Frustration in the Employment Setting

When you see the word frustration linked with discussions about employment law, thoughts may immediately turn to how tensions within the work place can often lead to frustrated individuals. These frustrations can in turn lead to “events”, and a whole lot of difficulty for both employers and employees. Whilst that may be the most common type of frustration found in the workplace there is another concept which can also rear its head.

Frustration - the legal definition

In law the doctrine of frustration refers to a situation where what has been agreed to, what a party has contracted to do, can no longer be done. If this point is reached the agreement/contract is “frustrated”.

The rugby jersey example

Envisage the following scenario. Person A wants to sell a rugby jersey he has just been told he won as part of a promotional giveaway. Although person A hasn’t seen the jersey, he is told it is a Southland jersey. Person B wants to buy a Southland jersey. He agrees to buy it from A. However, when A gets the jersey it is in fact an Otago jersey. The original agreement was for a Southland jersey, which Person A does not have, and so the contract or bargain can not be fulfilled. The effect of the frustration is to “kill the contract” and discharge the parties from any obligation and liability under the agreement.

The same rationale can apply in the employment context, and a recent decision of the Employment Court discussed how.

The Case of Mr D

The case involved a Mr D who was employed as a business analyst by company W. Because Mr D was not a New Zealand citizen, he was required to vary his visa to specify company W as his new employer. Immigration New Zealand in turn required a signed offer of employment before it could complete the variation.

For some reason, company W chose not to forward the signed agreement to Immigration, even though there was one. The company then advised Immigration it was withdrawing its offer of employment. Of course it followed from this that Mr D’s visa was never varied to allow him to work for company W.

Mr D pursued a grievance claim before the Employment Relations Authority, and then the Employment Court, alleging unjustified dismissal. Company W argued there had been no ordinary “dismissal”. Rather, it said, the employment agreement had been frustrated; as company W was not legally able to employ Mr D because his visa did not lawfully enable it to do so.

The argument appeared fairly circular. Company W did not forward the signed employment agreement to Immigration, and actually withdrew the offer of employment. Due to this Immigration could not vary the visa to allow Mr D to work for the company. This then entitled (or, as argued by company W, required) company W to say there was frustration of the employment agreement and Mr D simply would not be employed.

It will come as no surprise to you that both the Authority and the Court found Mr D was unjustifiably dismissed and ordered company W to pay lost wages and compensation.

Beyond the unsurprising result, the decision details how the doctrine of frustration applies in the employment context.

‘Radically different’

Something which employers need to be aware of is the very high threshold which must be met before frustration can be relied upon. It is not enough to say that a party’s performance under a contract (including an employment agreement) is made more difficult or onerous. There has to be such a change of circumstances that the obligations, of either or both parties, to an agreement become “radically different”. If the radical difference is not something reasonably contemplated by the parties, then what the contract actually provides for will be fundamentally different to the bargain as struck.

Mr D’s employer fails to show frustration

Getting back to Mr D. One of the problems for company W was a lack of evidence before the Court as to the steps the company took to try and get the variation to Mr D’s visa. There was also no real evidence that the variation could not be achieved. As such, the Court could not find the agreement was frustrated, instead finding the employer had failed to show that what was agreed upon could not be achieved. This failure meant that the doctrine of frustration could not be relied upon, and Mr D’s termination was the same as any other unjustified dismissal.