A contract is a legally binding agreement that creates, defines, and governs the relationship among the contracting parties. It contains the terms of the parties’ mutual rights and obligations.

Frustration of contract is a legal doctrine that allows parties to set aside an agreement where an unforeseen event makes it impossible to fulfill its terms.

Generally, the frustration of a contract due to the impossibility of performance leads to its termination without legal liability.

Canadians and permanent residents have a right to live and work in Canada. On the other hand, most foreign workers need a work permit. While the expiry of a work permit takes away a foreign worker’s right to work in Canada, does it result in frustration of contract? We will answer this question in the article below.

What is Frustration of Contract in Employment Law?

The frustration of an employment contract occurs when an employee is unable to perform their work duties, and it is unlikely that they will be able to return to the job in the foreseeable future. For instance, when a severe injury or critical illness makes it impossible for an employee to work. Another example is when the workplace itself gets destroyed due to fire or any other natural disaster.

In frustrated employment contracts, neither party is “at fault” for the termination of the contract. For this reason, an employer is not obligated to give the employee reasonable notice or pay in lieu of notice if they prove that the employment contract was frustrated.

An employee’s minimum entitlements upon termination are usually outlined under the applicable employment standards legislation such as Ontario Employment Standards Act, 2000 (the “ESA”) and its regulations. However, frustration of contract can result in the employer not being obligated to pay this minimal amount either.

Ontario Regulation 288/01 under the ESA provides that an employee is not entitled to termination pay or severance pay if their contract:

●      Becomes impossible to perform; or

●      Has been frustrated due to an unforeseeable event or circumstance.

However, if the employment contract gets frustrated due to injury or illness of the employee, they may still be entitled to termination pay and severance pay under the ESA, among other legal remedies.

Does the Expiry of a Work Permit Lead to Frustration of Contract?

An employer in Canada can only employ people who are legally entitled to work in Canada. This includes Canadians, permanent residents, foreigners with work permits or people exempt from work permits.

An employer who employs a foreign worker without a proper work permit may face fines and other penalties, such as a temporary or permanent ban from hiring temporary foreign workers. Further, the foreign worker whose work permit expires or is revoked cannot continue working for the employer.

In Canada, most employers hire workers from abroad under the Temporary Foreign Workers (TFW) Program. The program allows foreign workers to work in Canada by issuing them work permits.

Like any other permit, a work permit issued to a foreign worker is valid for a particular period of time. A worker cannot continue working legally for their employer after its expiry or revocation.

As mentioned above, an employment contract may be frustrated when it becomes impossible for an employee to work for the employer in the foreseeable future. An employer may be able to successfully argue frustration of contract where it is unlikely that the foreign worker will be able to work in Canada. For instance, if an employee’s application for an extension of the work permit gets rejected, it may be considered frustration of contract.

In contrast, where the employee could become eligible to work in Canada again in the foreseeable future, the employer may not be able to assert frustration of contract. For example, when the employee’s work permit expires while awaiting a decision on their permanent residency application.

Therefore, like many other legal questions, the answer to whether the expiration of a work permit leads to frustration of contract depends on the facts of a specific case. An employment lawyer can help determine whether the expiry of a work permit is a frustration of contract.

How an Employment Lawyer Can Help

Both employers and employees can benefit from seeking advice from an employment lawyer regarding the frustration of the employment contract. Their unique skills and expertise in employment law can help you determine your rights and entitlements.

Sometimes, employers rush to terminate employees on the expiry of their work permit, fearing adverse government action. While doing so may protect the employers from government fines and penalties, it may lead to other liabilities.

The employee terminated due to the expiry of the work permit may sue for wrongful dismissal. The threshold for proving frustration of contract is high, and the courts strictly scrutinize the employer’s actions. Given that the employees stand to lose their severance pay and termination pay, the courts require the employer to establish that the employment agreement was, in fact, frustrated. For this reason, an employer seeking to assert frustration of contract should seek legal advice before taking action.

An employee should not accept the employer’s assessment regarding the frustration of contract at face value. There may be additional facts which the employer should have considered before taking any action.

An employment lawyer will review the facts and advise on whether the expiry of the work permit in your case amounts to frustration of contract. They can use their knowledge of employment law and legal processes to advise you on your next best steps.

Conclusion

Most foreign workers need a work permit to work in Canada. Depending on the facts of a case, the expiry of the work permit may lead to frustration of the employment contract. The frustration of contract disentitles an employee from receiving termination pay and severance pay.

Whether you are an employer or an employee, if you have questions regarding the frustration of contract due to circumstances beyond your control, you should get in touch with an employment lawyer as soon as possible. An employment lawyer can assess the facts of your case, apply the legal principles, and help ascertain the legality of your actions.

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What Employers Should Know When Hiring Temporary Foreign Workers

Contact Achkar Law

If you are an employer who wants to take the proper steps before, during, and after your employee’s frustration of contract, or an employee who has questions about whether your contract is frustrated or whether you are entitled to more, our team of experienced employment lawyers at Achkar Law can help.

Contact us by phone toll-free at  +1 (800) 771-7882 or email us at [email protected], and we would be happy to assist.