Employees who have been dismissed have a legal obligation to take reasonable steps to mitigate their losses. The burden remains on the employer to show that they have failed in that regard. Making reasonable efforts to mitigate loss does not equate to doing everything possible to help the employer to limit its losses. Former employees are not required to seek employment when they would be prevented from working by a health condition. (Slater v. Halifax Herald Limited)

There can be no obligation to mitigate damages by finding alternate employment where the employee is totally incapable of working. (Brito v. Canac Kitchens)

In Brito v. Canac Kitchens, the employee cabinet maker had been dismissed without cause at age 55 after 15 years' work. The employee found other work at a lower rate, and 16 months after his dismissal underwent surgery for cancer. His action for wrongful dismissal was allowed and he was found to be entitled to 22 months' notice. The employer's appeal was dismissed except regarding punitive damages. Evidence existed that the employee was unable to work due to restrictions imposed by his treating physicians, his continuing condition, and his skills set. The Court of Appeal stated that there can be no obligation to mitigate damages by finding alternate employment where the employee is totally incapable of working.

The doctrine of frustration can apply to employment contracts. In cases where employees are unable to work due to a disabling illness, it has been held that the question is whether the disability prevents the performance of the essential functions of the employee's job for a period of time sufficient to say that, in a practical or business sense, the object of the employment has been frustrated. (Cowie v. Great Blue Heron Charity Casino)

Frustration of contract occurs when a permanently disabled employee cannot return to work because the disability makes it impossible for the employee to perform the contract. In such circumstances, the onus is on the employer to prove that the contract was frustrated. If there is no reasonable likelihood at the time of termination that the employee will be able to return to work within a reasonable period of time, then frustration of contract applies. Put another way, frustration of contract may occur when the contractual obligation is incapable of being performed through no fault of the parties. If the inability to perform the contract continues into the foreseeable future, frustration is made out. The onus is on the employer to prove frustration. (Lemesani v. Lowerys Inc.)

Where an employer pleads that an employee's illness has rendered the employee incapable of doing their job, the onus is on the employer to demonstrate that is the case. Therefore, while the initial onus is on the plaintiff to prove a fundamental breach of the employment contract, once that has been established, the onus shifts to the employer to demonstrate just cause or frustration of the contract by the employee. This shifting onus has been noted in cases involving both wrongful dismissal and constructive dismissal. For the former, the employer has the onus to demonstrate just cause. As for constructive dismissal, particularly in the case of an ill employee, there is little, if any, distinction between termination for just cause and frustration of the employment contract. Illness as a basis for the termination of an employment contract is dealt with under the headings of both frustration and just cause, although the principles are similar, if not the same. Whether a contract has been frustrated due to illness depends on a number of factors including, the terms of the contract, how long the employee is likely to remain sick, the nature of the employment, the nature of the illness, the availability of sick leave and pay, the period of past employment and how long the employer should reasonably be expected to await the employee's return. Generally, with a long-term employee, it is more difficult to prove frustration. Permanent disability does bring about frustration, but temporary sickness does not. Evidence of frustration or just cause is typically very well documented with doctor's reports or other credible evidence attesting to an employee's permanent disability and prognosis. (Irvine v. Gauthier (Jim) Chevrolet Oldsmobile Cadillac Ltd.)

A defendant employer may rely on any just cause or frustration due to disability discovered up to the time of trial, but unknown at the time of termination. (Ciszkowski v. Canac Kitchens)

In Lemesani v Lowerys Inc., the employee sued unsuccessfully for damages for wrongful dismissal, discrimination on the grounds of disability, and punitive damages. The Court stated that the employee had confirmed he was incapable of returning to work and that his statement exemplified the definition of frustration of contract. He could not return to work because his condition made it impossible for him to perform the contract. The claim for wrongful dismissal was therefore dismissed.

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