Ontario Court unsympathetic to employer wrongfully claiming contract was frustrated and awards significant damages to terminated employee

May 15, 2011

In the Ontario Superior Court of Justice case of Altman v. Steve’s Music Store, the court awarded substantial damages to an employee who filed a claim for wrongful dismissal after she was terminated while recovering from lung cancer. The Court soundly rejected them employer’s claim that the employment contract had been frustrated, and went on to award significant moral and punitive damages due to the inappropriate conduct in terminating an employee suffering with a disability.

The employee, Ms. Altman, had been an employee of Steve’s Music Store for over 30 years, having been hired in October, 1978. During her years at Steve’s, Ms. Altman worked her way up to the position of Store Manager, a position she held from 1998 until her termination. In 2007, Ms. Altman was diagnosed with lung cancer. She underwent surgery in February 2008, and chemotherapy treatments which were completed on September 17, 2008. Following surgery in February, Ms. Altman was off work for one month, and between March and October 15, 2008, Ms. Altman worked reduced hours. She worked as much as she could; given the amount of time she had to take off for treatment and the physical effects of the treatment.

Steve’s was aware of Ms. Altman’s illness, the treatments she was receiving and the reduced hours she was working. Steve’s was supportive of her and continued to pay Ms. Altman her regular salary. No one at Steve's told Ms. Altman that she was being remiss in her duties or that her absences were putting her job at risk. However, on October 15, 2008, Steve’s sent Ms. Altman a letter by bailiff from their legal counsel, indicating that unless Ms. Altman began working regular hours Steve’s would have no alternative but to terminate her employment. The letter came as a complete shock to Ms. Altman, and out of fear of losing her job, she attended work on October 16, 2008. However, that was the last day she worked for Steve’s, as she began a three-month medical leave of absence that was ultimately extended until April 2009.

Ms. Altman was cleared to return to work on April 8, 2009, and indicated to Steve’s by letter dated April 1, 2009 that she would be returning on that date. However, Ms. Altman fractured her back and was forced to put off her return to work until April 20, 2009. Before she was able to return to work, Steve’s sent Ms. Altman another letter by bailiff which stated that her employment was terminated as of April 7, 2008. Steve’s did not pay Ms. Altman her statutory minimum termination pay, and in fact withheld both accrued wages and accrued vacation pay to compensate for time Ms. Altman was absent from work.

The Court’s Decision:

Steve’s argued that the Ms. Altman’s employment contract had been frustrated due to her illness. In his decision, Justice Corrick undertook a review of the law, and summarized frustration as follows:

“To determine if a contract has been frustrated, regard must be had to the relationship of the term of the incapacity or absence from work to the duration of the contract, and to the nature of the services to be performed.”

Steve's argued that it terminated Ms. Altman's employment because her illness was permanent in the sense that she was no longer able to perform her duties at work. However, Justice Corrick found that the contract was not frustrated. In particular, Justice Corrick found that Steve’s had “not established that on April 7, 2009 Ms. Altman’s illness was of such a nature that she was unable to perform the duties of her job.”

The decision was based on the following factors: there was undisputed evidence from Ms. Altman’s treating physicians that she was able to work on April 7, 2009; Steve’s never complained of Ms. Altman’s quality of work, or advised that she was not performing her duties as required; the October 15, 2008 letter only commented with respect to the number of hours Ms. Altman was working and not her ability to complete her duties; the April 7, 2009 termination letter was in response to Ms. Altman’s April 1, 2009 letter wherein she indicated that she was able to return to work; and, Steve’s terminated Ms. Altman without inquiring about her ability to fulfill her employment duties.

After finding that the defence of frustration was unavailable to Steve’s, Justice Corrick found that the period reasonable notice was 22 months, citing factors such as Ms. Altman’s age (58 years old), service (over 30 years), character of employment (Store Manager and a member of the Steve’s “family”) and availability of similar employment (clearly limited by her illness, but unlikely to find a similar position in any event). 

Steve’s claimed that the disability payments which Ms. Altman received should be deducted from any award of damages. However, the court found that disability benefits were not deductible from the damage award since Ms. Altman paid some, if not all of the premiums for the long-term disability insurance; the benefits were paid by the provider and not Steve’s; Ms. Altman received no disability payments until December 2009 - more than one year from the date she took her medical leave - due to Steve's failure to complete the policyholder's portion of the claim form; and Steve's terminated Ms. Altman while on medical leave, but before she had received any disability payment.

Additionally, Ms. Altman claimed damages resulting from the failure of Steve’s to act in good faith in the manner of her termination. Notwithstanding the apparent limiting of such damages in recent Supreme Court of Canada decisions, Justice Corrick found that Steve’s treatment of Ms. Altman was “callous and insensitive” and that she “deserved to be treated better than twice having a bailiff deliver her a letter replete with mistruths from Steve's lawyers - especially when Steve's knew she was recovering from cancer treatment.” Ms. Altman was awarded $35,000 in moral damages as a result of Steve's breach of its duty to deal with Ms. Altman in good faith and with fairness in the manner in which they terminated her employment.

Further, Ms. Altman claimed punitive damages, which Justice Corrick stated are “restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own.” In these circumstances, Steve’s conduct was found to be egregious enough to justify an award of $20,000 for punitive damages.

Our Views:

This case should serve as a warning to employers. Notwithstanding the egregious conduct of Steve’s in dealing with Ms. Altman, employers should take note that the standard which the Court has set for frustration of contract is quite high, and employers with employees on long-term leave will have to tread carefully before claiming that an employment contract has been frustrated.

The decision also reiterates that the Court has a lack of tolerance towards employers who mistreat employees, especially one who is already in an unfortunate situation due to an illness or recent disability.

If you have any questions regarding the obligations owing in regards to the termination of a specific employee, you should consult with legal counsel.

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