not do so before the Bell Policy came into effect, the fundamental obligations in the employment contract may not have been radically altered by the Bell Policy.

For more information, please contact Kyle Shimon at 343-996-4932 or Samara Belitzky at 613-404-4285.

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