A contract is ‘frustrated’ when unforeseen circumstances prevent one or both parties from meeting contractual requirements.

Frustration affecting employer

An example of ‘frustration’ might be the destruction of an employer’s plant and equipment. This would ‘frustrate’ the ability of employees to perform their duties.

Courts are unwilling to find frustration except in the limited circumstances where there is no alternative useful employment for the affected workers in other areas of the business and the situation is likely to prevail for a substantial period of time.

Frustration affecting employee

A contract of employment may be frustrated by the illness, incapacity or involuntary restraint of an employee through no fault of the employee. The courts are more likely to find an employment contract has been frustrated in the case of a short-term engagement than in the case of a long-serving employee. See Marshall v Harland Wolff Ltd [1972] 1 WLR 899. A short-term contract is easily frustrated by even a relatively minor incapacitation of an employee. In the case of a long-term employee, the courts are not likely to find frustration unless the incapacity is either permanent or clearly long term. 

Effect on employment relationship

A ‘frustrating’ event terminates the employment contract as of, and from the date of, that event. The date of termination is easy to identify where the event is something like the destruction of an employer’s plant and equipment or premises. It is more difficult where the contract is frustrated by the incapacity of the employee.

For example, the point at which the illness of a ‘weekly hire’ or salaried employee (particularly one with long service) constitutes total frustration of a contract is more difficult to ascertain. A court faced with this type of situation may find it necessary to make an arbitrary assessment as to the date at which the contract was ‘frustrated’.

Employee illness or injury

The NSW Supreme Court concluded that, before one can answer the question whether a contract of employment is frustrated, one must look at the whole of the terms of the contract, express and implied, and at all the surrounding circumstances, including the provisions made for sickness and retirement of the employee and the general practice of the particular employer, or in similar employment. When one does this, it may well be that, there is relatively little room for the operation of the doctrine of frustration due to illness.

Imprisonment

An employer can also consider arguing that an employment contract has ended because it has been frustrated. Frustration occurs when the contract comes to an end due to unforeseen and uncontrollable circumstances that make it impossible for the parties to continue to perform the contract. In such cases, one party (the employee) is unable to continue performing it. 

However, for short prison sentences, as noted above, the argument of frustration will be difficult to sustain. Using the argument of frustration is not recommended as a substitute for implementing a dismissal in a procedurally fair manner.

While a lengthy sentence of imprisonment would clearly frustrate a contract of employment, it may not ‘frustrate’ the contract of employment if the prison sentence could be served within an available period of leave (e.g. long service leave) or served by periodic weekend detention. See Re Long Service Leave (Coal Miners) Award (1962) 4 AILR 74 and The Law of Employment Macken, O’Grady and Sappideen, 4th Edn p 234.