Employee on medical leave with no prospect of returning

How long does an employer have to keep an employee on the books if they're unlikely to ever come back?

Stuart Rudner

Question: If an employee has been off work for a while and provides medical information that is uncertain on whether the employee will be able to return, how long must an employer wait before terminating the employee?

Answer: You would be amazed how often this issue arises. We seem to have a lot of clients that have employees who have been “on leave” for years. In many cases, there has been no communication for an extended period and the documentation to support the ongoing absence is poor. Unfortunately, many employers are scared to ask for proper documentation due to a misguided fear that they will be breaching the employee’s privacy rights.

The reality is that a leave of absence is a form of accommodation. Any assessment of accommodation requirements should involve an ongoing dialogue between employer and employee. The starting point is that the employee must produce documentation clearly setting out any limitations on her ability to carry out her duties — whether the accommodation relates to disability, childcare obligations or anything else. Once that information is provided, the employer has a duty to assess the need for accommodation and, if there is one, assess the potential accommodations. The employee is not necessarily entitled to her preferred choice of accommodation; the duty is to provide reasonable accommodation to the point of undue hardship.

With respect to employees where the medical documentation shows that they cannot return to work, even on modified duties, the question becomes whether or not the contract of employment has been frustrated. Contrary to popular belief, there is no “magic number” or specific amount of time after which the contract will automatically be deemed to be at an end. Even if the employee is no longer eligible for disability benefits, that does not mean her employment can be terminated if she doesn’t return to work. 

The concept of frustration of contract does not only apply to employment contracts; in fact, its genesis relates to contracts generally. Simply put, a contract is frustrated when the contract cannot be completed through no fault of either party. A classic example is where two parties enter into a property rental agreement. If there is a fire and the property burns down, it will be impossible to complete the contract, but this will not be the fault of either party. In that case, both parties will be relieved of their obligations going forward.

In the context of employment, the fundamental basis of an employment contract is that the individual will work and the employer will pay her for her labour. If the individual is unable to work, through no fault of her own, then the contract may be frustrated. In that case, the employer is not terminating the employee’s employment and the employee is not resigning. Rather, the contract simply comes to an end. Historically, that would mean that the individual is not entitled to any compensation arising out of the end of her employment. However, employment standards legislation, including Ontario’s Employment Standards Act, 2000, have been amended to provide for Termination Pay and Severance Pay in the event of frustration of the employment contract. However, no common law notice, or pay in lieu thereof, will be required.

The courts will assess whether there is any reasonable likelihood that the individual will be able to return to work in the foreseeable future. If there is, then it is unlikely that the court will conclude that the contract of employment had been frustrated.

This was an issue faced by Costco a few years ago. An employee, Frank Naccarato, had been off work for approximately five years. Costco terminated Naccarato’s employment based primarily on his family doctor’s report, which indicated that it would not be possible to state when Naccarato could return to work. Naccarato sued for wrongful dismissal. Costco lost, primarily because there was no medical evidence to support a conclusion that there was no reasonable likelihood Naccarato could return to work in the reasonably foreseeable future. Furthermore, in light of the large-scale operation of Costco, there was no basis upon which to conclude that his ongoing absence hurt the company in any meaningful way. As a result, continuing to accommodate him by allowing him to remain on leave did not constitute undue hardship.

Each case will be decided based upon its own particular facts and, in particular, the medical information available. Unless it is clear that there is no reasonable likelihood of a return to work in the foreseeable future, it is unlikely a court will find that the contract of employment was frustrated. 

For more information see:

Naccarato v. Costco, 2010 ONSC 2651 (Ont. S.C.J.).

Stuart Rudner is the founder of Rudner Law, an employment law firm in Markham, Ont. He can be reached at stuart@rudnerlaw.ca or (416) 864-8500.

Latest stories