In Croke v. VuPoint System Ltd., 2024 ONCA 354, the Court of Appeal for Ontario (OCA) upheld the Superior Court of Justice – Ontario (SCJ)’s summary judgment decision that an employee’s refusal to comply with their employer’s mandatory COVID-19 vaccination requirements resulted in the frustration of the parties’ employment relationship. The employer was therefore entitled to terminate the employee’s employment without providing notice of termination or damages in lieu of common law reasonable notice.

Background

The employee was employed as a Systems Technician by VuPoint Systems Ltd. (VuPoint) from May 2014 to October 2021. VuPoint provides satellite television and smart home installation services for Bell Canada and Bell Express Vu (collectively, Bell). Bell provides 99% of VuPoint’s annual income and the employee performed work for Bell.

In September 2021, Bell informed VuPoint that its installers would be required to receive two doses of an approved COVID-19 vaccine and non-compliance would constitute a material breach of Bell’s supply agreements (Bell Policy). VuPoint then adopted a mandatory vaccination policy requiring its installers to be vaccinated and provide proof of vaccination (VuPoint Policy). The VuPoint Policy indicated that non-compliant installers would be prohibited from performing work for certain clients including Bell, and may not be assigned any jobs, but it did not mention termination of employment.

The employee was non-compliant with the VuPoint Policy. On September 28, 2021, VuPoint sent him a notice terminating both his employment and his group benefits effective October 12, 2021. On October 9, 2021, the employee sent a letter to his supervisor stating that he would not disclose his vaccination status due to privacy laws, and claiming the employer was discriminating against him because he did not become vaccinated. In addition to two weeks’ working notice, the employee was paid $2,393 in severance pay.

When the employee claimed he was entitled to damages in lieu of common law reasonable notice, VuPoint responded that because the employee lacked a necessary qualification to perform his duties and was ineligible to work for the foreseeable future, the employee’s employment was frustrated as of October 12, 2021, and he was not entitled to common law reasonable notice.

Employee’s Argument on Appeal

On appeal, the employee argued that the doctrine of frustration should not have been applied and, in the alternative, the application of frustration in this case was incorrect.

OCA’s Decision

The OCA dismissed the appeal.

In its reasons, the appeal court clarified that:

… a party alleging frustration must 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 Bell Policy was the supervening event that frustrated the employment contract

The appeal court rejected the employee’s argument that the supervening event resulted from his voluntary choice not to comply with the VuPoint Policy. Instead, the OCA found that “the introduction of the new requirement,” the Bell Policy, was the supervening event that frustrated the employment contract. The OCA characterized the effect of the Bell Policy from VuPoint’s standpoint, as “akin to that of a new regulatory requirement: absent vaccination, VuPoint’s employees were ineligible to work on Bell projects, which was nearly all of VuPoint’s work.”

The supervening event could not reasonably have been anticipated by the parties

The OCA found further that the SCJ’s finding that the Bell Policy was an unforeseen circumstance was entitled to deference. It 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 Bell Policy was outside VuPoint’s control and VuPoint had no obligation to take other non-disciplinary measures before resorting to termination

The appeal court also rejected the employee’s argument that VuPoint’s choice to respond to the Bell Policy by terminating his employment, although framed as frustration of contract “after the fact,” was actually a termination for just cause. The OCA reiterated the fundamental distinction between frustration and just cause dismissals:

Frustration of contract is a “no fault” termination of the contract. Where frustration is established, it has the effect of discharging the agreement, thereby releasing the parties from any further obligation to perform: John D. McCamus, The Law of Contracts, 3rd ed. (Toronto: Irwin Books, 2020), at p. 656. It follows that remedies applicable to misconduct, such as progressive discipline, suspension or warnings, have no application in the context of frustration.

Noting that “the Bell Policy, as the supervening event, was outside the control of VuPoint,” the OCA concluded that “Vupoint had no obligation to take other non-disciplinary measures before resorting to termination.”

The performance of the contract had become radically different from what the parties originally agreed to

The OCA emphasized that the focus of the analysis is on whether the performance of the contract had become radically different from what the parties originally agreed to, i.e., (a) once the Bell Policy was effective, was the employee eligible to continue to provide the services VuPoint hired him to perform, and (b) was his ineligibility to provide those services because of his vaccination status “radically different” from what the employment contract contemplated.

The OCA found:

…when VuPoint sent its termination letter on September 28, 2021, it was entitled to conclude that there had been a radical alteration of its employment contract with the appellant. VuPoint’s Policy, which it implemented on September 10, 2021, required employees to advise VuPoint of their “vaccination status”. There was no evidence that the appellant ever told VuPoint that he was either fully or partially vaccinated, despite the fact that he was aware of the Policy…

Bottom Line for Employers

By upholding the SCJ’s decision, the OCA affirmed that an employment contract may be frustrated when an employee refuses to comply with a COVID-19 vaccination policy that has been imposed on their employer by a third party and is, therefore, beyond the employer’s control.  

It remains to be seen, however, whether a non-compliant employee’s employment contract would be viewed to have been frustrated when the employer has control and independently implements a COVID-19 vaccination policy. Every case of frustration of contract is a legal determination that should be carefully reviewed based on the unique facts. Employers are encouraged to seek legal advice before making that determination.