Is An Employee Entitled to Statutory Termination Compensation If An Employee Becomes Ill and Unable to Return to Work?
Yes, An Employee May Assert Frustration of Contract Arising From Poor Health of the Employee and Thereby Be Entitled to Statutory Termination Rights.
Typically, when a 'frustration of contract' position is taken it is the employer that is asserting such a condition following a long-term absence of the employee for health issues when it appears that the employee will be unable to return. In such a situation, the employer owes the statutorily due monies arising from termination as in accordance to the Employment Standards Act, 2000, S.O. 2000, Chapter 41 ("ESA") and, whereas the employment contract is 'frustrated' rather than 'breached' further compensation is, generally, unrequired.
However, what happens if the employer fails to assert frustration of employment? While unusual, it was decided in the case of Hoekstra v. Rehability Occupational Therapy Inc., 2019 ONSC 562 that the employee may assert frustration of contract and thereby bring the employment to an end and thereby trigger the statutory obligations under the ESA. In Hoekstra, it was stated that frustration is a legally applied principle that arises from a contextual approach as to whether illness rises to the level of causing frustration of the employment contract whereas it was specifically said:
 Frustration of contract occurs as a matter of law. Once circumstances exist that have the effect of frustrating the terms of a contract, the contract is deemed terminated. In my view, neither party to the contract must take any steps to effect that result. This is particularly so in the case of frustration due to illness or injury which is presumptively beyond the control of both the employee and the employer.
 A contract of employment is frustrated when “there is no reasonable likelihood of the employee being able to return to work within a reasonable time.” The fact that a party to the employment contract takes the position that the contract has been frustrated, whether in support or defence of a claim, does not have the effect of deeming a contract frustrated.
 A contextual analysis must be undertaken to determine whether the contract of employment between the plaintiff and the defendant has been frustrated. As was noted in Edmonton (City) v. ATU, Local 569 at para. 148:
A contextual analysis means that determining “permanent” or “non-permanent” is not a mere accounting exercise in order to determine whether the length of an illness surpasses a particular numerical threshold. It is interesting to note that in the common law employment world, the Ontario Court of Justice found in Fraser v. UBS Global Asset Management, 2011 ONSC 5448 (CanLII) (Ont. S. C.J) that a three-and-a-half-year absence was sufficiently permanent to frustrate a contract, whereas a five-year absence was found to be temporary in Naccarato v. Costco Wholesale Canada Ltd., 2010 ONSC 2651 (Ont. S.C.J.).
In review of the context of the illness, the court determined that the employment contract was frustrated by the long-term prognosis of continuing illness and stated:
 In this case, the plaintiff had not performed any of his employment duties subsequent to October 2012. As noted in Edmonton (City of), simply because the plaintiff has been on prolonged medical leave does not, in itself, amount to frustration of the employment contract. Here, there is evidence that the plaintiff’s medical condition (disability) had morphed from being temporary to being a permanent condition rendering him incapable of performing his employment duties.
 On October 19, 2016, the plaintiff was assessed by his family physician who formed the opinion that no longer was the plaintiff’s return to work simply unlikely rather Dr. Paradis was of the definitive view that the plaintiff would not be returning to work due to his medical condition. As of October 19, 2016 there was no reasonable likelihood of the plaintiff being able to return to work within a reasonable time.
 I am satisfied on a balance of probabilities that the employment contract between the plaintiff and the defendant was frustrated on October 19, 2016.
Accordingly, and despite that the employer had taken the position that taking a position of frustration is unavailable to the employee when the illness of the employee is the cause of frustration, the court did decide in favour of the employee.
Although frustration of contract due to prognosis of long-term illness of employee is more commonly asserted by the employer, an employee may assert frustration, and if the frustration is deemed to exist, statutory employment termination compensation in favour of the employee becomes due.