LTD Obligations

[Lisa Dolegowski]

#108388

Forum: Private

If I have an employee who is coming up on two years of being on (non-work related) long term Disability, with no anticipated or expected return to work, am I able to terminate employment for frustration of contract? Do I have any other obligations to consider at this time? Under what reason (cause/no cause) would I use for the termination letter, determining payout, and/or providing a ROE code?

[Haley O’Halloran]

#108393

Assuming this is an Ontario employee, the fact that they are approaching two years on LTD does not automatically mean the employment contract is frustrated. Frustration may be established where the medical evidence shows there is no reasonable prospect of the employee returning to work in the reasonably foreseeable future, even with accommodation. Before terminating, it is advisable to obtain updated medical information focused on prognosis, functional abilities, possible accommodations, and whether any return to the employee’s own or modified work is reasonably expected.

You should also confirm that you have met your duty to accommodate under the Human Rights Code and considered whether any reasonable accommodation or alternative work is available without undue hardship. The length of the absence alone should not be the deciding factor. You should also check whether the employee is currently entitled to any job-protected leave under Ontario’s ESA and review the LTD policy to ensure that terminating employment will not unintentionally interfere with ongoing disability benefits.

If frustration is properly established, the termination is generally best described as a termination due to frustration of contract, rather than for cause or as a typical without-cause termination. In Ontario, however, where frustration results from illness or injury, the employee is still entitled to ESA termination pay and, if eligible, ESA severance pay. Common-law reasonable notice would generally not be owed if frustration is validly established, but accrued wages, vacation entitlements, and any other statutory amounts must still be paid.

For the ROE, Code D – Illness or Injury is generally used when the employee temporarily stops working because of illness or injury, not when the employer later permanently ends the employment relationship. In a frustration scenario, Code M – Dismissal is commonly the more appropriate choice because the employer is ending the employment relationship, even though there is no misconduct or just cause. The safest approach is to treat the two-year point as a trigger for a final medical and accommodation review, rather than as an automatic termination date.

I hope this helps!
-HRInsider Staff

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