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

In September 2021, Bell informed VuPoint that its installers would be required to receive two doses of the approved COVID-19 vaccine, and failure to do so 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). VuPoint’s policy indicated that non-compliant installers would be prohibited from performing work for certain customers, including Bell, and could not be assigned any work, but did not mention termination of employment.

The employee did not comply with the VuPoint Policy. On September 28, 2021, VuPoint sent him a notice terminating both his employment and 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 status of vaccination due to privacy laws and claiming that the employer discriminated against him because he did not get vaccinated. In addition to two weeks’ notice, the employee was paid $2,393 in severance pay.

When the employee claimed he was entitled to damages in lieu of reasonable common law notice, VuPoint responded that because the employee was unqualified to perform his duties and was not eligible to work for the foreseeable future, the employee’s employment was frustrated starting October 12. , 2021 and was not entitled to reasonable common law 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 decision

OCA rejected the appeal.

In its reasons, the appellate court stated the following:

[…]a party alleging frustration must establish that there was an “intervening event” that: (i) radically altered the contractual obligations; (ii) was not foreseeable and for which the contract does not provide; and (iii) was not caused by the parties.

The Bell policy was the subsequent event that frustrated the employment contract

The appellate court rejected the employee’s argument that the event that occurred 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 subsequent event that frustrated the employment contract. The OCA characterized the effect of the Bell Policy from VuPoint’s point of view as “akin to that of a new regulatory requirement: Absent vaccination, VuPoint employees were ineligible to work on Bell projects, which was almost all of VuPoint’s work.”

The subsequent event could not have been reasonably foreseen by the parties

The OCA also found 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 Bell’s extraordinary response, was an exceptional event that the parties could not have reasonably anticipated years earlier.”

Bell’s policy was beyond VuPoint’s control, and VuPoint had no obligation to take further non-disciplinary action before resorting to termination.

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

Frustration of contract is a “no-fault” termination of the contract. If frustration is found, it has the effect of discharging the contract, thereby releasing the parties from any further obligation to perform: John D. McCamus, Law of Contractsed. the 3rd. (Toronto: Irwin Books, 2020), at 656. It follows that remedies applicable to misconduct, such as progressive discipline, suspension or warnings, do not apply in the context of frustration.

Noting that “the Bell Policy, as a subsequent event, was beyond VuPoint’s control,” the OCA concluded that “Vupoint had no obligation to take further nondisciplinary action before resorting to termination.”

The execution of the contract had become radically different from what the parties had originally agreed upon

The OCA emphasized that the focus of the analysis is whether the performance of the contract has become radically different from what the parties originally agreed, MEAN(a) once the Bell Policy went into effect, the employee was eligible to continue to provide the services that VuPoint hired, and (b) he was ineligible to provide those services because of his “radically different” vaccination status from what the employment contract had in mind.

OCA found:

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

Conclusion for employers

Upholding the SCJ’s decision, the OCA stated that an employment contract can be frustrated when an employee refuses to comply with a COVID-19 vaccination policy that has been imposed on his 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 contract of employment would be deemed to have been frustrated when the employer is in control and independently implements a COVID-19 vaccination policy. Each frustration of contract case is a legal judgment that should be carefully reviewed based on its unique facts. Employers are encouraged to seek legal advice before making this decision.