In certain rare circumstances, an employment contract can be terminated by the operation of a legal principle known as 'frustration'. A contract is frustrated if some development occurs that means that the contract can no longer be performed, or it can only be performed in a way that is radically different from what was originally envisaged. The most common examples of when this might apply are where an employee is imprisoned for a criminal offence or becomes seriously ill.
A contract is unlikely, however, to be frustrated by events that have been catered for in the contract's terms. For example, long-term incapacity is unlikely to frustrate an employment contract that provides for long-term incapacity benefits, unless and until it is clear that the illness will outlast the period for which the benefits are payable. It can also be difficult to predict when a court or employment tribunal will conclude that a contract has been frustrated by events. For example, while a tribunal might not consider that a three-month term of imprisonment is long enough to frustrate an employment contract, it is likely to accept that a one-year sentence has that effect.
If an employee's contract has been terminated through frustration, there is then no dismissal that can be challenged as wrongful or unfair. Employment tribunals are therefore reluctant to accept the argument that an employee's contract has been frustrated, because it effectively deprives the employee of the right to claim unfair dismissal. As already mentioned, there are also inherent difficulties in predicting with any certainty when a tribunal will find that the principle applies. It is therefore inadvisable for a company to rely on the principle of frustration. A safer approach would be to follow a reasonable procedure in dealing with an employee who is on long-term sickness absence or sentenced to a term of imprisonment. If that procedure eventually leads to the employee's dismissal, the company will be in a good position to show that it has acted reasonably and that the dismissal was therefore fair.