An employee's medical limitations can change what work is possible. But that doesn't always mean the employment contract has come to an end through frustration. Employers need evidence that the underlying bargain can no longer realistically be performed, and they must consider what work the employee may still be capable of doing.
In Hill v. 1359768 Ontario Inc. (B&B Towing), 2026 ONCA 577, a towing company argued that the employee's health limitations had frustrated his employment. The litigation also involved claims arising from changes to his duties and the compensation owed after the relationship ended.
The Ontario Court of Appeal rejected the employer's frustration argument. On the record, the employee's essential obligations weren't shown to be permanently impossible to perform, and accommodation and return to work possibilities remained relevant. The Court maintained the 22 month reasonable notice assessment.
The employer did, however, succeed on a separate damages issue. The award was reduced because a company tow truck and cellphone supplied for work weren't properly treated as personal compensation benefits lost during the notice period. An employer's property can be essential for getting the job done without being part of the employee's remuneration package. The employer's appeal was therefore allowed in part, while the employee's cross appeal was dismissed.
For businesses, the case illustrates the need to keep three questions separate. Can the employee still perform essential duties with reasonable adjustments? Has the employment contract actually become impossible to fulfil? And which benefits were truly part of the employee's compensation? Answers to one don't automatically decide the others.
An employer assessing disability related absence or reassignment should document functional limitations, realistic options and the actual purpose of company vehicles, phones or equipment. Loose assumptions about any of those subjects can carry significant damages consequences.
Source: Ontario Court of Appeal, Hill v. 1359768 Ontario Inc. (B&B Towing), 2026 ONCA 577, https://www.canlii.org/en/on/onca/doc/2026/2026onca577/2026onca577.html