James Wibberley, Guildhall Chambers
The doctrine of frustration has historically been seen as a clever defence to claims brought following ill-health dismissals. Is it though of any practical use in an era of statutory protection for disabled employees?
The doctrine of frustration
The modern doctrine of frustration stems from the speech of Lord Radcliffe in Davis Contractors Limited v Fareham UDC  AC 696. Effectively, it is an unforeseen supervening event that renders the contact incapable of performance.
The doctrine was brought into employment law by the case of Marshall v Harland & Wolff  2 All ER 715. Giving judgment, Donaldson J formulated the following question following the speech of Lord Radcliffe:
"Was the employee's incapacity, looked at before the purported dismissal, of such a nature, or did it appear likely to continue for such a period, that further performance of his obligations in the future would either be impossible or would be a thing radically different from that undertaken by him and agreed to be accepted by the employer under the agreed terms of his employment?"
In the view of Donaldson J, the tribunal should take account of five factors when answering this question, namely:
a) The terms of the contract, including the provisions as to sickness pay;
b) How long the employment was likely to last in the absence of sickness;
c) The nature of the employment. Whether the employee is one of many in the same category or whether he occupies a key post;
d) The nature of the illness or injury and how long it has already continued and the prospect of recovery; and
e) The period of past employment.
These factors were expanded upon by Phillips J in Egg Stores (Stamford Hill) Ltd v Leibovici  ICR 260, to include consideration of the length of previous employment; the risk of the employer acquiring obligations in respect of redundancy payments; whether wages have continued to be paid; the actions of the employer; and whether in the circumstances a reasonable employer could have been expected to wait any longer for the employee to recover. The significance of these factors is often overplayed, though. They are simply a set of criteria to assess the circumstances foreseen at the start of the employment and whether the contract has become incapable of performance.
Frustration and disability discrimination legislation
The first major decision dealing with the effect of the duty to make reasonable adjustments on the doctrine was that of HHJ Clark in Thorold v Martel Press  0343/01, where the EAT accepted that the duty to take reasonable adjustments should be taken into account when considering if the contract had been frustrated.
A similar issue came before the EAT in the recent case of Warner v Armfield Retail & Leisure Limited 0376/12 EAT. The case involved a Claimant who had suffered a stroke in February 2010. On 27 January 2011, the Respondent sent the Claimant his P45, and later alleged before the Tribunal that the Claimant had not been dismissed as his employment contract had been frustrated by the stroke.
The judgment of the EAT was given by HHJ Richardson. Having concluded that the EAT was bound to apply the doctrine of frustration, he stated at paragraph 42 that:
"... As a matter of everyday practical reality employers and employees alike expect to deal with issues of disability, sickness and absence for other reasons ... within the framework of the employment relationship... Lawyers are familiar with the concept of frustration because it is taught as part of contract law. But there is no general familiarity with it in industry... Readers of this judgment should not therefore suppose that we think the application of the doctrine of frustration to everyday contracts of employment to be beyond question."
The EAT went on to find that, following the approach in Thorold, the ET must decide whether the employer was in breach of its duty to make reasonable adjustments before it considered whether the contract was frustrated. The appeal on the frustration point failed though as the EAT was unable to go behind the ET's finding that the duty had been complied with.
Is frustration a busted flush?
Following the cases of Thorold and Warner, it is clear that the doctrine of frustration remains good law. Although the EAT has sought to significantly restrict its scope, the writer would argue that the position cannot be as straightforward as the decision in Warner suggests.
The doctrine of frustration operates when an unforeseen event prevents performance of the contract. The contract is frustrated at that point. In the employment context this will usually mean (subject to the terms of the contract) that the contract is frustrated when sickness or disability sufficient to prevent substantial performance of the contract develops or occurs. Given that the duty to make reasonable adjustments is only triggered once the employer has the requisite knowledge of the disability - see Part III of Schedule 8 to the 2010 Act - it follows that the duty will not always arise prior to the frustrating event.
Further, it is clear following the above decisions that the doctrine remains of application in cases where the duty to make reasonable adjustments has either been complied with.
The classic case where the frustration argument could be run is an employee who is unable to return from long-term sick leave despite any number of adjustments being made. As the EAT emphasised in Hanif v Secretary of State for Trade & Industry (1998, unreported), a contract of employment will not contemplate that an employee will never work again. The employer will therefore be able to sidestep any arguments about the mechanisms employed during the dismissal by arguing that the employment had been terminated in any event.
The same logic applies where an employee becomes incapable of performing fundamental aspects of their job role, but they cannot be moved or the role redesigned. In those cases the contract is automatically discharged without the need for termination and notice pay. This is particularly valuable in cases with long notice periods or high levels of pay or in fixed term contracts where compensation would normally be calculated via reference to the outstanding contract period.
Running an argument based on frustration also has tactical advantages. The issue of dismissal does not need to be conceded. More significantly, it is ideally suited to being fought at a preliminary hearing and, therefore provides a mechanism for killing expensive cases at an early stage.
Although the doctrine of frustration remains a useful tool, it is not without its downsides. The most significant of these is that it is or can be an all or nothing approach. If an employer simply terminates a contract on the basis that further performance is impossible, it is difficult to see the ET regarding such a dismissal as fair should the frustration argument fail. This is particular risk where the employer seeks to get around the decision in Warner by arguing that the contract was frustrated prior to the duty to make reasonable adjustments being engaged.
Another problem is created by the way in which the doctrine operates. A contract has either become incapable for performance or it has not; the contract will be terminated at that point. This point needs to bear some proximity with the dismissal or there is an argument that the employer has affirmed the continuing operation of the contract. Is it really worth an employer making a sudden dismissal bearing in mind that if the frustration argument fails, it would have little defence to an unfair dismissal claim?
Finally, parties seeking to run an argument based upon frustration will need to carefully consider any contractual terms relating to sickness and absence. Not only will these terms go to what the parties foresaw when they entered into the contract, but it is difficult to see how a contract can be frustrated whilst these terms remain of application. There will need to be strong evidence of a permanent inability to carry out obligations under a contract (even after reasonable adjustments have been made) before the doctrine truly bites.
The writer would argue that despite the recent attitude of the EAT, the doctrine of frustration remains a powerful tool for dealing with ill-health dismissals. It is, though, not without its risks and, if used recklessly, could jeopardise otherwise meritorious defences to unfair dismissal claims.
This article was first published in ELA Briefing, Vol 21, No 1 (January/February 2014), p 11