Frustration of contract is a notoriously difficult concept to prove, even when the employee is unable - because of bail conditions - to attend his or her place of work.

This was the scenario in Four Seasons Healthcare Ltd (formerly Cotswold Spa Retirement Hotels Ltd) v Maughan (2005, IRLR 324), and the EAT has confirmed that it did not satisfy the common law (or judge made) rules about frustration.

 

What were the facts?

Mr Maughan was employed as a registered mental nurse in a care home. In January 2003 he was alleged to have abused a patient and was suspended from duty for seven days without pay.

He was then arrested and charged with a number of offences. He was granted bail, but on the condition that he would not enter the care home or get in touch with other employees.

When the union representing Mr Maughan asked in May 2003 for his full pay to be reinstated in arrears, the employer said he would remain suspended without pay until the court prosecution was over. In October 2003 he was convicted and sentenced to two years' imprisonment.

Mr Maughan then made a claim for arrears of wages, on the basis that his continued suspension without pay amounted to unauthorised deduction of wages. His employer argued that the contract had been frustrated because he had not been able to work during the bail period.

The tribunal allowed Mr Maughan's claim and awarded him just over £15,000. It then went on to find that his conviction did frustrate the contract and his entitlement to wages came to an end on 30 October 2003.

 

What did the two parties argue?

The care home argued that it was unlawful to employ Mr Maughan under the Care Homes Regulations 2001, which states that he must be a fit person. Although his guilt had not been established until his conviction, it said that the contract was frustrated at the moment of the assault. It was also impossible for him to come to work because of the bail conditions.

Mr Maughan's representative argued that, to establish frustration, there has to be some outside event (as opposed to the employee's own actions) or change of circumstance not foreseen by the parties when they agreed the contract which made it more or less impossible to perform.

As far as the regulations were concerned, he said that they could not frustrate the contract until it was established - either by the court or by the employer's investigation - that the employee was not fit to work in the home. Otherwise the presumption of innocence would be meaningless.

As for the bail conditions, his representative said that Mr Maughan could have worked at another home owned by his employer, and that by suspending him until the criminal proceedings had been concluded, the employers clearly did not think that they had brought the contract to an end.

 

What did the EAT decide?

The EAT agreed with the tribunal and said that there were a number of reasons why the contract had not been frustrated. For starters, the care home had a detailed disciplinary procedure that made specific reference to the physical abuse of residents that it could have relied on to terminate the contract.

As far as the regulations were concerned, the EAT said that an employee can only cease to be "fit" once a proper investigation has been carried out. If it turns out they are not, the employer cannot then backdate their "unfitness".

Nor could the imposition of bail conditions frustrate the contract. Although the employers had been asked by the police not to carry out detailed investigations, they still had information available to them to allow them to dismiss Mr Maughan. Instead they continued to suspend him without pay. In those circumstances, the tribunal had correctly held that the contract continued and was not frustrated.