There’s a line of legal authority that indicates that, in today’s employment contracts anyway, death is not necessarily the end
Generally speaking, the death of an employee in an employment contract discharges the employment contract.
This general legal principle was established in common law as far back as the 18th century. Common sense discloses to us that, no matter how lacklustre their performance may have seemed during life, deceased persons cannot be expected to continue to perform employment services. Contracts of service such as employment contracts are what the law considers “personal” contracts – and personal contracts become frustrated once the core feature of such contracts, viz. the ability to perform services, is removed by death. Thus, the event of death usually brings the employment contract to an immediate end.
Extending this general principle, the estate of a deceased employee is not liable for damages flowing from the failure due to death of the deceased employee to deliver services.
The rule of frustration of contract probably always applies where the employee dies while in the midst of providing the employment services. But what happens where the employee dies during the notice period that flows from a dismissal?
There is a line of legal authority that indicates that – in employment contracts anyway – death is not necessarily the end.
In one Ontario case, the employer terminated the employment of the employee and then made an offer of severance payment. The offer was good for 14 days.
Unfortunately for the employer, it made the offer without any precondition that the dismissed employee had to remain alive. The dismissed employee died 12 days after being dismissed and receiving the offer of severance payment. The estate of the employee, on the 13th day of the offer, accepted the offer of severance made to the deceased employee. The employer, relying on the general rule that death frustrates the employment contract, denied the estate and refused to make the severance payment.
The estate sued. At trial, the employer argued both frustration of contract, and a failure to mitigate. The employer argued that a deceased person who cannot perform employment services also cannot take reasonable steps to mitigate their damages by looking for suitable employment.
The court in Ontario found that the offer made to the deceased employee was binding on the employer and the payment of severance to the estate of the deceased employee must be made. The court rejected both the frustration argument and the failure to mitigate argument of the employer.
The Ontario court ruled that the employment was terminated without the employer giving proper notice, which equates to a wrongful dismissal, and that the employer, in making the offer, was attempting to alleviate its own breach of contract or wrongful dismissal. Because the dismissal was wrongful, the employee had a claim in damages against the employer from the point in time of such wrongful dismissal. Additionally, the employer made an offer of severance, and that offer was accepted. In summary, the Ontario court would not allow the employer to benefit from death and the doctrine of frustration in circumstances of a wrongful dismissal. The Ontario court awarded the estate of the deceased employee 12 months of her pay.
In a recent British Columbia case that followed the Ontario case, an employee was dismissed after 21 years of service and was given three months pay in place of reasonable severance. The lawyers for the deceased had negotiated and concluded a deal for the balance of severance owed to the employee, when the employee suddenly died. The employer then denied the deal for the balance of the severance, and refused to pay the estate of the deceased employee, relying on frustration of contract.
The estate sued. The court ruled that the employer had entered into a binding agreement to pay severance to the deceased employee, and that this severance agreement stood on its own as enforceable. The settlement agreement was not a contract for personal services, rather, it was a solution for a damages claim that arose with the wrongful dismissal.
The B.C. court found that the personal services of the deceased employee were not essential to the settlement agreement that settled the deceased employee’s claim to reasonable notice upon dismissal. The central purpose of the settlement agreement, viz. to settle the claim for wrongful dismissal, could be achieved without the deceased employee. Thus, the frustration defence asserted by the employer could not succeed. The court additionally ruled that the estate of the deceased employee, which has the right to make claims in debt on behalf of the deceased, was perfectly right to make a claim for the payment of the settlement agreement monies.
The moral of this story? Wrongful dismissal claims and agreements that settle wrongful dismissal claims survive the death of the employee.
The court’s powers in wrongful dismissal cases go even beyond the grave.