What happens when there is 'frustration of contract'?

BRIAN RICHARDSON
Last updated 15:38 24/12/2012

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OPINION: We have recently had employers and an employee ring us wondering what happens when the employee can no longer work the way they used to.

This often arises out of sickness but can also arise from a situation where an employee is sent to prison or they lose their driver's licence.

From the employer's perspective, having an employee unable to work or do an important part of their job for a long time is extremely frustrating.

And, "frustration" is the technical term for what happens in the employment relationship.

"Frustration of contract" is what happens when, generally, through no fault of either party one of the parties to an employment agreement can no longer meet their obligations under the agreement.

The most common example is where an employee is off work for a long period (often because of sickness) with little or no chance of returning within a reasonable time.

As with all situations in which the employer is contemplating ending the employment relationship there is a process to follow.

In terms of sickness, there must be a history of the employee being unable to turn up regularly for work, or they may be off for an indefinite period. The employer is obliged to let the employee know there is an issue that must be addressed. The employer should also set out, in a letter, the history, particularly if there is a pattern of intermittent absences, and how those absences have impacted on the workplace.

In these cases it is often about the difficulties such absences impose on the workers who have to cover.

In all cases the employer should warn the employee of what is likely to happen if the absentee cannot return to work within a very short period or if they continue to be intermittently absent.

As with all employment relationship issues, there is an obligation on both parties to comply with the requirements of "good faith"; that is, they must be open, constructive and productive in their communication, and do nothing likely to mislead or deceive the other party.

Often what the employer is looking for is some form of certainty and an indication of when the worker be part of a normal working cycle, but the major issue is to keep the employer informed. Even if there is no certain return date, most employers only want to know what is happening so that they can keep the other staff informed and plan for the workplace.

If the employee is unable to give a return date for full normal duties or they keep being intermittently absent, then the employer can take action. They can notify the employee that the situation is untenable and that if the employee cannot give a satisfactory return date or they are absent again then the employer will have to consider terminating their employment.

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As with every situation in which termination is threatened, the employer must put the problem to the employee; give them a reasonable opportunity to respond to the situation; and, give that explanation due consideration before reaching a conclusion.

If what the employee says is impracticable, imposes an unsustainable burden on the company, or is not definitive enough then they can give notice of termination.

A termination in such circumstances would be "frustration of contract", being a situation in which the employee is unable to meet their obligation to be at work.

It can be frustrating and because there are often judgment calls on what is practical and what is reasonable, given the facts of the case, employees and employers are advised to seek appropriate professional advice before undertaking the process.

* Brian Richardson is a human resources adviser at Preston Russell Law. Email brian.richardson@prlaw.co.nz.

- © Fairfax NZ News

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