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Frustration in the employment relationship: can it result in termination?

December 19, 2023

When you hear the word frustration you might be thinking of that feeling of annoyance when something is not going your way (someone takes the last packet of mince pies from the shelf, for example) but, you may not know that frustration is also a legal term.

In short, it means that the fundamental elements of a contract cannot be performed by either or both of the parties, or have changed radically from that originally agreed, thereby meaning that it has to be brought to an end (frustrated). It is most commonly seen in commercial contracts but would you ever see it in the employment context?

In the last few blogs of 2023, the Employment team are looking back on interesting cases or unusual issues on which they have advised in the last 12 months and this is one which has come up a couple of time for me this year.

Can an employment contract be frustrated?

In short, yes, it can. That is because (without getting too legal and boring) frustration is a common law term which applies generally to contracts, not just employment contracts. It is for that reason that it is technically possible.

It is however very uncommon because most employment contracts are brought to an end by virtue of statutory provisions, being the unfair dismissal requirements that most employers are familiar with, and, where a statutory provision exists, it should take priority. There are however circumstances where the statutory provisions are not appropriate or, more accurately, not particularly helpful.

When is a contract frustrated?

The most obvious examples are death or where an employee is convicted of a criminal offence. In the latter scenario, I am sometimes contacted and told an offence (sometimes a serious offence) has been committed for which the employee has been charged, potentially convicted. My first piece of advice to employers is make sure you are clear what has happened. By that I mean has the employee been accused, charged or convicted as, depending on which, determines the options open to you. Frustration (or even dismissal) will not be appropriate in all of those scenarios.

For the purposes of this blog, let’s assume that the employee, who has over two years’ service, has been convicted of a serious offence for which they are going to go to prison for 10 years. What does the employer do?

I hear you saying “it would be gross misconduct, Blair, summary dismissal and no need to pay notice, job done” – right? Not necessarily. While the conduct is likely to be blameworthy you still need to follow as much as possible the correct procedures according to ACAS (or your own policy) to minimise a claim for unfair dismissal, particularly where the individual has more than 2 years’ service.

To show a fair dismissal for conduct the employer needs to identify the misconduct, investigate, invite to a disciplinary hearing etc but those options are not really possible if the employee is in prison, are they?

Ultimately, the test is that the employer needs to reasonably believe the employee is guilty of misconduct, that belief must be based on reasonable grounds and the employer must have carried out a reasonable investigation. In our example, steps 1 and 2 arguably could be shown but step 3 is going to be harder. It is also going to take time which, if the offence is serious, the employer is not likely to want to spend given the pressure it might be facing from other colleagues, customers or third parties. Where the conduct takes place outside of, or not related to, work that also makes things more complicated for the employer.  Particularly if the nature of the offence has no bearing on the nature of the employment.

Bringing the employer into disrepute

Another option is to look to dismiss on the basis that the employee’s conduct, although potentially outside of work and not connected to their work, has brought the employer into disrepute to the extent that the implied duty of mutual trust and confidence has been broken.

That is an option and this would amount to dismissal due to some other substantial reason (SOSR). There are differing opinions as to whether the requirements under the ACAS Code apply to SOSR dismissals (we would always advise caution and that you should follow them) but the main reason why employers do not always favour this option is because you need to pay notice (unless you want a claim for breach of contract).  The employer would also need some evidence of reputational damage, whether that be colleagues saying they will not work with the offending employee, or customers threatening to remove business.    

Frustration to terminate employment

In our scenario, the employer could argue frustration. That is because the contract, as it was first envisaged, is not able to be performed as the employee is in prison and will be for the foreseeable future. They cannot therefore hold up their end of the bargain and so the argument goes that the employer does not need to hold up its end of the bargain and can treat the contract as having been brought to an end by operation of law by the frustrating event (the conviction and lengthy prison sentence).

The situation would however be very different if the employee did not go to prison or the sentence was short. Frustration would either be irrelevant or very risky in those scenarios.

Another interesting point to note is that frustration is not a dismissal. The contract is brought to an end by operation of law and so there is no need to pay any of the ongoing obligations under the contract, such as notice pay, but you do need to honour your obligations up to the date of frustration (such as holidays or expenses for example).

Top Tips

  1. In relation to criminal offences, make sure you are clear what has happened and what stage has been reached;
  2. Before considering frustration, make sure that you have considered any statutory provisions (such as unfair dismissal) and make sure that whatever the frustrating event is that it will occur for a lengthy period of time; and
  3. Take advice before utilising this option. The devil is in the detail here and there are significant risks so legal advice should be sought early.

If you have any questions about this, or any other Employment law issue, then please get in touch with the Blackadders Employment team with offices throughout Scotland.

The opinions expressed in this site are of the author(s) only and do not necessarily represent the opinions of Blackadders LLP.

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