Case In Point
Court Clarifies Frustration and Benefit Claims in Employment Damages
Date: September 24, 2026
In Hill v. 1359768 Ontario Inc. (B&B Towing), the Ontario Court of Appeal has provided guidance on two issues that can materially affect termination liability: (1) when an employee’s medical illness or disability will frustrate the employment contract, and (2) when an employer-provided vehicle, phone or other resource will be treated as a compensable employment benefit rather than as a work tool supplied to do the job.
This ruling affirms that employers face a high bar when arguing that an employment contract has been frustrated. Before relying on frustration, employers should assess whether an employee’s illness or disability prevents them from performing the essential duties of their position and there is no reasonable likelihood that they will be able to return to work within a reasonable time.
The decision also establishes that a resource will not be treated as a compensable employment benefit for which damages should be awarded if it was primarily a work tool provided to perform the job. To establish that a particular resource is primarily for business use, they should be consistently described as such in the employer’s agreements, policies, tax treatment and actual practices.
Background
The employee worked for a towing company for approximately 17 years before taking long-term disability leave in 2020. While off work, the employer advised him that his road boss position had been eliminated and that when he returned he would work as a tow truck driver at a lower rate of pay. After returning in 2022, the employee asserted constructive dismissal, then went off work again with a re-injured back; when he restated that he had been constructively dismissed, the employer treated it as a resignation, and the employee never returned to work.
Trial Court Decision
The trial judge rejected the employer’s argument that the contract had been frustrated by the employee’s physical limitations, found that he had been constructively dismissed, and awarded damages over a 22-month notice period, including the $125,640 for the loss of the use of the truck and cell phone.
Court of Appeal Upholds Rejection of Employer’s Frustration Argument but Reduces Damages
The employer appealed the trial decision, challenging both the finding that the contract had not been frustrated and the portion of the damage award representing the lost use of the tow truck and cellphone during the notice period.
Frustration Not Established: Employee Could Have Worked if Job Was Available and Restrictions Accommodated
The Court reaffirmed that frustration may arise where an employee’s illness or disability prevents them from performing the essential duties of their position and there is no reasonable likelihood that they will be able to return to work within a reasonable time.
However, the Court held that at the time of the employee’s termination, the medical evidence established that he “would have been able to continue to work if his road boss position had been available and his lifting restrictions had been accommodated.”
In these circumstances, the Court upheld the trial judge’s ruling that the contract of employment was not frustrated. The employer had conceded that constructive dismissal would follow if the contract was not frustrated, so once the frustration appeal failed, the constructive dismissal finding and 22-month notice period stood.
Truck and Cellphone Were Work Tools, Not Compensable Employment Benefits
The employee argued that the use of the employer’s truck and cellphone was part of his employment compensation and he was entitled to recover their value for the duration of the notice period.
The Court applied a clear test: a wrongfully dismissed employee may recover the value of fringe benefits that would have continued during the notice period, but bears the onus of proving that the resource conferred a personal benefit forming part of their compensation, rather than being a tool supplied to do the job.
The Court found that the employee did not establish that the truck or cellphone constituted employment benefits. Both were provided primarily for business purposes and he used them in carrying out his duties. Although the employee was permitted incidental personal use, this did not make the truck and cellphone compensable employment benefits.
The Court emphasized that the tow truck was a specialized work vehicle “akin to a school bus or a farm tractor”, that its $67,200 annual lease value was disproportionate to the employee’s $93,280 salary, and that the vehicle was not reported as a taxable benefit on his T4s or to the CRA. The Court also noted that the cellphone was replaced by a two-way radio when the employee returned to work. Accordingly, the Court deducted the $125,640 from the damage award.
Key Takeaways for Employers
- Frustration requires more than a temporary inability to perform some of the position’s duties. Where an employee’s restrictions can reasonably be accommodated, establishing frustration will be extremely difficult.
- The characterization of employer-provided resources matters when assessing damages. An employee is not entitled to compensation for the loss of access to such resources simply because they had access during employment; the key question is whether the resource was a compensable employment benefit for which damages should be awarded, or was primarily a work tool provided to perform the job.
- Employers should clearly specify in employment agreements, policies and other documentation whether a particular resource is provided primarily for business use, or forms part of an employee’s compensation.
For advice on how this decision may affect your organization, please contact your Hicks Morley lawyer.
The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Hicks Morley Hamilton Stewart Storie LLP and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Hicks Morley Hamilton Stewart Storie LLP. ©